Banks Are Offering "Free" Money -- Here's the Catch

You've probably seen the bank advertisements offering up to $300 cash just for opening a new checking account. The recent “free money” promotions are aimed at upscale customers with good credit ratings who are likely to use their debit cards when shopping and, the banks hope, apply for loans somewhere down the road.

But as with anything that sounds too good to be true, it pays to read the fine print. To get your hands on the “free” cash, you’ll have to make your way through a maze of requirements. The first hurdle is the minimum deposit, followed by the minimum daily balance. Many of the bonus offers ask you to make a hefty opening deposit to qualify for the cash and then maintain a four-figure minimum daily balance. Fall below the minimum and you’ll get hit with fees that can easily wipe out that bonus money. You also may be required to sign up for other bank products, such as a CD or a high-yield savings account before you can get your hands on the payout.

Banks make money when you use your debit card when you shop, so many of these offers come with a requirement that you use your debt card a minimum number of times each month. Fail to reach the minimum and you may pay a monthly fee. This is crucial for the banks, which take in up to 2% of the total purchase when you use the debit card, and get to charge you a fat fee when you don’t use it often enough.

The bank is also likely to pressure you to add overdraft protection to your new account. Since August, banks can’t enroll you automatically in these programs, so they will sell you on the idea that you can spend more money than you have in your account and not have a debit card transaction denied or a check bounced. If you do overdraw your account, though, you’ll get hit with fees that average more than $30 per overdraft transaction.