Today I want to explore the world of Brokerage and Savings Account Bonuses. For those who don’t know, for similar purposes to credit card hacking big banks and brokerages often provide a bonus for transferring money into their accounts. We here at Full Time Finance love something for nothing, but are these bonuses worth your time?
No History of Using Savings Account Bonuses
Up until recently I have never explored brokerage or savings account bonuses. Instead I have focused on credit card cash back and sign up bonuses. On the face of it I might be missing out. A quick survey shows bonuses anywhere from $200 to $500. If I am happy to do a credit card bonus for $500 why am I not cashing in on one of these?
My Recent Experience with a Savings Account Bonus
Well recently I did take advantage of one of the savings account deals. We had some money sitting in the bank for an upcoming purchase. The money was under only my wife’s name, a legacy account. We needed to move the money into a joint account since honestly this money represents our only fully liquid funds. (If you recall much of our emergency funds are locked up in CD Ladders, a level of slightly less liquidity.
Also if you recall from our recent post on married finance, in the case of a spouse’s incapacitation it’s important to have access to joint account funds. Unlikely though it is, I wouldn’t want this money to slip out of reach for a period of time around said purchase if something were to happen to my wife.)
So as part of the decision to move this decent chunk of change I began to explore sign up bonuses. I looked at a few aggregators of savings account sign up bonuses as well as several banks themselves. On the surface the best sign up bonuses were in the $500 range. But then I looked a little deeper.
Bonuses and Interest Tend to be Mutually Exclusive
Most of those $500 bonus accounts were for an account earning .05% interest or some other horrendously low number. If you were to earn a $500 bonus on an account where you deposited $25K, you are essentially getting the same result as 2% interest for the first year and nothing the next. The problem of course is most online high yield savings accounts provide 1.7% interest anyway. In essence in exchange for the interest up front and $75 in additional interest you chose their bank.
Savings Account Sign Up Bonuses are Taxed
But wait, it gets worse. Any sign up bonus you get for a bank account, unlike a credit card sign up bonus, is taxed as interest. You see the IRS views credit card signup bonuses and rewards as a discount on purchase. But they view a bonus on a savings account as essentially interest on the account (similar to our comparison). So, if we look only at the $75 portion beyond normal interest you might receive $50 dollars of it after taxes (depending on your tax rate). Now look closer at the banks rules. Many of these same banks are the ones charging higher fees. In essence this move in money can potentially cost you money.
Is Chasing Savings Account Sign Up Bonuses Worth the Hassle?
Even if that extra $75 is not eaten by fees and taxes, is it worth the hassle? Well we were already with a high yield online savings account earning 1+%. In order to do the transfer I had to first setup the new account. After all the application setup because of money laundering rules I also had to prove my identity. That meant scanning my drivers license and sending it in for review. A week later I had approval. Then I had to transfer our funds from our existing savings to checking. Close out the existing account. Finally transfer in the new funds. For under $50 it wouldn’t have been worth it for me to move around the money only for the bonus.
Exceptions To Interest and Bonus Being Mutually Exclusive
Now don’t get me wrong. There are the occasional exceptions to the above rule. I found one such exception, where Discover offered 1.7% interest and $200 sign up bonus for $25K deposit. An account that will benefit us during the move, and as we hold it in future years with the same interest. This is the one I ultimately used. But from what I saw this was one of the 2 currently available options with any return for me. Now sure, you could’ve that $25K in rapid succession between accounts to capture that bonus in a shorter time period then a years of interest. The thing is many of the companies seem to have policies in place that require holding the funds for extended period of time, 3-6 months at minimum. IE, there is limited opportunity to game the system here. I just can’t see it being worth it.
Opportunity Cost of Sign Up Bonus Money
Want one more reason not to play the savings account sign up bonus game? There is a huge opportunity cost of keeping $25K sitting around in cash. $25K last year in the stock market would have returned 16%. Currently in a 5 year cd you’d get 3%, in a 10 year you’d be reaching 4%. All of these would have to be forgone to capture a savings account sign up. In order to play this game you have to have $25,000 liquid in the first place.
My conclusion is savings account sign up bonuses are only worth it if you are already moving funds. Then it’s only advantageous if you really scrutinize the sign up bonus and interest as a whole against other offerings. We chose the only option that was advantageous to us across an entire year. On the plus side it appears like it will work beyond a year for whatever remains after our purchase.
Brokerage Account Sign Up Bonuses
But this post is not only about savings account bonuses. It’s also about brokerage bonuses. Surely I think it’s worth it to move money to another brokerage for a brokerage account sign up bonus? In short no, again I do not. In this case it’s not an interest versus sign up bonus question, though again the bonus is usually taxable. No this time there are some other problems.
Transfer of Assets and Brokerage Account Sign Up Bonuses
The first is the transfer of assets. Not all brokerages allow the transfer of invested assets, either in or out. Thus often time to take advantage you would have to liquidate your holdings and reinvest in the new account. You could miss out on the hottest trading day of the year while dinking around with a brokerage bonus. And yes, studies do show most of the markets gains come on a handful of days. Furthermore you would have to potentially pay spreads or trading fees to liquidate and repurchase your holdings, further cutting into any gains.
Finally we have the same regulatory hurdles to moving brokerages that we do savings accounts. A huge amount of self identification and waiting. A major hassle for little money when we compare to the 30 mins a month I spend on credit card sign up bonuses. Again I wouldn’t recommend it unless you are moving your money anyways.
Simplicity of Accounts is Important
There is one final reason for not playing either game, brokerage or savings account sign up bonuses. Ultimately it’s my main reason, complexity. Even with a fairly simple money map we have a significant number of accounts. Moving your money from account to account makes it altogether harder to manage and keep track of. Asset allocation across constantly changing brokerage accounts sounds like a nightmare. Avoiding escheatment on small stranded amounts of interest in savings accounts sounds like an exercise in futility. Simplicity is better with your finances, and chasing a few hundred dollars in sign up bonuses is not worth the complexity in my honest opinion.
Do you move money around frequently to take advantage of brokerage and savings account sign up bonuses? Anyone have a different experience?