Reduce Your FI Target With Bank Bonuses

If you’ve been following my monthly income reports since leaving work, you may have noticed the occasional bank account signup bonuses for $200 – $500.  I’ve gotten a few questions about this from people through the year and wanted to provide an overview of the bank account signup bonus strategy.

What are bank account signup bonuses?

Banks want to get consumer and business checking accounts and will pay $200+ for new accounts.   Checking accounts provide a low cost of funding for a bank, generate fees for the bank, and give the bank a new customer they can attempt to sell more products to.   Banks spend a lot of money to gain customers:  Expensive branches, commercials, billboards, social media, and expensive people.  This marketing strategy is to offer cash incentives for people to open and start using a new checking account.  Changing accounts is a pain, so the idea is if the bank pays you, you’ll be willing to go through the pain and move it over.

How does it work?

Now most bank accounts can be signed up for online  and there are a number of components to look for when picking one:

• What is the bonus?  $200 to $600 is the general range of signup bonuses per account
• What is the minimum balance to avoid fees?  Some accounts have no minimum balance, others require $2,500 or $5,000 to be held to avoid a monthly fee.  
• Is there a penalty to close the account?  Some can be closed without penalty, others require it to be open for 180 days before being closed.    
• Is there a direct deposit requirement?  Most of the account bonuses require either a monthly direct deposit or cumulative direct deposits of a certain amount.  
• Are there debit card purchase requirements?
• Is the bonus limited per person or per household?

When picking account bonuses, I try to balance the pain and time relative to the bonus amount.  I enjoy minimal work on the $200 to $300 bonuses, but will put up with more headache for a higher payout.  I recently put up with a monthly direct deposit requirement and a 180 day termination fee for a $400 bonus.  I’m currently working on a $600 bonus that includes a debit card purchase requirement.   I keep a google sheet with a summary of the requirements of the account and the dates I expect the bonus to be paid.

Where can I find the details and tips on meeting the requirements?

Doctor of Credit is the biggest source of bank account signup bonuses.  The site keeps the signup bonuses up to date and people add comments that can provide good insight to the benefits/challenges.  The two questions I see come up most are:  How do I meet the direct deposit requirement and how do I deal with 15 debit card purchases?

Fortunately Doctor of Credit crowdsources what counts as a direct deposit.   I’ve been able to consistently meet these on all accounts between a combination of PayPal and Fidelity transfers.  Other posters consistently use an Ally Bank savings account to trigger the bonus.   I usually try to avoid bonuses with a debit card requirement, but I am working one currently and make multiple sub $5 payments to my water bill, power bill, and cell phone bill over the span of a couple weeks to trigger the bonus.

Why should I consider doing this?

Investing a couple of hours per bonus and being organized can generate a nice side stream of income.  I’ve seen reports of people generating as much as $16,000 in one year for a married couple and utilizing business account and brokerage signup bonuses.  That’s far beyond what I’m willing to do, but this can be a reliable $800 to $2,500/year active hustle.   Here’s a glimpse at how this can reduce your Financial Independence target number:

Bank Bonuses	Reduction to FI Number
$500	$12,500.00
$1,000	$25,000.00
$1,500	$37,500.00
$2,000	$50,000.00
$2,500	$62,500.00

Trimming $50,000 or more off of your financial independence number is significant.  The bonuses are also taxed as interest income, so they avoid the medicare and social security taxes that are paid on earned income. 

What are your actual results and have you had any issues?

2019:  $1300 (partial year, started in July of 2019)

2020:  $2,000

2021: $850, $2,000 target.

I’ve only had one issue so far where a bank declared I was under the minimum balance for one day and charged me a $25 fee.   Fortunately with some effort I was able to get this reversed, but it led to a stressful day in the household since it was on Mrs. Shirts account and she’s willing to lend her name to an account as long as she doesn’t have to personally get involved in dealing with issues.  

Based on our current state of residence, I believe the bank bonus game can consistently earn $1,200 or more per year.  Consider giving this a try and see what you can earn.

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