Citibank $400 in Thank You Rewards via New Checking Accounts

Update: Offer is now expired.

I am all for fantastic offers to encourage people to open new accounts. Banks and credit card companies have been working hard and increasing promotions to draw in new customers. It makes me wonder how these companies make any money paying out hundreds of dollars to get people to switch to them, but there is plenty of money there for all to enjoy.

Every once in a while I see an offer that looks great, and then after diving further, I decide not to take the plunge. Citi Banks new offer is just one of those instances.

Currently, Citi is offering up to $400 in Gift Cards for opening up a new checking account. To me, that sounds like an excellent offer. Here are some specifics on the promotion, and they are not that bad.

1. Open a new Citibank checking account in The Citigold®, Citibank® or
Basic Banking® Account Package by 04/30/12.

2. Within 45 days after account opening, enroll the new checking account in Citi ThankYou® Rewards AND

3. Complete one direct deposit AND complete one qualifying bill payment for two consecutive months1.

Easy enough.

Open a Citigold Account Package and get 40,000 ThankYou® Points, redeemable for up to $400 in gift cards.

Open a Citibank Account Package and get 20,000 ThankYou Points, redeemable for up to $200 in gift cards.

Open a Basic Banking Package and get 6,000 ThankYou Points, redeemable for up to $50 in gift cards.

To be expected, there are various account structures with the above packages.

The Citigold account carries a $50,000 minimum balance, otherwise a $30/month fee.

The Citibank account comes with a $15,000 minimum balance, or a $20/month fee.

Lastly, the Basic Banking account carries a $1,500 Checking AND $500 Savings minimum balances, OR 1 direct deposit AND 1 bill pay each month. Otherwise, there is a $10 monthly fee.

So overall, everything is pretty typical, and the higher the balance, the better the rewards.

Here is where I start to have my doubts. As anyone in the mileage and reward network may know, Citi took it upon themselves to again issue 1099 forms to the IRS last year for people earning rewards via banking bonuses. Citi has every right to do so, and even states in their terms of this promotion, the “value of rewards from redeemed points will be reported to the IRS as miscellaneous income on Form 1099-MISC.” The problem is Citi placed a tremendously high valuation of the bonuses earned, and therefore, put consumers in an interesting predicament on how to report the earnings on their taxes. The problem I see is that Citi really hurts consumer confidence. Let’s take for example this promotion.

If one opens up the Citigold account, and earns 40,000 points valued at $400, you can expect at the end of the year to get a 1099, and if you are in the 25% tax bracket, paying $100 in taxes for the pleasure of earning some rewards. The problem I see is that Citi is pushing their costs of acquiring a new customer onto the clients. It is a poor business decision, and starts to get the IRS involved in taxing rewards that are not typically taxable.

What Can You Do?

I still think opening up a new Citi checking account via this promotion is feasible, even if you do not have enough to maintain minimum account balances. Lets assume you open up the Citigold package to get the most benefit out of the rewards.

There is no minimum account balance, so let’s say you place a couple hundred dollars into the account, sign up for a Thanks You account, and for 2 consecutive months you make your direct deposit and bill pay. Since your account balance is below the minimum, you will be assessed $60 in fees ($30/month). Lets than assume it takes another 30 days for the 40,000 points to be credited to ones Thank You account. Another $30 in fees.

At this point one would have paid $90 in fees, and because the account is beyond 90 days old, you can close the account fee free. You just walked away with 40,000 points and paid $190 in taxes and fees. You still technically come out $200 richer in the end.

If the whole process of getting the Thank You points happens faster than 90 days, you pay less in monthly account fees but still pay a $25 early closure fee. All things factored, the consumer still comes out ahead, although a backwards way of looking at it all.

I think it is false advertising to tell consumers they are getting $400 in gift cards, when they actually get far less factoring in taxes (and fees), but until someone bigger than me questions Citi, to each their own. Maybe I just even talked myself into signing up for an account. Please remind me next year when I get a 1099 from Citi of how I might have talked myself into this misery.

What Can I Get for 40,000 Thank You Points?

There are a mountain of options available via Thank You, including redemption for practically everything including books, music, electronics, home and garden, sporting and outdoors, health and beauty, tools, toys, watches, bags and luggage, and tons of gift cards. Personally, I am most interested in the travel rewards.

There are fewer options than I anticipated, but one can redeem for various denomination in Avis, Carnival Cruises, Hyatt, Marriott, Ritz-Carlton, and Royal Caribbean Cruises. 40,000 Thank You points can be redeemed for $400 in travel gift cards, which depending on how they are redeemed, can be of varying value.