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Not All Sign-Up Bonuses Are Equal

credit-card-cashIf you want to play the sign-up bonus game to earn some easy extra money, you’re usually better off going for credit card offers than bank account offers.

We’ve come up with 5 great reasons why. Read on to learn more.

Reason 1. Taxes

When you receive an account-opening bonus with a credit card, the bonus value usually isn’t taxable, whether it’s airline miles, points redeemable for gift cards or a statement credit.

The IRS considers these bonuses as rebates, equivalent to a discount on a purchase.

After all, you almost always receive these bonuses after you’ve spent a certain amount to earn the bonus – say, $1,000 within three months of account opening.

But even when you get the bonus after making a single purchase, the IRS considers it a nontaxable rebate.

The IRS often considers bank account sign-up bonuses to be awards, however. It taxes them as income because you don’t have to spend any money to get the bonus.

Reason 2. Fees

Why do banks want to pay you to open a new account? Because once you have that account, they can ding you with fees.

Take monthly maintenance fees. To receive a $200 account-opening bonus from PNC Bank, for example, you must open a premium checking account. The less-expensive choice costs $15 a month, unless you keep a $2,000 average monthly balance or receive $2,000 in monthly direct deposits.

There are other fees you could incur, too: $7.50 to replace a debit card, $2.50 to use a non-PNC ATM, $36 for an overdraft.

These fees can easily consume your bonus.

If you choose a credit card with no annual fee and pay off your bill monthly, you don’t have to worry about fees.

Reason 3. Time requirements

Why not just earn the bank account opening bonus as quickly as possible, then immediately close your account and avoid these potential fees?

This strategy often works with credit card sign-up bonuses, where the card may have an annual fee that’s waived the first year.

With a bank account bonus, you’ll have to leave the account open long enough to complete any action required to earn the bonus, like setting up a direct deposit. That might take one to four weeks.

Then you’ll have to leave the account open long enough for the bank to credit the bonus to your account. That might take another 60 days.

Some deals further require you to keep the account open for a minimum period or you’ll forfeit the bonus.

Finally, some banks charge account closing fees, especially if you close the account shortly after opening it.

With credit cards, you can generally close the account as soon as you earn the bonus without losing the reward. Closing a credit card could damage your credit, however.

Reason 4. Direct deposit requirements

To earn many banks’ account sign-up bonuses, you’ll have to establish a recurring direct deposit.

Some people can’t get paid this way because their employer doesn’t offer it.

Others really just want the sign-up bonus and don’t want the hassle of changing their existing direct deposit arrangement. Banks know you’re more likely to use the account your paycheck lands in.

Credit card bonuses don’t ask you to do something equivalent, like having your bill paid automatically from your checking account.

Reason 5. Ancillary perks

Credit cards often have perks beyond the sign-up bonuses.

You can increase your bonus with certain redemption choices (Sapphire’s 40,000 points are worth $400 in cash but $500 in travel), earn 5% back in certain spending categories (Discover is offering 5% back on restaurants this quarter) or get a free checked bag with your airline credit card.

There are no equivalents to these perks with bank account sign-up bonuses.

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