Navigating Banking Offers in an Increasingly Complex Marketplace: Do You Choose a Cash Bonus, Miles or Merchandise?

Let’s face it: many of us are slowly losing money in this economy. Inflation hummed along at over 3.5% in August, and some of the very best secure deposit accounts out there are barely paying 1% APY. That means most people are losing about 2.5% on their investment, once you factor in inflation. It is possible to get more of a return for your investment than the standard APY, if you factor in bonuses and special offers. If you find two comparable accounts with (relatively) the same APY offer, which account bonus should you choose: cash or a different type of reward? That depends on you, your spending habits, your current needs, and what kind of things you value.

Generally, you should only take a merchandise bonus if you know for sure you will be using the merchandise (either for yourself, or as a gift). For example, if you’re already in the market for an IPod, a bank offering free IPods for new accounts may seem very enticing—and it could be a great deal for you. However, it’s important to keep in mind that if the type of bonus—cash or merchandise—exceeds $20 in value, it’s generally taxable. So, is it better to receive an IPod valued at $200 and pay tax on $200, or is it better to take a $200 cash bonus, find an IPod on sale for $150, and use the extra $50 to pay the tax (and pocket any extra)? The answer may not be as cut and dry as you think.

If the cash-bonus bank and the IPod-bonus bank are equal in all other ways (including fees, convenience, and so forth), you could clearly get more value for the $200 bonus if you can simply buy the IPod yourself on sale. However, if it takes you an hour (or more) to research IPod prices and drive to the store (or pay for shipping on something you ordered online), you could be losing money by doing it yourself. There is value in convenience. If you’re already pressed for time or just don’t want to deal with the hassle, the IPod merchandise bonus could be a great way to go.

The same reasoning applies to banks that offer airline miles as bonuses for opening deposit accounts. If the particular airline miles offered are something you are going to use for certain already (and the bank account, itself, meets your banking requirements with little or no fees), then it’s certainly a nice perk. However, it’s important to match the bank bonus to you and your lifestyle—not the other way around.

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