Why I Stopped Chasing Bank and Brokerage Bonuses

I met the blogger Frugal Professor last week when he traveled to my area for a family gathering. I learned from his blog post that he earned over $5,000 tax-free by transferring a Roth IRA to Robinhood.

That specific promotion has since ended. I knew about the promotion when it was active but I didn’t jump on it. I would’ve done it years ago but not anymore. I stopped chasing these promotion bonuses from banks and brokers.

A bank account promotion usually asks you to deposit a minimum sum to a new or existing account and keep the money there for a minimum number of days or months. Sometimes the account requires direct deposits, sometimes not. You get a promotion bonus credited to your account when you have met the requirements. The bank account bonus is taxable.

A credit card promotion usually asks you to sign up for a card and spend a minimum amount in the first X statement cycles. You get bonus points after you fulfill your end of the deal. Some cards have an annual fee. The value of the signup bonus is higher than the annual fee. You close the card before the next annual fee hits. The bonus points earned on a personal card aren’t taxable because they’re treated as a discount on your purchases.

A brokerage account promotion typically asks you to transfer assets into a new or existing account and hold them there for some time. The assets transferred can be existing holdings. You’re only changing where they’re held. You don’t trigger taxes when you don’t sell your holdings. Whether the bonus credited to your account is taxable depends on the account type. It’s taxable if it’s credited to a taxable account. It’s tax-deferred if it’s credited to a Traditional IRA. You pay tax eventually when you withdraw from the Traditional IRA. It’s tax-free if it’s credited to a Roth IRA.

The promotions are legit. I did many of them in the past. It wasn’t difficult to follow the terms of the promotions and they all paid as advertised. I was never cheated out of a bonus. Based on his comments in the blog post, Frugal Professor sets the threshold to make a move at $1,000:

[M]ost promotions below $500 aren’t worth my time. At $1k, I start to get a little interested. At a few thousand, they are usually worth the effort. These days, checking account (or most CC [credit card]) bonuses don’t get me interested, but brokerage bonuses seem to be pretty lucrative. Move $250k from broker A to broker B, collect a $2.5k bonus (taxable), netting $1.75k after-tax, leave for 90 days. Rinse, repeat. Probably a few hours of effort yielding an attractive after-tax dollars per hour.

He expects to make at least $5,000 a year from these bonuses. $5,000 is a lot of money. My wife bought a mountain bike recently for $2,500. $5,000 would give us two mountain bikes. That’d be nice, right? And every year? I see many new toys.

At around the time this Robinhood promotion was going on, my phone popped up this photo I took when I left the building on my last day of work six years ago:

It reminded me that I didn’t leave my full-time job to make more money. I would’ve earned much more by staying at that job if I had wanted more money. If I must do something now to make some money, I want it to be useful to other people as well, such as publishing a new edition of my books or doing a better job at maintaining the Advice-Only Directory. It takes more time and it isn’t as lucrative as getting a bonus from a bank or a broker but I feel I’m adding more value. Of course I can do both but I’m using this self-imposed boundary to focus on a mission.

Everything has its time. There’s nothing wrong with earning promotion bonuses from banks and brokers. I did it many times in the past. The time has passed for me but that doesn’t have to be the case for everyone else. You’ll get the promised bonus if you follow the terms of the promotion. It doesn’t take that much time. It gets easier after you do a few of them. The bonus can fund many nice-to-have toys and experiences.

If you’re interested in these bonuses, you can follow The Final, Definitive Thread on Brokerage Transfer Bonuses on Bogleheads (jump to the last page and read backward for the latest active bonuses) or the Doctor of Credit blog, which features many types of promotions including ones that fall below the $1,000 threshold set by Frugal Professor.

If you don’t chase them, that’s OK too. I’m going for simplicity these days. Fewer accounts, fewer movements, everything on autopilot. I want to see a perpetual motion machine.

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