Big banks seem to be caught in a game of good cop / bad cop. At the same time that some banks have talked about raising fees even on longtime customers, many banks are also trying to lure new customers with the promise of signup bonuses and other perks.
Understanding the new banking
Increasingly, banks have started giving with one hand and taking away with the other. On the taking front, banks are reinstating monthly fees for vanilla checking accounts, raising interest rates on credit cards, and beginning to charge annual fees for credit cards that were formerly free. They're trying to sign up customers for high-margin payment protection programs and even increasing minimum monthly payments, perhaps in an attempt to force cash-strapped cardholders to miss payments and incur late charges and other fees.
Yet banks also realize that they need to woo customers away from competitors in order to maintain a healthy deposit base and maximize their profitability. To do so, they've lowered temporary promotional interest rates, increased the availability of balance transfer checks, and increased credit limits for customers.
Those perks are useful for some, but they don't put extra cash in most people's pocket. The latest moves from several banks, however, are more lucrative for customers.
Come 'n' get it
Here are some of the things banks are willing to give you in exchange for your business, courtesy of The Wall Street Journal:
- Citibank (NYSE: C ) will give you $250 in exchange for a $25,000 savings account deposit.
- US Bancorp (NYSE: USB ) offers customers a $50 gift card if you keep $1,000 in a money market account for a year.
- PNC Bancorp (NYSE: PNC ) gives customers a $100 coupon to open a checking account with direct deposit. JPMorgan Chase (NYSE: JPM ) ups that to $125 if you open both checking and savings accounts.
For truly wealthy banking customers, the perks can be even greater. HSBC (NYSE: HBC ) gives customers who deposit $100,000 or more a $500 gift card to their choice of either Apple or Amazon.com.
In part, banks are simply competing against rival financial institutions for deposits. Brokers Charles Schwab (NYSE: SCHW ) and E*TRADE Financial (Nasdaq: ETFC ) made a push to keep their clients' deposits during the market meltdown by offering checking accounts that pay interest. Even though the rates are low, they tend to be higher than what traditional banks pay on standard checking accounts.
Why it makes sense
But the other reason why banks are making such a concerted effort to attract deposits has to do with where we are in the economic cycle. Right now, interest rates are extremely low, and a rising stock market is threatening to take money out of the banking system in favor of riskier assets. By offering incentives to leave their money at banks rather than investing it, not only do individual banks jockey for better competitive position, but collectively they strengthen the capital base of the banking system on the whole.
By focusing on checking accounts, banks are hoping to inspire loyalty among customers. Because many customers tie paycheck direct deposit and bill payments to their checking accounts, it can be a greater hassle to switch banks for checking accounts than it is for savings accounts and other ancillary services.
How to win the banking game
In the long run, banks want what every business wants: profits. When they pay you a reward, they expect to make it back and then some over time.
But you don't have to play by their rules. Before you accept a reward, find out what you'll have to do to earn it. For instance, if the cost of tying up your money is greater than the reward they're paying, give the offer a pass.
Even if a deal looks attractive, don't let yourself get tripped up later on if things change. Remember, the Jekyll-and-Hyde nature of banks suggests that eventually, the same bank that gave you a big incentive to sign up will turn around and start imposing fees. Be ready to bolt if a bank tries to take away the reward you've earned.
Unfortunately, finding the best place to put your money isn't always as easy as it should be. But by looking closely at attractive banking deals before you sign up, you'll better understand what you're getting into -- and whether it's worth the potential hassle down the road.
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