Why Bank Account Churning Can Be a Bad Idea — Even With Big Sign-Up Bonuses

The best bank sign-up bonuses can give you hundreds of dollars for opening a new checking account or savings account. Some people might wonder: What if I just open lots of bank accounts, and get lots of money? This strategy is called “bank account churning.”

While legal, it can be risky. Chasing after bank bonuses by opening multiple accounts in a row can help put more money in your pocket, but it might hurt you in other ways.

Let’s look at a few reasons why you should be cautious when pursuing bank sign-up bonuses.

You could lose your bank account bonus

Here’s a typical churning strategy. Let’s say that a bank is offering a $200 bonus for new savings accounts, but you have to deposit a minimum of $10,000 for three months. Let’s say you put the money in — and you leave the money alone for 2.5 months. But then you see another bank offering a $300 savings account bonus. You want that one too. So you pull your $10,000 out and put it into the new bank to try to get a new bonus.

Do you see the problem? You didn’t leave your $10,000 deposited for the full three months that you promised. You’re not going to get that first $200 bonus. Some banks also have fine print in their deposit agreements that say you have to leave your money deposited or your account open for a minimum amount of time after receiving the bonus. For example, some might ask for six months of leaving your account open and in good standing.

If you fail to uphold the deposit agreement you made with the bank, you could lose whatever bonus you were expecting to get. Banks could decide to freeze your account or claw back your sign-up bonus if you close your account too soon. Read the fine print for what it takes to not just “get” your bank bonus, but “keep” your bank bonus.

You could hurt your reputation on ChexSystems

Banks might get suspicious if you’re opening too many bank accounts too fast. Especially if you fail to uphold your deposit agreement and end up having an account closed involuntarily, you could get flagged by bank reporting agency ChexSystems. Banks use it to file reports about customers who have trouble following account rules and maintaining accounts — it’s kind of like a credit bureau for bank accounts.

You definitely do not want negative items on your ChexSystems report, but account churning can lead to this. Here are a few examples of negative items that ChexSystems tracks:

• Involuntary account closures: This could happen if you don’t manage your new “bonus” bank accounts properly.
• Number of accounts applied for recently: Account churning might put you at higher risk for this.
• Unpaid negative balances: Are you keeping track of how much money is in your various “bonus” accounts?

In a worst-case scenario, if you have a bad ChexSystems report, you might not be able to open new bank accounts. Opening a new bank account is not automatic; banks have to approve you, and a bank can deny you if it believes you’re a risky customer or you won’t keep your promises. Getting a few hundred dollars from a one-time bank account bonus is not worth a bad banking reputation.

Account churning takes time and energy

Here’s the other problem with bank account churning to chase bank bonuses: it’s a lot of work! You might have to spend a few hours opening new accounts, changing your direct deposits, worrying about minimum balances, watching deadlines, and otherwise managing the process. Bank account bonuses aren’t really free — they take effort!

Switching up all your direct deposits and monitoring your bank account information across multiple institutions might not be worth your time and effort. Especially if you make a mistake and end up risking a bad report on ChexSystems. Wouldn’t you rather choose a different side hustle? And many savings account bonuses aren’t a very good deal — just put your cash in one of the best savings accounts and go enjoy your life.

Bottom line

With so many banks competing for your deposits, it might be tempting to try “bank account churning” as a strategy to make extra money by opening multiple accounts at different banks. But account churning can be risky. You could lose your bank account bonus, incur extra fees, and even lose your ability to open new bank accounts in the future.

Don’t let a few hundred dollars trip you up and hurt your financial reputation. Bank account bonuses can be fun, but the best savings and money market accounts will typically give you a better return on your money — and your time.

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