Thursday, July 14, 2011

Spendwise Dad: Checking and Credit Card bank promotions

More and more, banks are trying to incent customers to open a checking or credit card account by offering perks such as an immediate cash award, a voucher for a free GPS or iPod, free flights or free hotel nights. The question then arises, "Is this a good idea and is it worth it?" The answer is, it depends. There are a number of factors that you must take into account when considering one of these offers. You have to remember that the banks are trying to make money on you whether by interested paid on a credit card balance, investing the balance of your account, or worst of all, exorbitant fees.

Credit inquiries
When considering a credit card such as the Southwest Chase card, which essentially offers a free round trip flight upon opening an account, you should first make sure that your credit score can handle a hard inquiry. A free credit score service such as can help you keep track of how many hard inquiries are on your credit report at any given time. Hard inquiries go away after two years, but you don't want to have too many on your report at any given time or your credit score will suffer. I try not to have more than two hard inquiries on my report at any time.

Read the fine print
This is critical if you want to come out of this offer on top. Every offer requires some amount of work on your part in order to qualify and not be charged fees that might negate the effects of the offer. Most credit card offers either require a balance transfer or a minimum purchase on the card before you qualify. Many checking account offers require use of bill pay or a direct deposit into the account. Make sure that you will be able to qualify for the offer within the time period that they specify as well, otherwise you will be doing a lot of work for nothing. Some checking accounts also require you to keep your account open for a certain number of months (e.g. 6 months). If you close before that time expires, you will be required to pay back the amount of the perk.

Generally credit cards that have offers such as these also have an annual membership fee for the card, usually between $25 and $75 a year. A lot of times they wave this fee for the first year, which gives you a year to get your reward and close your account before they start charging you. Some checking accounts also have monthly fees which are not waived. In addition most checking accounts have an entire legal size sheet of fees that you have to watch out for. Make sure that you are aware of all of the fees before hand and that you can make sure to avoid them through the duration of your account.

Most checking account offers will be taxable as interest. The money or gift that you receive will be reported to the IRS as interested earned and you should receive a 1099-INT from the bank at the end of the year with the value of the gift. This is another thing to consider when deciding whether the gift is worth the hassle. Credit card deals on the other hand are generally not considered taxable income.

When you call to close your account, you may find it very difficult to convince the representative of your seriousness. Sometimes they will offer you another cash gift in order to keep you as a customer. As long as you won't incur more fees or have other issues by keeping your account longer, it is fine to accept this and then try cancelling again in a few weeks after you have received the gift. When you have finally decided to close the account for sure, be firm and don't let them try and convince you otherwise. Make sure to ask for a letter to be sent confirming that the account has been closed and keep it on record just in case.

Staying on top of things
If you haven't figured it out from all of the above information, benefiting from these offers is not for the faint of heart or those who are casual with their money. You have to be dedicated to making sure that you know the details of these offers and make sure to do things on time and complete the requirements. If you go into one of these half-heartedly, you may end up getting taken advantage of and losing the reward if not losing more of your own money.

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