Can You Make Money Churning Investment Rewards and Cash Bonuses?

Several years ago, I opened two different investment accounts based on the promise of free cash. The first was with Sharebuilder, for a $50 bonus. I opened my account, adhered to the terms, and received my $50 cash bonus. The other account I opened was with the Ohio Advantage 529 Plan. I figured it was a good time to start saving for my son’s college education, and the plan was offering bonuses that totaled about $75 extra cash. Would I have opened these accounts without the bonus? Maybe.

To this day, Sharebuilder is still where I keep the bulk of my emergency fund.

My two accounts have seen annualized returns of about 6.5% since opening them. If I take that free $125 total, and consider the 6.5% for 20 years, compounded monthly, the value of that free money would be around $457.06.

Not bad, since I didn’t actually have to do anything to get that extra cash, other than open accounts and choose low-cost investments to keep in them.

And, even with fees and other costs, I still come out well ahead with the freebies, especially when I get free trades for my automatic investment account every so often, due to various promotions and specials.

However, I suppose that investment rewards churning is somewhat similar to the way I handle credit card rewards churning. I opened a brokerage account at Kapitall for a $25 bonus, and I used it for the Grow Your Dough challenge on the promise of 10 free trades. And my Betterment account was opened with a bonus as well.

Can investment account bonuses be used like credit card rewards hacking? Is is smart, and worthwhile, to churn investment accounts for the bonuses and extra cash, similar to credit cards?

Investment Account Promotions

Even though we hear far more about credit card rewards than we do investment rewards, there are plenty of deals to go around. From promotions that offer free trades, to tablet computers, to cash as signing bonuses, it’s nearly always possible to get freebies when signing up for an investment account.

However, the reason that many investors don’t take advantage is due to the fact that some of the requirements are a little more stringent than what you see with credit cards. I received 60,000 bonus airline miles when I spent $3,000 in three months on the last credit card I got (last year). That was easy. Just spend normal for my budget.

But to get free cash in a brokerage account? I might have to roll over at least $25,000 from an IRA I’m perfectly happy with, or I have to open an account with $10,000. That’s a little harder to accomplish.

My own investment rewards weren’t so onerous, and there are some online brokerages that will give you a bonus just for opening an account with a small minimum and a few trades. However, the idea of investing is still scary to many, and the thought of messing up keeps some from opening new accounts. Plus, it feels harder to consolidate investment accounts than it does to spend money on a credit card.

There are other challenges related to investment account promotions, too, including the increased restrictions. “Years ago this was a lot more common as you could easily avoid restrictions,” says a fellow financial expert, who asked to remain anonymous. “Now they all have account closing fees, account transfer fees, and require minimum lengths of time to keep accounts open.”

Churning your investment accounts for extra cash bonuses is a bit more difficult than just opening a new credit card account for the signing bonus.

However, this financial expert says, that before restrictions grew up around some of the investment awards accounts, he had a pretty good run churning investment accounts, particularly with major brokerage firms that also include banking/money market accounts attached to investment accounts.

He points to a discussion on FlyerTalk, a forum for those who are serious about rewards points and account churning of all kinds, that highlights some of the difficulties serial points earners run into, especially when it comes to brokerages.

“Fidelity no longer allows me to get a bonus,” he says. “I keep my emergency cash in Bank Direct, where they give 5,000 American Airlines miles every month for a $50,000 balance — and a $12 monthly fee.” He points out that, when all is said and done, he gets 60,000 AA miles a year for $144. “That’s a trip to Europe!”

And that’s just from one account. If you add up all the account churning, credit cards, and other accounts he has, this financial expert very rarely pays anything for travel, whether it’s for airfare or a stay at a resort hotel.

For those deep in the hobby, and with extra capital just sitting around, investment account rewards churning can be very profitable.

After all, if you can afford to let $10,000 sit in a brokerage account for six months, and still have enough capital to open another brokerage account elsewhere for the promotion, you could do very well jumping from brokerage to brokerage.

Of course, you need to keep track of all of the terms and conditions, and weigh whether or not any account closing fees, account maintenance fees, or transfer fees are worth it. If you are only getting a $50 bonus, all of the associated fees might not be worth the trouble if you decide to close the account later.

And, of course, if you have a large emergency fund, and know where to look for the kinds of promotions that pay in airline miles for keeping a balance, you can really make out with some great rewareds.

After all, who cares about a “high yield” account when you can basically earn a free trip to Europe each year, just for letting your money sit there?

What do you think? Have you ever done any investment account rewards churning? What ways do you earn cash with your investments?