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The Boston Globe

Business

Interest rates can’t entice, so banks offer bonuses

Sovereign Bank is offering up to $125 to anyone who signs up for new checking account. Washington Savings Bank in Lowell hands out $150 gift certificates from Coach, known for its luxury handbags. And East Boston Savings Bank promises $100 and a digital food scale.

With attractive interest rates a distant memory, banks and credit unions across Massachusetts and elsewhere are using glitzy gifts and cash to lure customers. J.D. Power and Associates recently found that 8 percent of US customers who switched banks said they did so primarily because of a promotion.

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“You can earn a lot more with the bonuses than you can in interest,” said Ken Tumin, cofounder of DepositAccounts.com, a website that tracks the best come-ons.

For instance, JP Morgan Chase, which recently installed ATMs in Logan International Airport in Boston, is offering up to $350 in bonuses for customers who sign up for new checking and savings accounts.

By comparison, a $10,000 savings account earning 0.01 interest — the rate offered by some major banks — would yield just $1 in a year.

Enticing as they might be, bonuses usually come with a catch. Or two. Or three. For instance, many banks require customers to set up online billing, use a debit card frequently, or deposit thousands of dollars to receive the awards.

“Sometimes customers come with the hope of getting that money, but they are not physically able to meet all the requirements — and that gets frustrating,” said Jay Tuli, a vice president at Leader Bank in Arlington.

Leader features a more modest $35 promotion with less stringent requirements than other banks: Customers must enroll in online and mobile banking, maintain a minimum balance of $1,000, and make at least two withdrawals and deposits over 45 days.

In addition, checking accounts at many banks come with monthly charges that can quickly add up.

For instance, to get the maximum Sovereign payout, customers have to sign up for its Premier Checking Package, which carries a $10 monthly fee if the average balance dips below $10,000. Those who don’t maintain that average would pay $120 in yearly fees, nearly wiping out the $125 bonus.

“Customers have to be careful to make sure they read the small print,” Tumin said.

They could also have to pay taxes on their bonuses in some cases, just as they must with interest.

Some Citibank customers were shocked to face a tax bill for frequent flier miles they received to open a new account last year. In that case, Citibank reported the miles to the Internal Revenue Service, even though most companies don’t place a value on frequent flier miles and many believed the bank’s valuation of $1,000 for 40,000 miles was far too high.

Citibank, which is currently offering up to 30,000 American Airlines miles to people who open a checking account, said it is not required to make similar IRS filings this year because the details of the current offer are different. The IRS said banks may be required to report frequent flier miles under certain circumstances, but declined to comment on the Citibank example.

In addition, some banks will only give customers the bonus if they ask for it or fill out a special application tied to the promotion. Chase even requires customers to present coupons for its $350 payout.

Many promotions only last a few weeks or months, so customers often have to act quickly. For instance, Taunton Federal Credit Union recently offered up to $200 to new checking account customers — but only for 60 days. The credit union is now promoting a smaller bonus to encourage existing customers to refer new ones — the existing and new customers each get $20.

“A promotion by definition is a limited-time offer,” said John Damaso, the credit union’s chief executive. “We constantly run promotions.”

Damaso said the $200 promotion was so successful, however, that the credit union might try it again. The offer helped Taunton Federal Credit Union sign up 250 more members, he said, about quadruple the average for a promotion.

But some banks don’t find such pitches worthwhile. Industry executives say they sometimes attract customers who just do enough to snag the bonus and then move on to another bank.

Cambridge Savings Bank offered free iPods to new customers four years ago, but now focuses on better interest rates or other features to lure and keep new customers. “We haven’t had a need to return to promotional incentives,” said Ian MacDonald, the bank’s marketing director.

Still, two of the biggest banks in the region, TD Bank and Rockland Trust, said they plan to launch their own promotions after the holidays, though they declined to provide specifics.

“We’re always looking for creative ways to reward our customers’ loyalty and to attract new customers,” said Rockland Trust spokeswoman Ellen Molle. “But I can’t share the details on that right now.”

Todd Wallack can be reached at twallack@globe.com. Follow him on Twitter @twallack.
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