The Broke Professional - Optimize Your Financial Life

How to Stack Bank Account Bonuses

The result of chasing bank account bonuses.

Banks know how to make money off of regular people.  They get some money every time you swipe a credit card and a lot more money from interest payments.

They get money from ATM fees and from being able to lend out money that we deposit with them at high interest rates.  And many banks also pay out really crappy interest rates to consumers.  So it’s a win-win-win all around for them.

But there is a way we can make some money off the banks.  One way is chasing credit card rewards.  I’ve previously written here and here about the strategies you can use to get credit card rewards.  As long as you don’t spend more than you need and never carry a balance, you can make out pretty well.

Banks also like to give out rewards when you sign up for checking and savings accounts.  Many of them will give a cash bonus if you direct deposit a certain amount or use their debit card a certain number of times.

Just like with credit card rewards, you need to pick the best offers and be pretty organized so you don’t make any mistakes.  Personally, I’ve been able to get close to $1,000 in checking account rewards this year with a little online legwork.  But there are people that get $5,000 or more.

Here are the important things to remember when trying to maximize rewards from bank accounts:

1.  Find the best offers

Most banks offer some type of incentive to sign up for their accounts.  But many offers are not worth the time to chase.  I’ve seen offers as little as $20 to sign up for a checking account at a local credit union.  These types of offers are not worth the time.  Good bonuses will have offers from $100-$500 depending on the amount of hoops to jump through.

My favorite place to look at bank offers is Doctor of Credit.  They have it nicely organized by nationwide offers and state specific offers.  And they’re constantly updating so you can usually find all you need there.  It’s my one stop shop for bank account offers.

2.  Get Organized

Being organized is important in the credit card rewards game.  But it’s even more important in the bank account bonus game.  Many of these offers can have multiple requirements such as direct deposit and debit card swipes.  And you usually have to do them in a certain amount of time.  If you have to keep the account open for a few months, you also have to make sure you don’t get hit with any minimum balance fees.  That;s a lot of stuff to keep track of.

So keep a list of the requirements and date you have to complete them by.  It’s also a good idea to note down the username and password you used to sign up for the account.  Since banks have different password requirements, it can be tough to keep track of them even if you’re using the same password.  Which you probably shouldn’t be.

Make things easy on yourself and keep records of everything.

3.  Early Account Closure Fees

This is a fee that some banks charge if you close an account too soon after opening.  They’re obviously trying to discourage people from opening accounts for the bonus and then closing them, which is what we’re trying to do.

Most early closure fees I’ve seen are assessed 90-180 days after account opening.  If you close the account too early, the bank will take the bonus back.

Simply note the time period in your spreadsheet or list and make sure not to close it before then.  Losing a bonus you earned because you forgot to take the early closure fee into account does not sound like fun.

4.  Electronic Direct Deposit

One thing that can make getting bank account bonuses a lot easier is unfortunately out of your control.  And that is how you change your direct deposit information.

Since most of these bonuses require you to direct deposit a certain amount of money in a certain time frame, being able to edit that online makes the process a lot easier.  However, many employers are stuck in the 20th century and still require you to update direct deposit information by paper.  This could be a major hassle especially if you’re trying to get multiple bank bonuses.

Not being able to edit direct deposit info electronically won’t disqualify for trying for bank bonuses.  But it will increase the hassle factor so it’s something to keep in mind.

5.  Rewards are taxable

Credit card sign up bonuses are great because they’re pretty simple to get and the rewards can be substantial.  Best yet, the rewards are not taxable!  So if you get a sign up bonus of $200 on a credit card, that’s $200 free and clear.  Uncle Sam does not ask for his share.

Bank account bonuses don’t work like this unfortunately.  Bank bonuses usually fall under the “interest payments” category so you will get a tax form to file with the IRS.  So that $200 is more like $150 after taxes, depending on your tax bracket of course.

One way I like to work around this is to deposit any bank account bonuses into our Traditional IRA.  Any deposits will be deducted from our taxes, so it’s kind of a tax free reward I guess.

Conclusion

Credit card rewards can be lucrative and fun to accumulate, but bank account bonuses are something to look into as well.  Even though bank account rewards are usually taxable, some of them are easy to get and if you’re organized, you can make out pretty well.

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How Many Credit Cards Should You Have?

 

Credit cards are one financial topic that everyone has an opinion about.  Even people who don’t have much interest in finance will have some sort of take on credit cards.

Some people swear by them.  Other people swear AT them.  Some people use them for every transaction.  While others have never used one in their lives.

Credit cards are an ever present force in our society.  You can’t go on an airplane nowadays without being asked to sign up for the latest and greatest credit card.  Commercials, magazine ads and internet ads with credit card offers inundate us regularly.

And let’s not forget good old snail mail.  Everyone’s mailbox will eventually receive an offer for the latest sign up or balance transfer offer.  It’s inevitable.

I’ve written before about the utility of credit cards.  They are a tool, and just like any tool they can help you or hurt you depending on your use.

Almost all of us have credit cards.  The question is, how many should we have?  Can you have too many?  Or even too few?  Let’s take a look at the factors that will decide how many cards you should have.

1.  Life Experience

Right now, I have 36 credit cards open.  To most people, that may seem like a lot.  But believe it or not, to others that does not seem like that much.  You’ll find out later why that number is just right for me.

I got my first credit card at age 19.  It was a gas station credit card that gave a whopping 2% cash back at BP gas stations.  I didn’t know much about personal finance (or life) at 19, so I thought that card was all I needed.

I would not have been able to handle more than one card at that time, let alone 30+.  I just didn’t know enough about how life worked to be able to handle more.  So life experience is definitely a key ingredient for being able to handle many credit cards.

2.  *****Paying off your balance in full******

Notice the asterisks.  This is THE KEY factor that will determine if you can handle many credit cards, or none at all.  Being able to use credit cards is not a right but a privilege.  And the privilege comes from NOT being the type of person that gets into credit card debt.

Credit card debt is expensive.  It’s one of the most expensive type of debts out there short of owing a loan shark.  And most of Americans have it.

I won’t go all Dave Ramsey on you and say no one should have credit cards.  But if you routinely do not pay off your balances in full, you should not have a credit card.  Period.

Credit card interest rates are insane.  Cards on the “low end” will be about 8%, while many cards can easily approach 30%.  No one should be carrying this type of debt.  So if you carry any type of credit card debt, unless it’s a 0% promotional offer, you need to pay that off ASAP.

And don’t make it worse by racking up more credit card debt.

3.  Credit Score

When it comes to having credit cards, your credit score is a key factor.  If you want to be approved for many credit cards, you need to have a high credit score and a credit history clear of any delinquent activity.  A long history of on time payments helps too.

And contrary to popular belief, having lots of credit cards DOES NOT lower your credit score.  While opening up some new credit will temporarily lower your score by a few points, it will not hurt it in any appreciable way.

The most important factors in one’s credit score are on time payments and credit utilization ratio (this is straight from the people at FICO).  Having many credit cards helps BOTH of these categories.

Having lots of on time payments will help your credit score.  And having lots of cards, but not using most of them, will keep your credit utilization percentage very low.

My credit score has skyrocketed ever since I started applying for credit cards.  And that’s because I always try to pay on time and only use the cards when I need them.

4.  Rewards Chasing

This is the only, and most lucrative, reason anyone should have many credit cards.  As you can tell by just checking your mail once in a while, credit cards love offering sign up bonuses.  Those offers that say something like “Spend $2,000 in 3 months and get 10,000 points”.

These offers are real money makers for credit card companies.  While they are giving up a little in terms of points or cash back, they get that back and then some with swipe fees and interest payments.  And many people don’t even redeem their reward points anyway.  The credit card companies have everything to gain.

But if you’re disciplined enough not to overspend and always pay off your balance in full, the consumer stands to gain a little as well.  There are many really bad sign up offers.  But there are some great ones as well.  The key is to find the great ones, do just enough to meet the sign up offer, and then store the credit card away if it’s not useful for you. (Frequent Miler is my go to resource for this).

Using this method, I’ve been able to take my family on many flights and hotels for almost nothing.  I’ve also gotten a good amount of cash back rewards (which are tax free!).  So reward chasing has definitely been worth it.

But it’s only worth it if you maintain your great credit score and never carry a balance.  Interest rates on rewards credit cards are notoriously high.  If you end up carrying a balance on a rewards card, it will quickly negate any sort of rewards you earn.

5.  Organization

The last important thing you need in order to be able to handle many credit cards is being organized.  This is especially important for rewards cards since they can have annual fees that can be avoided if you close them on time.

A simple spreadsheet will do just fine.  I use one that has the date I applied for the card, the sign up bonus requirements, any annual fees and when I closed the card.  Trying to do all of this in your head will eventually lead to a mistake.

And you need a central place for all of your credit cards.  I currently store them in an old checkbook box.  But I think I may need to upgrade to a shoebox.  Or you can just have a drawer with all of your unused cards.  Just keep them all in one place away from your kids.

So how many cards SHOULD you have?

It depends.  I know, I hate that answer just as much as everybody else.  But it’s true.  There are some people that have no business having more than one card.  Or any cards at all.  People who regularly carry balances fall under this category.

And then there are others who can seamlessly handle 50 cards at any time.  It takes a good understanding of your personal financial system and a lot of organization.

Plus, it has to be worth your while.  And chasing the best of the best rewards can definitely be worth it.  So if you don’t feel you can handle many credit cards, no need to despair.  Just do what you’re comfortable with at the moment but make it a point to learn about the credit card industry and how you can use it to help your finances.

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