Are Checking Account Deals Worth It with a Low Checking Rate?

In today's competitive banking landscape, financial institutions often lure customers with enticing offers, such as cash bonuses for opening a new checking account. But are these deals worth it, especially when the checking accounts in question offer minuscule interest rates? Let's consider some popular examples, including Bank of America and Chase Bank.

The Established Players: Bank of America and Chase Bank

The Offer

Bank of America and Chase Bank are currently enticing new customers with a $200 cash bonus for opening a checking account. While the prospect of "free money" can be alluring, it's essential to understand the terms and conditions behind such offers, how much money you need to keep in the account to avoid fees, etc.

Low-Checking Rates

Both of these traditional financial behemoths offer interest rates on their checking accounts that hover below the 0.05% mark. While you get a $200 bonus upfront, the negligible interest rate implies that your money will essentially sit in the account, earning next to nothing over time. Keeping $5,000, $10,000, or more in an account for one year earning next to nothing isn't a smart idea when you can earn rates a lot higher.

Stringent Requirements

Besides earning a pathetic interest rate, these accounts come with conditions. You usually need to maintain a minimum deposit, which might range from several hundred to several thousand dollars. You're also generally required to set up direct deposits from your paycheck into the account and use your debit card a certain number of times each month to qualify for the initial bonus and to avoid monthly maintenance fees. These obligations can tie up your financial resources and reduce your flexibility, making it harder to allocate funds where they could be better utilized.

Miss any of these requirements, or your balance falls below a certain amount, you'll have to pay a month fee. Annually these fees can add up to more than the opening cash bonus offer you get.

Opportunity Cost

Again, the opportunity of keeping a significant amount of money in a low-interest account should not be the way to go. You lose the potential earnings that this money could have generated if invested elsewhere, such as in a high-interest savings account, a certificate of deposit, or even a well-balanced investment portfolio, or a checking account that actually has a decent checking rate.

The Challenger: Online Savings Accounts or CD Accounts

A Different Kind of Deal

These days it's common to find savings accounts, money market accounts, and certificates of deposit (CDs) offering interest rates above 5.00%, in fact you can easily find hundreds of deposit rates above 5.00 right here at MonitorBankRates.com. These options present a compelling alternative to checking accounts that offer low interest rates. When you deposit your money into one of these high-interest accounts, not only does your initial deposit grow significantly over time due to compounding, but you also have the potential for much higher returns than a one-time $200 bonus could ever provide.

For example, if you deposit $10,000 into a checking account earning 0.05%, your annual return is $50. Deposit the same $10,000 into an account earning 5.00% and your annual return is $500. Suddenly that $200 bonus checking deal doesn't seem that great.

Looking at the example above, keeping your money in a low-interest checking account to earn a bonus, still doesn't come close to the benefit of putting your money in a high-interest savings account, money market account, or CD account. While a $200 upfront bonus might seem attractive, the returns from an account with a 5.00% or higher interest rate could far outstrip that initial bonus in a relatively short amount of time.

Checking Bonus Offers are Worth it for Some People

Now you keep your funds in the account for the limited amount of time required to get the bonus, usually 3-months or 6-months, these deals will work out better than if your money remained in the account for 12-months. In fact, some people go from bank to bank to earn some good money taking advantage of these deals.

I personally can't be bothered with opening an account setting up direct deposit, making sure I use a debit card a certain number of times a month to get a $200 bonus, then turning around to close the account, change the direct deposit to another account, etc, not really worth it.