There is no "free" lunch

There is the old saying that "there is no free lunch". If a company offers you free money, they almost always expect to profit from such a transaction later on. Here, "expect" also refers to the mathematical meaning, where we are talking about the expectation value when averaged over time and many such transactions, i.e., even if a company expects to profit "in average", it might be fully content if it does not profit in your particular case. However, in general companies will try to increase the probability to profit in as many cases as possible. In essence, free money is usually the same as paying you to perform a certain action, from which the company hopes to profit later on. The key question for you should be: Do I also expect to profit from this action in the long term, i.e., is it worth it?

Types of offers

For this, it is very important to understand that the expected profit of the company may not necessarily come from you and even if it does, it may actually provide you goods or services that are well worth your money. In all of these situations, there is a chance of a win-win, i.e., a mutual benefit for both you and the company. The situation is entirely different if the expected profit really is to your detriment. This occurs if the required action on your side has much better alternatives, so that taking this action (for free money in the short term) will actually make you lose money or time in the long run (loss of opportunity). Let us look at a few examples.

• Win-win deals. A new company found a way to offer a better or cheaper product than any competitors, for example a bank account. However, other companies are much more established and customers are lazy and hesitant to switch product. As incentive, the company offers a cash bonus when you go through the hassle of switching product, but you will benefit from it in the long term because the product is actually better and cheaper. In the same way, the company will benefit through the customer relationship with you. As long you are not lured into other inferior products (such as insurances, investment accounts etc. that are worse than the ones of competitors), this is a typical win-win situation. The free cash essentially provides a catalyzer for you to perform an action that you benefit yourself, namely switching the account.

• Dangerous offers. The situation is different if the company actually makes money from you making bad decisions in the long run. Sign up bonuses of high interest credit cards are of this type and also many incentives for subscription services. Essentially, you are lured into signing up for a product and agree to terms and conditions, which are hopefully clearly explained and carefully reviewed by you. The company hopes to make a profit from you if you use the service that will actually negatively impact your life, e.g., by going into debt and paying high interest or by staying with a subscription service that becomes much more expensive after the initial time period is up. Such offers can be a very good deal if you stay organized and know how to handle the product. On the other hand, the company is often correct in betting that enough customers, who think that they can handle it, will make mistakes, borrow too much money or forget to close the account. You should carefully analyze such offers and only take advantage of offers, where you are absolutely certain that you will belong to the long term winners, i.e., that you can handle the responsibility.

• Bad deals. There are also outright bad deals out there which make it almost impossible or a really annoying hassle to avoid negative effects in the long run. Of course, this may be slightly subjective, because some dangerous offers may be just bad deals to those people who cannot handle them well, i.e., to those who are poorly organized or easily lured into making poor decisions down the road. This often includes services that promise you to pay some money for doing some small things, such as filling in questionnaires or write reviews. In many such cases the resulting "salary" is much worse than other more legitimate ways of making money, so it is just a bad deal.

• Scams. A scam is essentially a bad deal where the negative consequences are largely hidden, so you are tricked into thinking that it is win-win situation or at least a dangerous offer, but in reality it is almost certain that the other side will actually profit from your detriment. Scams include methods of deception and possibly even making you do something illegal. Everything that makes the appearance that you were particularly lucky is most likely a scam. If you cannot explain why you in particular got a good deal (e.g., because you were particularly smart, because you have specific skills etc.), you are probably scammed. And please be realistic!

How to benefit

Based on this list, you should go for win-win offers and maybe consider some dangerous deals to understand their risk/reward profile, while avoiding any bad deals and scams. Of course, the transition between these four types is fluent and partially subjective, but the presented perspective will serve you well in analyzing and choosing what is best for you.

Our comprehensive list of Services & Accounts mostly includes win-win deals, but also some dangerous offers where we carefully point out the requirements and potential drawbacks.