Why do banks offer really high bank account opening bonuses?

[Johnny]

I've been churning bank account sign-up bonuses for years and make decent side hustle money from them. I understand companies like to offer promotions to attract new customers, but how does the economics work for bank bonuses that are really high?

Chase Bank has offered a $600 at one point to get people to open a checking and saving account:

https://themoneyninja.com/chase-600-checking-and-savings-bonus/
https://dannydealguru.com/chase-600-bonus/

I'm a churner so I don't represent the typical customer profile Chase is trying to target, but will they make back the money given to a "typical" new customer?

[gooki]

Overdraft fees.

Once you've got a checking account they can sell you debt in the form of credit cards and mortgages

[DadJokes]

Because most people are not going to go through the process of switching banks. It's a pain to change your direct deposit, autopay for bills, etc. They need to offer a large bonus to encourage people to swap to their bank and hope that the person won't be interested in swapping banks again.

And as gooki said, they'll get the money back over the years from fees and loans.

[Dicey]

We opened a Chase account with that same bonus when we got married in 2012. In 2015, we were buying a rental property and they offered us a mortgage, and insisted on writing it as a second home. We thought that was weird, but we took it because the rate was great at the time. Interestingly, since it clearly shows as a rental on our taxes, we can't refinance it to a better rate. At 3.75, it's not bad, but it's not spectacular. They have made far more than that $600 bonus back.

When we sold our last flip in late 2019, we parked a lot of cash in our regular savings account with Chase. We thought it was temporary, then the Real Estate market went nuts, and nothing has penciled out since then. A big chunk of mobey is just sitting there, earning us virtually no interest. As a result of the high balance, they are constantly after us to invest with them. Had we succumbed to that pressure, it would have generated a good chunk in fees. Not sure wht theyre earning on that chunk o money, but surrly its more than they're paying us.

If only I could convince DH to play the bank account churning game with some of it...

[terran]

I kind of wonder if at least some of the time the BANK doesn't make money, but whether some of the executive(s) might have bonuses tied to new accounts so they might create these promotions to push their bonuses higher despite it being bad for the business. If not that, then they must keep enough of the new customers long term for it to work out.

[YttriumNitrate]

They make it back in a lot of ways:

1. As gooki mentioned, there are overdraft fees.
2. Low balance fees
3. Low interest rates on any money in the account
4. Selling related products (credit cards, mortgages, checks, etc.)

[elysianfields]

Banks realized that FIRE folks have a lot of free time on their hands and often the mustachian incentive to do a little work for some extra money.  That, and an entire thread devoted to flipping bank bonuses, help keep the IRP employed.  Everyone wins!

[sonofsven]

I kind of wonder if at least some of the time the BANK doesn't make money, but whether some of the executive(s) might have bonuses tied to new accounts so they might create these promotions to push their bonuses higher despite it being bad for the business. If not that, then they must keep enough of the new customers long term for it to work out.

This makes the most sense to me. New money coming in makes their books look good.
I think any bonus money they pay out is a drop in the bucket compared to what they make on fees (service and punitive).
Growth is rewarded.

[Fishindude]

When people get set up with a bank, they tend to stay there.

They put their savings there
They get car, personal and home equity loans there
They get mortgages, there
They buy CD's there
Etc., etc.

All of the above are where banks make money.

[Morning Glory]

I kind of wonder if at least some of the time the BANK doesn't make money, but whether some of the executive(s) might have bonuses tied to new accounts so they might create these promotions to push their bonuses higher despite it being bad for the business. If not that, then they must keep enough of the new customers long term for it to work out.

This makes the most sense to me. New money coming in makes their books look good.
I think any bonus money they pay out is a drop in the bucket compared to what they make on fees (service and punitive).
Growth is rewarded.

I think I read somewhere that analysts look at new account openings as a measure of how competitive a bank is, which impacts it's share price.  If the bank can game the ratings by encouraging new account openings then the share price goes up and the executives get rich. This was also the mechanism behind the Wells Fargo fake account scandal.

[magus]

They want you in their ecosystem - home loans, car loans, credit cards, etc. Additionally, banks use fractional reserve lending so if you deposit $10k there, they can lend $9k to other folks. With bank rates at ~0%, its a cheap way to attract $ and then lend at much much higher rates.

[aetheldrea]

The offers I get in my mailbox seem to require large amounts of money to be kept in the account for a long time. So the sign up bonus is equivalent to a small fraction of a percent when considered as an APR

[Paul der Krake]

It's because deposits are some of the stickiest money there is.

Normies almost never switch banks. The CAC is high but you are often locking in them in for decades, and you'll be the first people they call for cross-selling.

[maizefolk]

It's because deposits are some of the stickiest money there is.

A case study: In 2008 I moved across the country and picked a bank based solely on them offering high interest rates in on savings accounts (maybe 4% or thereabouts?). Within less than a year the bank had failed and was sold to a much larger national bank and the interest rates dropped to near zero, which they've remained essentially ever since. Five years later I moved out of state, but kept using the same bank. Then I moved again and there wasn't a bank branch anywhere in the whole state. But my direct deposits still went through and I could deposit checks with a phone app and it was just never worth the trouble of switching.

For the willingness to pay an extra couple of percent in annual interest for a few months on a balance of a few thousand dollars, this bank and its successor got my business for a decade and a half and counting because I was too lazy to change even living in a place where it would have made zero sense to use this bank if I wasn't already with them.