A $300 bank bonus can be a 24% rate, and a $500 one can be 2%

Banks sometimes pay a cash bonus for opening an account and keeping a balance in it. The bonus is a dollar amount, the alternative is a rate, and the two cannot be compared until one is turned into the other. A $300 bonus for keeping $5,000 for three months works out to 24% a year. A $500 bonus for keeping $50,000 for six months works out to 2%.

The sum

Divide the bonus by the balance, then scale it to a year. $300 on $5,000 is 6%. It was earned in three months, a quarter of a year, so as a yearly rate it is four times that. The bank bonus calculator does this for any offer.

The largest bonus is the smallest rate. What matters is how much money the offer ties up and for how long, not the size of the cheque.

What you give up to get it

Money moved into a bonus account stops earning whatever it earned before. Suppose it was earning 4% and the new account pays 0.5%. Over the months each offer asks for:

• $300 for $5,000, three months. You give up $50 of interest and get $6.25 from the new account. Ahead by $256.25.
• $200 for $25,000, three months. You give up $250 and get $31.25. Behind by $18.75, bonus included.
• $500 for $50,000, six months. You give up $1,000 and get $125. Behind by $375.

All five figures in that sum are examples. The point is that a bonus can be worth less than nothing once the interest given up is counted, and the only way to know is to do the subtraction.

What this cannot see

• The conditions. Offers often require new money, a direct deposit, or a balance held on particular dates, and pay the bonus weeks after the period ends. Read the offer’s own terms.
• Tax. A cash bonus is usually reported as interest income, so what you keep is lower.
• Fees. A monthly fee or an early closure fee comes straight off the bonus.
• It happens once. The yearly rate describes those months only. After them the money earns the account’s ordinary rate.

An estimate from figures you supply, not financial advice.