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Ever Consider Churning Bank Accounts?

The following is a guest post from from financial analyst and early financial independence advocate, Will Lipovsky, at First Quarter Finance.  Please join me in welcoming him to the blog today!

Churning credit cards is a pretty common practice. You sign up for a credit card during a special promotional offer. Then you meet the card’s usage requirements in order to get the special offer, usually cash or points. After the new card owner has reaped the reward, he cancels the card and repeats the churning process. It’s a very profitable strategy. Heck, it’s how Stefanie went to Europe for <$25.

I see posts about churning credit cards all the time. But what about churning bank accounts?

Ever Consider Churning Bank Accounts?

I’ve been churning bank accounts for years. It started when Wells Fargo made me mad so I sought a new bank. Good customer service can be found at many banks. So can online bill pay, etc. So the biggest differentiating factor is what kind of signup bonus they offer! Show me the money!

Also, I work for a huge financial services company. I work occasionally with a program that calculates reward payments for banks.

I know the bank account churning system – inside and out.

If you can churn credit cards, bank accounts are easy.

So to add to the credit card churning game, I recommend churning bank accounts. The promotions are anywhere from $50-$400 typically. Anything less than $100 isn’t worth my time.

My 2 Favorite Places to Find Promos:

My Bank Tracker

Deposit Accounts

Watch for Location Eligibility

Some banks only offer rewards for certain states. If the bank name doesn’t sound familiar, you probably don’t qualify. However, I have gotten lucky. Once I got $150 from a bank in Boston and I’m exactly 1,497 miles away.

Watch for Promotion Expiration Dates

Promo periods are short. If you see a new offer you think you’ll qualify for – act fast. Many new promos are only open a month or two.

Avoid Hard Credit Pulls

Opening and closing bank accounts will not impact your credit score unless the bank does a ‘hard pull’ to check your credit. 99% of banks don’t do it but check before. Knocking your score down with a hard pull is probably not worth $100. Also, there is a sort of banking credit system they sometimes use to make sure you’re not going around town collecting free toasters. But I have to find a banker who can explain to me how it’s done. So no one really cares to check your banking history just for a checking/savings account. Getting approved for a new account is about as easy as getting approved for a payday loan.

Read the Fine Print

Rewards are sometimes confusing. You may have to set up direct deposit, set up automatic billpay, make a high initial deposit, ask the cashier to ring up 15 peppermint patties separately in order to meet the necessary number of transactions… Make sure you’re ready before you sign up for the account.

The Squeaky Wheel Gets the Grease

A bank once had in teeny weeny print that ‘all new accounts are open to individual new account bonus approval.’ In other words, they can wait ’til you’ve jumped through all the hoops and then withhold your bonus just for giggles. A bank did this to me once (a terrible bank that will go under soon). I complained though and eventually got my cash.

Why Do Banks Do This?

It’s to ‘get you in the door’. Banks actually lose money on checking/savings accounts. They know they will lose money on promotions. Heck, it costs most banks $250 on average just to open a new account! It’s ludicrous, I know, but I work with costing every day at work. They want to get you in the door so you will get a mortgage or some other kind of loan. That’s where they make the money. A checking account is like a gateway drug.

Final Thoughts…

Churning makes me think of ice cream.

Also, I don’t churn too terribly often just because the promotions are fairly limited. Fun fact: In the late 1980’s there were more than 18,000 banks. Today there are <7,000. But making hundreds of dollars for swiping a debit card a few times is pretty easy money. Just make sure you don’t spend a ton in order to meet the requirements.

But possibly the greatest benefit of churning bank accounts is that you are guaranteed to find some fantastic banks out there. You get to experience multiple institutions. It’s like dating – go on enough dates and you’re bound to find someone special.

Have you ever considered churning bank accounts?

 

Will Lipovsky writes about money at FirstQuarterFinance.com, where he helps others create lifelong wealth ASAP. Outside of writing, Will enjoys cycling, cars, the interwebs, the outdoors, exercising, and sweets. Good thing his writing isn’t so full of contradictions. Follow the life of Will and his blog on Twitter.

 

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45 responses to “Ever Consider Churning Bank Accounts?

  1. I would do it more often if they didn’t require direct deposit. I know there are ways around that but there are only so many hours in the day and so many deals I can pursue. How do you set up direct deposit with all the banks?

    1. Usually they only require you to make 2 consecutive direct deposits with a minimum of about $300. So that’s just one month of DD’ing to a new bank. I don’t churn more than 1 bank account/month anyway so that’s fine.

      The hassle is with my employer. Getting the changes approved (routing & account # changes) takes them awhile.

      Or, like you said, I’ll opt for a different bonus option such as a high initial deposit or ‘x’ number of debit card transactions.

  2. Banks are not making money on checking accounts now because the Fed Funds rate is so low; however, when rates are higher, banks actually do make money on checking accounts. They also make money on you when you swipe your debit card and they get paid the interchange fee. But, yes, banks do tend to price customers from a total return basis and if they have one account with you, they will likely get you to open others like a credit card. I think that bank churning makes sense. At the very least, I advise clients to switch banks and get paid to switch if they are being treated well by their current bank.

    1. True, someday they can be profitable to banks again. Right now on average banks lose $81/account according to My Bank Tracker. I could give you more accurate numbers from my work but the average bank is TERRIBLE at costing. They all ask me, “What do other banks do?”

      Haha.

      Good to have your insight! I did speak a bit too generally about banks and losing money on accounts. It’s just been that way my whole career! 🙂

  3. I haven’t “churned” frequently, but I definitely have gotten bonuses from Tangerine specifically (Canadian version of Capital 360, both formerly ING). From opening accounts and changing direct deposit over, I made about $175. Then they have referral bonuses which has been working with with my blog (over $800 there). There is another no-fees option here in Canada (PC Financial) that doesn’t have as great bonuses, but they give you points for groceries. I’ve gotten $100 in points that way. After that there are mostly just the big banks and I don’t care about moving things around too much any more.

    I know there is a bank account that Cecilia (thesingledollar.blogspot.ca) that gives her $20 per month for keeping $1500 in it and doing 2 transactions or so. So she just pays two of her bills out of it and they give her a decent amount of bonus indefinitely. Might be worth looking into (and it’s American).

    1. I got a bonuses with Capital 360. And they are a fantastic bank to boot!

      Keeping $1500 in an account with a $20 monthly incentive would be a fantastic place to park a bit of an emergency fund! It would be beating the stock market and would be easily accessible.

      Will have to check it out.

  4. Did this with a checking account for Discover! Think I got around a $50 bonus. I was then able to transfer the money into an online savings account with a rate of around 1%. Not fantastic but decent for a savings account these days.

  5. I’ve churned credit cards but not banks. I don’t think bank churning would be much of an option for us because we have several business accounts at our bank. They were a HUGE hassle to set up and I don’t want to have to go through that again every time we want to switch banks!! If we didn’t have that issue i’d probably consider it though.

  6. I’ve opened bank accounts for the bonuses a few times, but only really churned Chase ($200). However, when my wife churned it, they gave made some comments when she closed it implying that she opened it just for the bonus and pressured her to keep it. That was annoying. I think there should be a way to close it online though.

  7. I tried this once, and the new bank giving the promo, bought out an older bank I once had a relationship with. The withheld that info from me, and when I was done with the promo period, they finally disclosed that fine piece of info, they kept mum during the account opening process. Didn’t get my bonus and closed the account.

  8. I just did this and I got a Samsung Galaxy Tablet. I had to pay a bill online and set up an automated bill payment to qualify. I also kept a high balance so I didn’t have to pay any monthly fees. After 3 months I then closed the account. It was pretty easy.

  9. Interesting thought! I never considered doing this, but then again, I haven’t heard of any good offers in my area lately. Banking gives me a headache, though, so I’ll probably just stick with the one I have until they do something annoying, haha.

  10. I’ve churned a couple in the last year just because I’ve gotten something in the mail about it–one with Capital One 360 and the current with Chase. I haven’t thought about doing it with a purpose like I do with credit cards, though. Will definitely check out those sites you mentioned!

  11. I’ve thought about it, but haven’t figured the time required is worth it. Those rewards are taxable, right? That makes the time/money equation even tougher for us right now since we’re in a higher tax bracket.

    I also prize simplicity in our finances. Having just a couple of accounts, with all my automatic monitoring and money-moving systems in place, is worth at least $100/month to me.

  12. I’ve only done this once when chase had a sign up bonus of 250, but I don’t in general because of bank fees if you don’t have a certain amount in the account, or any other kind of hidden fees, plus it feels like a lot of paperwork. I just find cc churning a tad bit easier.

  13. That sounds like an interesting idea. I’ve never heard of either bank or cc churning. Not sure hoe I feel about bank churning but, cc churning feels a bit like playing with fire.

  14. How about the bank fees though? Don’t you also have to factor in that cost? And how often do you do it? I like to make a long term plan on my finances, it seems like a bit confusing if I have too many bank accounts!

    1. I’ve never paid a bank fee in my life. I just make sure to avoid them.

      I signup for a new account probably 5-6 times per year. There’s not that much money shuffling going on as long as you don’t opt for an account that requires you to maintain a high balance.

      Churning definitely isn’t as simply as not doing it. But whenever I feel a bit scattered, I remember the bonus money and that puts things into perspective for me.

      Good luck! Actually, scrap that. It’s easy – you don’t need luck.

  15. We followed a bank offer for a new I-Pod a few years ago. I wanted one for my grand daughter but my frugal mind said it cost too much. Anyway the bank added the retail cost to the tax form 1099-INT at end of year so I did have to pay taxes on the full retail value. If I was doing this a lot for generous promotions I would need to account for the tax bump to my early retirement budget. Great post as I hadn’t considered looking for promotional bank deals and churning bank accounts. Like you said, the credit card churn game has been well blogged about.

  16. I’ve been churning credit cards for a couple of years now and have done pretty well. I’ve gotten a couple of rewards for new checking account signups before but will definitely try this churning thing. Thanks for the info!

  17. I just did this for the first time a few months ago — for a $200 bonus! I was actually looking for a new bank because I moved, so it was fortuitous. It also didn’t require a direct deposit in order to qualify for the $200 — just 2 deposits in the first 45 days. Done and done 🙂

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