Banks these days are offering historically low yields on deposits, but there's still one way for consumers to make out like casino bandits: open a checking account.
As part of the fierce race to capture customers and market share, some banks have been offering increasingly high cash incentives for new checking accounts tied to services like direct deposit or online bill pay.
Over the past year, JPMorgan Chase, SunTrust, Key Bank and PNC Financial Services Group's National City started handing out $150 to $200 in cash or gift cards to customers responding to online and direct-mail ads. In January, Capital One raised the stakes by offering a booty of $300 for a new rewards checking account.
Cash incentives of $50 to $75 are still more common, such as with recent offers from Fifth Third Bank and Wells Fargo. But the bar keeps going up.
"What we've seen is an uptick in both the number of banks offering the service and the amount of cash payouts," says Doug Johnson, vice president of risk management policy at the American Bankers Association.
It's a trend expected to continue, according to direct-marketing intelligence firm Mintel Comperemedia. "We expect to see more offers with a $200 cash incentive," says Susan Wolfe, vice president of financial services at Mintel.
Experts speculate that some banks may be doling out the higher incentives to keep up with competitors, as well as to boost fee income by attracting more debit card users.
The incentives are viewed as a first step in getting customers hooked into growing rewards programs, which were attached to 21 percent of debit cards issued in 2009 (a figure expected to grow to 33 percent in 2013, according to Aite Group). "Incentives have been used in banking for a very, very long time, but it used to be in the form of free merchandise-the free toaster, free Tupperware," Wolfe says.
Other banks offering triple-digit cash payouts, as tracked by Mintel, were M&T Bank, Citibank and Bank of America.
Often the payouts are tied to services like direct deposit, online bill pay or a signature debit card. Bank of America spokesman Don Vecchiarello says that its new customers get the cash after a point-of-sale transaction with a debit card, and two online bill pays within the first 30 days.
Critics say these incentives attract opportunistic customers, not necessarily profitable ones.
"You could have a lot of people coming in the front door and then going out the exit very soon thereafter," says Brad Strothkamp, an analyst at Forrester Research. "I'm a believer that longstanding relationships don't come from incentives like this."
Capital One is betting otherwise, as it concentrates on building deposit share in its markets.
The McLean, Va., company offered $300, plus 4,000 airline miles, to those opening a rewards checking account in January-with only a single direct deposit as a condition. Previously it had been paying $150 to $200 since at least the end of the third quarter of 2008.
The strategy has helped Capital One achieve a market-leading 19.3 percent share of deposits ($14.3 billion) in Louisiana. It also has built a bulkhead in New York, where it has most of its deposits ($31.9 billion) and is ranked fifth in deposit market share with 6 percent. (Its branches also span New Jersey, Texas and the Washington, D.C. area.)
"We believe checking products are the hub of a consumer's banking relationship," says Pam Girardo, a Capital One spokeswoman. "They are a sticky product that is a gateway to everything else, so we aim to make our checking products as compelling as possible."