Why Are So Many Banks Offering New Account Bonuses?

Do you ever get the feeling that every bank is offering a new account bonus? Whether it's a checking account or savings account, many banks and credit unions are now promising to give you cash if you…give them your cash. Banks want deposits. And they're willing to pay money for them.

Let's look at a few reasons why banks are shelling out money for new customers, and how you can use this situation to your best advantage.

Banks compete for your deposits

If you're a longtime customer of your bank and you haven't opened a new account in several years, you might not realize this, but money moves. People have the right and the opportunity to switch banks or open new accounts at other financial institutions. Your bank is not the only place on Earth where you can keep your money.

When interest rates were near-zero, and banks were barely paying interest on savings accounts, many bank customers got a little complacent. "Oh well," you might have thought. "I can't earn any yield on my savings anywhere, so there's no point in shopping around for a better bank account."

That's all different now. When the Fed aggressively raised interest rates during 2021 and 2022, it created a whole new interest rate landscape for bank customers and CD investors. Now the best savings accounts are paying 5.00% APY (or more). The best CD rates are in that same ballpark. Your money can actually earn money now, and banks are scrambling to keep up.

Deposits have gotten more expensive for banks

Because interest rates are higher, banks have to work harder to get people to deposit their money. After all, if you can earn 5.00% APY on a CD or one of the best money market accounts, why bother leaving your money in a 0.01% APY savings account? (Yes, some of the biggest banks are still paying that puny amount of interest.)

To stay profitable, banks need to collect deposits and make loans. Bank regulations and standards require banks to have a certain amount of deposits and capital vs. the amount of loans they're allowed to make. So when bank customers are more eager to move their money, banks have to pay more for those deposits.

When banks pay more for deposits, it can take the form of higher yields on CDs and savings accounts, or higher APYs on interest-bearing checking accounts, or creative new rewards checking accounts. And sometimes, banks just "pay" for deposits by giving people cash bonuses for opening new accounts.

Don't feel bad for banks -- they're still (usually) making plenty of profit. But the banks' profit problem is your opportunity as a bank customer!

Why you might want a new bank account bonus

Because of this stiff competition for deposits, many banks are now offering new account bonuses. Some of the best bank bonuses right now are in the range of $300 for opening a new checking account, or $200 for a new savings account. Some banks also will give you a cash bonus if you refer a friend or family member to open a new account.

There are a few good reasons to open a new bank account and get that cash bonus:

• You're dissatisfied with your current bank and want to move your money to a new financial institution
• You want to keep your longtime bank, but open a high-yield savings account with a better APY than your current bank offers
• You just need or want another bank account for other financial goals

You don't always have to move your entire financial life (or as banks call it, "your full banking relationship") to a new bank. Sometimes you might just want a new checking account or savings account to manage your money differently, get a better yield on your savings, or set money aside in a separate account for specific goals.

As long as you understand the rules for how to earn your cash bonus, and you can manage multiple accounts, you're all good -- go get that cash bonus!

Why new bank account bonuses aren't always a great deal

But before you sign up for a new account cash bonus, be aware of the possible risks, costs, and downsides. Most of these new bank account cash bonus offers have special rules and requirements. For example, for a new checking account bonus, you typically will have to make minimum direct deposits into the account, or use your debit card for a certain number of transactions within a certain time period.

Make sure you're really prepared to use your new bank account in the ways that the bank wants you to use it, in order to maximize your cash bonus. Another possible downside: some banks charge monthly account maintenance fees. If you open a new checking account, make sure that you can follow the bank's account requirements to avoid any fees. If a bank gives you $200 to open an account, but then charges you $12 per month in fees, you're not much better off.

Bottom line

Banks competing harder for deposits is good news for bank customers. You don't have to leave your money in a near-zero-interest bank account any more -- you have better options for savings accounts, money market accounts, and CDs that actually pay decent yield. Cash bonuses for opening new bank accounts can be fun, but be aware of the rules and limitations. Ideally, more bank customers can find a better deal for their deposits in 2024 and beyond.