Is this $200 "welcome money" (from a major bank) some sort of scam?

Question

I googled around (this in the US) about "bank accounts you can open online",

I noticed:

https://www.us.hsbc.com/checking-accounts/campaigns/offer-2018/#advance-checking-details

Notice they will (seemingly) literally give you 200 bucks cold hard cash, if you

• maintain a bal. of 1500- for 90 days

That offer seems "to good to be true" - since it's a major bank I doubt it's an outright lie.

But maybe some sort of soft scam? Am I not seeing the downside?

What's the deal on this.

(Running sundry online consumer businesses, I'm well aware that user acquisition cost can be $100s, but it seems an unusual offer. Perhaps I'm wrong, maybe all banks in the US do this??)

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Bizarre footnote ..

funny thing, regarding that question in the end I got a robot email that they would not give me an account, which I found absolutely bizarre! Conceivably they have an algo which guesses if you are just after the bonus - or, they read this list :) Strange!

Answer 1

Banks in the US frequently offer these kinds of promotions, and this particular one is not out of line with similar offers. Chase frequently does $300 for a new checking account. As usual some restrictions apply and they vary by institution.

There is a whole community on the net that does reward hacking for supplemental income for both bank accounts and credit cards.

The justification for these kinds of rewards is a mean cost of new customer acquisition. If it costs $1500 per new customer to obtain one through advertising alone; but that cost can be dropped to $600 per new customer with a cash incentive, then it makes sense to offer the incentive.

In this case it is very unlikely this is a scam.

Answer 2

It's very common for banks in the US do this because believe it or not, the bonus dollars given away are less than the cost of customer acquisition.

I did one of these last year at Chase Bank which offered $500 if you opened a money market account for $15,000, a checking for $25 and provided a direct deposit. There were no fees and those balances had to be maintained for 3 months. At the end of 3 months, $1,500 had to remain in the MM for another 3 months in order to avoid fees. That's 13.33% for the first 3 months and that isn't bad for sitting at home.

Currently, Fifth Third Bank is offering $250 for a $500 deposit for 3 months (about 10 states). HSBC is currently offering as much as $750 in bonuses. Capital One and PNC Bank are also frequent fliers in this category. Others as well.

There are credit card deals as well. A really good one would be spend $500 in 3 months and receive a $200 bonus.

There are numerous web sites devoted to listing such deals and they are not a scam, assuming that you are dealing with major banks. I'd be leery of "The Billy Bob Local Bank" (g).

Answer 3

I've gotten a number of these new account bonuses over the years, there's no catch. BUT I will say, though this might be obvious, I have received a 1099 every time no matter the dollar value. Be careful to follow the rules, but generally by the time you've received the deposit for the bonus, the required time limit has elapsed and you're free to close the account. To continue on the taxation topic it's worth pointing out that almost all these offers run on a 90 day timer because the IRA replacement rule sets a 60 day timer. This is really for money you have sitting in a taxable account anyway.

Chase actually got me as a permanent customer via bonus for opening a new checking account, so it can be effective as a means of buying a customer.

Answer 4

In addition to the customer acquisition cost, there is one more thing I'm surprised not that many people have mentioned.

Let's take Chase and HSBC's offers as an example. I think they offer somewhere around $300 to $500 as a "bonus" when you deposit $10,000 in cash and keep it there for a year.

What's $300 to $500 over $10,000? That's about 3% to 5% interest. That may seem high, but if you keep your account there for 2 years, it works out to 1.5% to 2.5% for the bank. And if you keep it for longer ... you can do the math. And how many folks are going to leave the bank once they deposit their money there, even after a year?

Investment alternatives

According to Bankrate.com, a 5 year CD (certificate of deposit) rate is about 1.27% (May 2018), though it's not uncommon to see around 2% to 3% at some banks. So it does seem that the interest rate the banks are giving you in the form of a "bonus" are on par with or better than CDs.

Bond yields are at over 3% now, so you could technically get a better interest rate investing in bonds. Equities are supposed to produce over 5% year-over-year in terms of returns, and that seemed true circa 2011 to 2017, but this year has been a down year, and it's hard to say.

What's in it for the bank?

Finally, what's in it for the bank? The bank makes revenue lending your money to others who need to borrow the money. Let's take some examples of how the bank uses the money you deposit to make money for itself.

• Credit cards: 5% to 20% APR
• Mortgage rates: 4% to 6% APR
• Loans against your residence (sometimes called a second mortgage): 5% to 7% or higher
• Personal loan: 7% to 20%

So you see, if a 100 people take advantage of this "offer" and deposit $10,000 each, the bank now has liquid assets of $1 million to lend out. Sure the bank has to give away $350 to each person, but they probably more than make up for it with the loans and other lines of credit they open for their other customers.

Answer 5

I too have seen $500 cash offers to sign up for a checking account. The interesting thing is that checking account offers are oftentimes higher than credit card offers, even though it's the credit card where the bank can obviously potentially make money off of you. I suspect that the reason for this is from the bank's perspective, credit cards are like dating, and checking accounts are like marriage. For one, they make a profit on debit card transactions, but if they can also get you to direct deposit your paycheck into their checking account, then they can likely immerse themselves into your daily life. From there it's a much smaller leap to some bigger money makers such as mortgages, car loans, and investment accounts.

Answer 6

It's not too good to be true. Plenty of people have a side-hobby where they get all these free bonuses. Between checking and credit card sign on bonuses I've earned ~$2500 this year. Most of the major banks do it.

The downside is that you have to read the rules and be somewhat meticulous and organized about it. Otherwise, you could miss the bonus and incur some monthly account fees. Worst case scenario is you forget about it and 5 years later fees have eaten away your $1500 deposit.

It will often look something like:

• direct deposit $500 within 60 days to get $200. (Transferring from my vanguard brokerage will satisfy, so I don't need to bother my employer)
• keep $1500 in the account to avoid $12 monthly fee
• keep account open 6 months to avoid bonus claw-back
• close account
• wait 12 months, rinse and repeat

So it's not free money - it takes effort and attention. I think once you figure out the rules and get a system in place you can be earning over $100 an hour, so quite good for most.

check out doctorofcredit.com, or reddit.com/r/churning if you're curious.

Answer 7

In HSBC's case, they may be trying extra hard to reacquire banking clients after receiving poor publicity over some unusually bad conduct involving money laundering. I suspect this is the kind of thing customers might leave a bank over. Since this issue is still reasonably fresh in peoples' minds, if they were to defraud customers with your deal turning out to be a scam, the further publicity may be enough to invoke serious legal or regulatory repercussions for them.

So:

• They may be trying extra-hard to re-attract account holders by offering sizable account-opening bonuses
• Based on the article, they can afford to offer that kind of money to new account holders
• Since their reputation is already suffering, they could get more than a slap on the wrist this time if the offer was a scam

Based on those considerations, I'd say the offer is legitimate.