Comparing Online Banks’ Referral Programs

Referral programs are an easy way to grow your online bank account by helping the bank with its advertising. In brief, the bank will pay you a finder’s fee for each new customer you bring to it. The payment is distributed directly into your online bank account and, for tax purposes, reported as interest on Form 1099 INT. Different banks implement these programs in different ways, variously placing limits on the number of possible referrals and how much they are willing to pay you for bringing them a new customer. In this article, I’ll compare the referral programs of two of the major players in online banking, ING Direct’s Orange savings and VirtualBank’s eMoney Market, and give my review of each bank’s referral program.

ING Direct and VirtualBank, the bonuses

New customers opening an account with a referral receive a $25 welcome bonus from ING Direct and $20 from VirtualBank. The ING Direct Refer A Friend program pays the referrer $10 per successful referral, up to a maximum of 25 successful referrals, for a total of $250. The VirtualBank Refer A Friend program pays more, $20 per successful referral, up to a maximum of 50 potential referrals, for a total of $1000. In order to qualify for these new account bonuses, the accounts must be opened with a minimum deposit, which is $250 for ING Direct and $100 for VirtualBank. The offers are valid only for new account holders, so you can’t keep opening accounts or refer yourself. Once you’ve used your allotted referrals, you’re done.

How much can I earn?

While on its face, the VirtualBank arrangement seems much more lucrative, in my opinion it isn’t implemented as well as the ING Direct program. VB counts each referral email you send as one of your allotment of 50, regardless of whether it successfully converts to a new account. By way of comparison, ING counts only successful referrals against your allotment of 25. With persistence, therefore, it’s possible to wring the maximum amount of $250 out of ING, but one is much less likely to reach the $1000 cap with VB. It isn’t hard to imagine a method that involves emailing each referral to yourself, then forwarding that email to each successive prospective customer until it converts, but at the very least, this isn’t keeping with the spirit of the program, and it may lead to trouble if people report that you are sending them invalid or already used referrals. These banks pay close attention to who’s referring who, and they’re sure to notice if their systems are being exploited. Online banks have been known to drop problem customers as a way of keeping expenses down, and gaming the system like this might be reason enough to cut you a check and close your account. My advice: don’t kill the goose that lays the golden egg.

In my experience, referral requests passively collected from people at least motivated enough to (1) do a Google search for “VirtualBank referral”, and (2) fill out a form asking for their name and email address, seem to successfully convert at a rate of about 1 in 6. Using these figures, by the time you’ve sent your 50 emails, about 8 of them have paid out, and you’re up $160. If you stick to soliciting only friends and family, and keep at them to join up, you may do much better and find VB’s method to be the best. If you’re going to solicit strangers, ING’s method won’t penalize you for the dead beats who never follow through. According to my experience with these two systems, ING Direct has the more successful bank referral program.

I’ve talked to people who have had a better than 1/8 conversion ratio. I’m also sure that there are people who spam news groups with ads for referrals and do much worse than 1/8. This is the biggest problem with VB’s system—you don’t know how much you’ll earn and you’re at the mercy of the people who you refer. The people who cast the biggest net probably benefit the least from a system like this.

Comparing the returns

Even if you never send a referral, simply by opening both accounts with the minimum balance required to earn the bonus you make a 12.8% return on your investment instantly. With time and persistence, a $250 initial investment with ING Direct’s Orange savings will gross $275 in bonus cash, for a 110% return on your investment, plus interest. A $100 initial investment with VirtualBank’s eMoney Market, assuming a 17% conversion rate, will gross $180, for a 180% return, plus interest. Both accounts are absolutely worth doing just for the initial sign-up benefits, not to mention the pretty competitive interest rates.

I recommend opening both accounts using referrals and participating in the programs, but use some strategy when sending out the emails. ING doesn’t penalize you for the long-shots, while VirtualBank is much better for sure-things.