Banks offering cash to open accounts. What's the catch?

Banks offering cash to open accounts. What's the catch? »Play Video
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Free money can be mighty appealing.
 
A number of banks and credit unions will pay you $50, $100, or more to become a new customer.
 
But there may be a catch.
 
Financial institutions use various promotions to attract new business. At one time it was a toaster or crock pot. These days, people want cash.
 
"It's gets people's attention. It gets them in the door. And it's a little extra boost to help people switch from one back to another," says John Gower, senior analyst with the website NerdWallet.
 
Gower also says the new-customer bonus comes in various forms: money that's deposited directly into your account, rewards points or a prepaid debit card.
 
Typically, there are various hoops to jump through to get the cash. You may need to sign up for one or more of these services to qualify for the cash-reward: direct deposit, online bill pay or e-statements.
   
These things save the bank money by reducing the amount of human interaction needed to provide these services. That's how they pay for the bonus bucks.
 
One more thing to keep in mind: you may not get the cash reward all at once.
 
For example, the S.T.A.R.T savings program from U.S. Bank offers $100 cash back.

Here's how that works:
 
You get a $50 prepaid visa card after you open a new account and the balance reaches $1,000. Keep a minimum $1,000 balance for a year and you get another $50 card.
 
Some banks require a substantial commitment to get the cash reward. At Chase, you need to make a new deposit of $10,000 or more that's not already in another chase account to get the $125 bonus.
 
With interest rates miserably low right now, an extra $50 or $100 bucks to open a new account may be tempting - free cash is clearly a nice bonus - but John Gower at NerdWallet says it should not be the sole or main factor that determines where you park your money.
 
"Hopefully, you'll be with that bank or credit union for years and over the long-run, the fees or the interest you'll earn will make a much bigger impact than $100 bonus. That's a short-term gain," says Gower.


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Herb Weisbaum is The ConsumerMan. Follow him on Facebook and Twitter or visit The ConsumerMan website.