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All You Need to Know About a Bank Sign-Up Bonus

Louise Villalobos

ByLouise Villalobos

Jan 20, 2024
All You Need to Know About a Bank Sign-Up Bonus

With the growing number of financial institutions, many banks have adopted new ways of staying ahead of the competition. They use various methods to attract customers. Among them is bank sign-up bonuses. But what are these bonuses? Continue reading this guide to get the answers.

Understanding Bank Sign-up Bonuses

Bank sign-up bonuses are usually cash given to new customers for opening an account with a particular bank. Both businesses and individuals can receive such bonuses, which, according to a report by Investopedia, range from $50 to $3,500.

How Bank Sign-Up Bonuses Work

You may need a sign-up code to receive a bank sign-up bonus. Moreover, once you open a bank account, you will be required to perform specific actions to become eligible for the bonus. These actions include:


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  • Making several recurring deposits into your account.
  • Maintaining a certain balance every month.
  • Making a specified number of transactions using your debit card.
  • Leaving your deposit untouched for a certain period.

After completing these actions, the bank will deposit the sign-up bonus into your account within six months. Note that some banks usually deduct the bonus if you want to close your account after receiving it.

Further, once you receive the bank sign-up bonus, a 1099-INT will be sent to you, and a copy of the document will be delivered to the Internal Revenue Service (IRS). Does that mean your bonus attracts taxes? Yes! It does. You are required to pay an income tax on the bank sign-up bonus.

Besides sign-up bonuses, there are bank referral bonuses, which you earn after creating a bank account and using your referral code to invite others to sign up with the financial institution. Although referral bonuses are much smaller, they arrive quicker than sign-up bonuses.

What Are the Various Types of Bank Sign-Up Bonuses?

Banks offer three types of sign-up bonuses. They include:

Direct Deposit Bonus

In most banks, you need to make a direct deposit to qualify for a sign-up bonus. Some banks have set the minimum deposit amount to receive the bonus, while others reward customers with a sign-up bonus for depositing what they consider a significant amount of money.

Direct deposits could be your monthly income or payments made by your clients. Keep in mind that transfers made by another deposit account to yours are not considered direct deposits.

Large Deposit Bonus

To receive this bonus, your bank will ask you to deposit a minimum of $5,000 into your account and then leave the money untouched for a pre-defined period. After the time ends, the bank will deposit the bonus into your account.

Combination Bonus

This combines the large deposit and direct deposit bonuses. To receive a combination bonus, you must fulfill the requirements for the bonuses mentioned earlier.

Advantages and Disadvantages of Bank Sign-Up Bonuses

Advantages

Earn by simply banking: Banks that offer sign-up bonuses allow you to earn by just depositing funds. In some cases, these bonuses are higher than the earned interest.

Earn several bonuses within a year: If you open multiple deposit accounts with banks offering sign-up bonuses, you can make substantial money.

Disadvantages

You must pay income tax: As mentioned earlier, you are required to pay income tax to the IRS if you receive a sign-up bonus. This can lower your earnings.

High maintenance fees: Some banks charge considerably high fees to maintain your account. This can also eat into your sign-up bonuses.

What Should You Look for in Sign-up Bonus?

  • The bank should charge low maintenance fees.
  • You should be able to earn interest on top of the sign-up bonus.
  • The qualification rules for the bonus should be clear and understandable.

Which Banks Offer Highest Sign-Up Bonuses?

Citi, Wells Fargo, and Chase are the leading banks when it comes to offering the highest sign-up bonuses. However, they require customers to deposit large amounts of cash, and usually, it may take some time to receive the bonuses.

Louise Villalobos

Louise Villalobos

Louise Villalobos is an adept writer, renowned for her compelling articles that illuminate and engage. Her prowess in breaking down intricate subjects provides readers with clarity and nuance. With a vast and varied portfolio, Louise has solidified her standing as a distinguished voice in contemporary journalism.