Checking bonus or high-yield savings: where does cash actually earn more?

A $300 checking bonus and a 4% savings APY are both real numbers, and neither one tells you where cash earns more until you put them on the same footing.

Two different kinds of number

A bank bonus is a fixed dollar amount, paid once, usually after a deposit or spending condition is met inside a stated window. An APY is an annual rate, defined under federal disclosure rules as the yield that reflects the total interest earned given the interest rate and the frequency of compounding, calculated on a standard basis so accounts can be compared against each other. ¹ For an account with no stated maturity, such as an ordinary savings account, that calculation assumes a 365-day year. ¹

Comparing a fixed payment to an annual rate only makes sense once the fixed payment is converted into a rate over a stated period, which means picking a holding period before doing the comparison, not after.

The short-period math favors the bonus

A $300 bonus earned on a balance of $3,000 held for the one month it usually takes to satisfy a direct deposit requirement is a 10% return for that single month, which is nothing like a 10% annual rate. Annualized, that same result is well above what any savings account pays, because a one-month return of that size compounded across a year would be extraordinary, and the bonus is not being repeated every month.

That is the honest case for chasing a checking bonus over parking cash in savings: for the qualifying period alone, a bonus almost always beats an ongoing APY on the same balance.

The full-year math changes the answer

The bonus does not repeat. Once it posts, the checking account reverts to its own ongoing rate, which at most large banks is close to zero, and the comparison for the rest of the year is between that ongoing rate and a high-yield savings account's published APY on the same balance, not the bonus figure any more.

A balance left in a 0.1% checking account for eleven months after a bonus earns close to nothing in that period, while the same balance in a 4% high-yield savings account earns real interest across the whole year. The bonus won January; the APY wins the other eleven months, if the cash stays in the lower-rate account out of inertia.

A way to get both

Where a bonus offer's terms do not require the qualifying balance to remain in place after the bonus posts, moving the money to a separate high-yield savings account once the bonus clears captures the bonus and the ongoing yield. That single condition, whether the funds must stay put, is the detail worth reading before moving anything, since some offers do require a holding period that runs past the point the bonus is paid.

Where CardLab helps

CardLab's bank bonus tracker records the qualifying period and any post-bonus holding requirement for each enrolled offer, so the date the cash is free to move is on record rather than guessed at. The ROI figure on a published offer is stated as an effective rate over the actual qualifying period, which is the conversion this comparison needs before a bonus and an APY can be placed side by side.