Why You Should Just Say No to $525 of 'Free Money' From This Big Bank

'Tis the season for unimpressive bank account bonuses. With interest rates at 5% (and likely to stay that way for a while), banks are competing harder for your deposits -- but some big banks just aren't trying hard enough.

Wells Fargo is one of America's biggest banks, and it's offering a bonus for new savings account customers: open a new Wells Fargo savings account by June 25, 2024, and you can get $525! Sounds great, right?

But there's a catch: to get that $525, you have to deposit $25,000 into your new Wells Fargo savings account. And Wells Fargo savings accounts are currently paying as little as 0.01% APY. If you have $25,000 of cash, there are many better places to put it.

Let's look at why the Wells Fargo savings account sign-up bonus is not a good deal -- and what savers should do instead.

Wells Fargo savings account bonus: How it works

The Wells Fargo savings account bonus requires you to open a new qualifying savings account, deposit $25,000, and maintain that minimum $25,000 balance for at least 90 days (three months). After that, you can get your $525 bonus. But here's the problem: Wells Fargo's savings accounts pay near-zero interest.

The Wells Fargo Way2Save Savings account pays 0.01% APY. And the higher-end, fancier-sounding Wells Fargo Platinum Savings account pays APY of 0.25% to 2.51%, depending on balance. A deposit of $25,000 would earn the minimum on that scale, but could potentially earn 0.26% APY with a "relationship rate" for having a linked checking account. What's the point of going through all the trouble to open a new savings account (which you must do at a branch; no online openings) just to earn near-zero interest? These yields are terrible. People should feel insulted by big, profitable banks that refuse to pay interest on savings.

Wells Fargo's savings account bonus: Get $525 and then lose money

OK, fine. Let's say you want that $525 bonus. And let's say you leave the money in the bank for a full year. Here's how it could work:

1. You open a new Wells Fargo Platinum Savings account (and a checking account, to get the relationship rate) and deposit $25,000. Your savings account APY is 0.26%.
2. After 90 days of waiting to qualify for the bonus, you'll have earned $16.23 of interest.
3. You receive the $525 bonus. (Let's assume you receive it right away on Day 91. Your savings account balance is now $25,541.23.)
4. After nine more months of 0.26% APY (including the bonus) you'll have earned a total of $591.02 in one year. That makes for an effective one-year yield of 2.36% APY.

You can do so much better than that! The best savings accounts and money market accounts are paying 5.00% APY or higher -- more than twice what you'd earn with the best Wells Fargo savings account, even with this $525 bonus.

If you put $25,000 of cash into a savings account or money market account (or 1-year CD) that pays 5.00% APY, after one year, you'd earn $1,250 of interest. That's $658.98 more than you'd get from Wells Fargo's best savings account, even with the $525 bonus. That bonus isn't making you money -- it's costing you money.

The only way to make Wells Fargo's savings account bonus work for you

Let's say you decide to game the system a bit, and leave your $25,000 deposited with Wells Fargo just slightly long enough to earn the $525 bonus. (This is called "account churning," and I don't recommend it; it's not technically against the rules, but there can be risks to your reputation as a bank customer.)

Let's say you get the $525 bonus after three months of 0.26% APY and then move your money out, to a higher-yielding savings account at another bank. Let's say Wells Fargo is fine with this, and doesn't close your account, charge you fees, or report you to ChexSystems, and there are no other negative consequences.

After three months of 0.26% APY, plus the $525 bonus, you'll have earned a total of $541.23.

Three months in a 5.00% APY savings account would have earned $306.81.

So in this case, you would've earned $234.42 more (in three months) than you would've gotten from a high-yield savings account. But is that worth it to you? If you already have $25,000 of cash, is it worth jumping through hoops and visiting bank branches and moving money around, just to get an extra couple of hundred bucks?

What to do with $25,000 of savings instead of this bank bonus

If you have $25,000 of cash, here are two better options for where to keep your savings:

Open a CD

The best CDs are offering 5.00% APY or higher. Even Wells Fargo is currently offering up to 5.01% APY for a 7-month Special Fixed-Rate CD.

Open a high-yield savings account

Just put your $25,000 into one of the best savings accounts or money market accounts. You'll get 5.00% APY (or higher), and your money can be left alone to grow without worrying about the rules of a one-time account bonus that might not really be worth it.

Bottom line

A $525 savings account bonus might sound tempting, but anyone who has $25,000 of cash has better options than a low-yield savings account. Before you get excited about a new bank account bonus, pay attention to the APY and the fine print.