A Reddit post recently went viral when user, fragydig529, broke down how he invested $50 and made over $17,000 in a year from what he called “bank churning.”
$17,000 sounds like some solid cash. Now what is bank churning?
Bank churning essentially just involves opening new bank accounts to financially profit off banks’ sign-up bonuses. For instance, a bank may offer a new customer $300 for opening an account if they deposit $1,000. Depending on the bank and the kind of account, the customer may need to keep the account open for 90 days to receive the $300 bonus.
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Afterwards, they transfer all $1,300 to the next bank and close the prior account. Rinse, wash, repeat. Quite the loophole. And, yes, it’s all legal.
“Bank churning can be a legitimate side hustle if you’re organized and know what you’re doing,” said Andrew Latham, certified financial planner (CFP) and content director at SuperMoney.com.
However, this banking back comes with large caveats. User fragydig529 (let’s call him “Fragy” for short) put in a grueling amount of work to accrue $17,000 in just one year. Let’s break down his methods.
He Meticulously Researched and Exploited Deposit Requirements
Typically, an account holder needs a certain amount of money (specific to each bank and account type) direct deposited into an account to qualify for a sign-up bonus. This may either be a lump sum or a series of deposits over a specifically designated time frame.
One typically also needs those direct deposits to come through employers or government agencies in order to qualify. Fragy, however, realized the AHC (Automated Clearing House) electronic funds transfer system is outdated and deposits from other banks wound up counting as direct deposits.
See where we’re going with this? After receiving his sign-up bonus from one bank, Fragy closed his account and rolled his bonus into another newly opened account at a different bank (“like a long train”) to serve as his direct deposit.
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But when Fragy noticed only certain banks trigger other banks to accept this type of transfer as a qualifying direct deposit, Fragy did extensive research via subreddits to crack the codes. And if no combination of bank-to-bank transfer triggered a sign-up bonus? Fragy did not simply move on to a different bank.
He opened a business checking account which, he discovered, always counted as a form of direct deposit. He then “directed deposited” money from his own business account into his newly opened bank accounts to receive the sign-up bonus. Venmo sometimes counted, too.
“The fun thing is that once your business starts getting bonuses, it’s counted as income, too, for the business,” wrote Fragy. “Which will qualify you for certain lines of credit as the business. So then you start opening business cards and getting those bonuses, as well.”
And wait, it gets better. If he didn’t have $1,000 (for instance) on hand to qualify for a sign-up bonus at any particular time, he would transfer $250 in and out four times — and, depending on the bank, that counted, too!
Finally, he circumvented monthly account fees by scheduling transfers every 20 days.
He Cleverly Maneuvered Within Requisite Timeframes
Fragy found checking accounts typically didn’t require 60 to 90-day hold periods to qualify for sign-up bonuses — but savings accounts and business accounts did. However, savings and business accounts offer larger sign-up bonuses as a result. So, Fragy stacked them on top of each other:
“I started with $300 bonuses but am doing $5,000 and $1,000 bonuses now, which are slower as most of them are savings bonuses. I usually try to do [three to four] checking bonuses, [two] savings bonuses and [two] business checking at the same time.”
He closed each account as soon as he received his bonus because he will become eligible for a new account with another bonus at that same bank 12 months and one day after closing. However, each bank had different terms and conditions — and could charge fees for closing accounts too early. So, Fragy read the fine print to figure out exactly when he could close each account to avoid incurring fees.
And, finally, because having too many accounts open at once can result in an EWS (Early Warning System) alert being put on you, Fragy stayed away from banks that were “Chex sensitive.”
ChexSystems is a consumer reporting agency that pulls past banking history to determine account eligibility — but some banks are much more stringent about what they flag than others. If he discovered a specific bank was particularly Chex sensitive to multiple accounts being opened, he either avoided it or waited 90 days after opening his last account before opening a new one.
He Kept His Record Clean
Opening a new bank account may involve running the account holder’s credit. So has opening so many accounts negatively affected Fragy’s credit score? It has not.
This is because only some banks actually run your credit or care about credit scores — most used ChexSystems, a consumer reporting agency that, instead, tracks banking activity. He researched and gravitated toward the banks that used ChexSystems.
Additionally, banks sent Fragy 1099’s for earnings over $600 and, to keep everything above board-ish, he reported all earnings to the IRS as taxable income.
“I’ve turned it into a game. I don’t play games or scroll videos on my phone. So all I do on my phone is keep up with banks and their promos, as well as my accounts,” the Redditor said. “I also read every terms and condition before I apply and remember them. My friends are always asking me which banks they should do and what they need to do. It’s literally so fun to educate people on it.”
Hey, if banks routinely harm consumers with high fees, predatory lending and discriminatory practices, good on Fragy for getting his.
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This article originally appeared on GOBankingRates.com: I Made Over $17K in a Year With These Banking Hacks: Here’s How It Works
