Banks are giving cash bonuses of $100, even $200 to people who open checking accounts. New credit cards come with policies that will waive or refund interest to customers in certain situations. Why are we the beneficiaries of such generosity? Mostly, because for banks, offering a helping hand—or at least appearing to do so—is good for business in our precarious financial times.
Over the past 18 months or so, the banks and credit card issuers have had more than their share of bad press. The whole fat-cat-record-bonus thing is what people are talking about now, but the banks have also been seen as bad guys long enough for the government to step up with reforms to everything from credit cards to debit card overdrafts to gift cards.
So what are the banks doing to get back in your favor? They’re trying to be your friend.
The Washington Post describes one of the new credit cards aimed at showing a bank (Chase, in this instance) as a kinder, gentler entity. The message is: A bank is your partner and your pal, not a predator:
One of the most buzzed-about tools is the Chase Blueprint, which was launched in the fall and is available online to the roughly 20 million holders of Chase Freedom, Sapphire, Slate and Ink cards. Users can choose a list of everyday expenses such as groceries or medications to pay in full each month. In return, Chase waives the interest on those charges — even if the customer carries a balance from other purchases.
Some other cards offering helping hands during these trying times:
Two other new cards reward consumers for paying down their balances. The Citi Forward card lowers the interest rate by a quarter of a percentage point when customers stay under the credit limit and pay on time three months in a row. The Discover Motiva card refunds one month of interest after six on-time payments.
These policies are obviously attractive to consumers accustomed to the bold, cold-blooded tactics of the recent past. So, during a time when there’s upheaval in the credit card industry, during which shifting rates, fees, and rules are making consumers consider switching cards—perhaps even switching to an old-fashioned, no-balance, pay-off-in-full charge card—card issuers are openly making plays for new customers by rolling out friendlier terms.
But when you look closely at some of these policies, you’ll realize that the banks aren’t cutting their customers a break so much as they’re increasing the chances that customers will pay off their debts—and take on new debts as well. A person who pays his bills—even if they include slightly less interest than they might have—is a much, much better client than someone who feels incapable of keeping up and stops paying entirely. So the banks are strategically cutting customers a little slack here and there. All of these moves are good for business.
The banks have also been setting up web tools and launching ad campaigns that are purportedly about helping customers save and getting their finances in good shape. But, as the Washington Post reports:
Industry experts said such programs can help people get their finances under control, but they also cautioned that the primary objective of credit card companies is not to save you money — it’s to get you to spend it.
Likewise, the purpose of banks offering cash to open new checking accounts is not to give you money. It’s to entice you to give the bank your money—ideally upfront, down the line, and in many different ways.
As a SmartMoney story says, cash incentives aren’t entirely new, but they do appear to be particularly generous of late:
Capital One launched a promotion offering a $200 bonus to customers who open a Rewards Checking account through Feb. 28, 2010… and Bank of America offers $100 through Feb. 28.
Unfortunately, the fine print that goes along with these kind of offers isn’t pretty. The terms all but guarantee that the bank makes more off of you than you take from it—and in a hurry.
To qualify for the Capital One or Chase promotions, for example, consumers need to set up direct deposit, and Bank of America requires maintaining a minimum balance of $500. Why the restrictions? It gets customers to use their accounts in a way that is most profitable for the bank. Setting up direct deposit is a way of making sure that you stay with the bank longer, and requiring you to use your debit card a certain number of times a month ensures the bank collects revenue from interchange fees…
What’s more, the offers turn out to be even less generous than they appear once you factor in the bank’s screening criteria. According to First Manhattan Consulting Group, only 20% to 50% of consumers who sign up for such offers actually qualify to receive the cash premium because of criteria.
There is no truly free lunch. There is no truly free cash. And there is no bank that truly wants to be your friend.
