You probably earn periodic bonuses with purchases on your cash-back credit card. How about a cash bonus on your savings account that doesn’t require any purchase at all? In these days of minuscule interest rates on savings accounts — the national average is around 0.15% — that is an offer that catches people’s attention.
Capital One 360 is running a promotional offer through November 30th that provides a 1% bonus on new savings accounts up to a total bonus of $500. The minimum threshold is a $5,000 deposit, which can earn a bonus of $50. Higher bonus levels are tiered at $10,000 and deposit increments of $10,000 up to a $50,000 maximum.
To claim the bonus, you will need to open a new account, fund it to your targeted bonus level within 10 days of opening, and then maintain that level as a minimum account balance for 90 days after the 10-day funding period is complete.
For example, if you place $20,000 in the account and maintain that minimum balance, your bonus would be $200. However, if you deposited an initial $20,000 and the minimum balance you had during the 90-day period was $15,000, you will receive a $100 bonus. The highest balance tier that you stayed above was $10,000. If your balance drops below $5,000, there is no bonus.
Bonuses are deposited within 10-15 days after the ninety-day maintenance period expires. The funds are available immediately upon deposit.
Capital One 360 is the legacy of ING Direct, the online savings bank that Capital One purchased in 2012. The basic 360 savings account contains no fees and no minimum balance, and is FDIC-insured.
Is the Capital One 360 bonus plan a good deal for you? It may be, but your comparison should be with other online banks instead of the traditional savings accounts of brick and mortar facilities. All online banks offer considerably higher interest rates than traditional bank accounts because of their relative lack of overhead costs. They are able to pass some of the savings on to you as a higher return on your account. As of this writing, there are a few accounts available with around 1% interest, including the Ally Online Savings account. However, Capital One also pays interest besides the 1% bonus, currently at 0.75%
Keep in mind that a 1% bonus on a balance along with 0.75% interest rate does not mean that you are getting 1.75% total interest. You are getting a lump sum bonus of 1% of your deposit amount and 0.75% interest on your total balance. Compare that to an account with no bonus, but a higher interest rate of 1%, and eventually there is a crossover point in time where the higher interest rate account without a bonus is a better value.
To find a breakeven point, use an online interest rate calculator to determine the total value of your deposit after a certain number of years at the competing rate, then compare that with the value of your deposit plus the bonus at 0.75% (not exact, but close enough for comparison). For a $20,000 deposit competing with a 1% Ally account, the crossover point will be close to four years — a pretty good advantage for the Capital One 360 account.
Of course, this also assumes a constant interest rate, and interest rates fluctuate all the time. The point is that you are trading a lower-than-optimal interest rate for a bonus that more than compensates for that in the short term.
At some point in time you will want to re-evaluate your options and seek a better rate or a better promotional deal, and that amount of time depends on how much money you can deposit, as well as how quickly you need access to the money. If you do not have to access the money right away, you can consider CDs and money market accounts with potentially better rates.
As long as you are monitoring rate conditions and can afford to meet the minimum balance requirement, Capital One 360’s bonus deal is hard to beat for a savings account. Do your own calculations, and if you decide to take advantage of this deal, remember that it expires after November 30th,2015. Tell them that MoneyTips sent you!