is 2.5% worth the minor inconvenience? [checking account]

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rollingkansas
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is 2.5% worth the minor inconvenience? [checking account]

Post by rollingkansas »

I've been lurking on the forum for a while and learning a-lot, but I've got a question to which I couldn't find an answer in older posts.

A while back I found out that my local credit union offers 2.5% APY on balances up to $10,000 and 0.25% on everything above that in a checking account. The catch: you have to execute 10 debit card purchases a month, have one automatic withdrawal (e.g. automatic bill pay, etc), and use e-statements. Since 2.5% is better than anything else I've seen that carries no risk, I decided to open an account and use it as my emergency fund savings. I parked $10,000 in there as my "baseline" and then used everything above that from my salary as my normal checking account. Every month I get paid interest - it's not that much, but it adds up at the end of the year.

I've always had my accounts with online banks for convenience, so having an additional account at a local CU is slightly annoying - more accounts to link, more transfers to schedule, etc. Also, in another few months I'll be moving again, which makes having a good amount of money in a local CU with pretty basic online banking seem like a hassle.

So what do you think? Is a guaranteed 2.5% on $10,000 worth the slight inconvenience? Is having a good portion of my emergency fund in a checking account w/ a debit card more risky than just keeping it in a savings account?

-rollingkansas
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Steady
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Re: is 2.5% worth the minor inconvenience? [checking account

Post by Steady »

I think being forced to use ur debit card 10x per month is the kicker you could lose money.
letsgobobby
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Re: is 2.5% worth the minor inconvenience? [checking account

Post by letsgobobby »

These are widely available though the details vary. We have two such accounts on $40k and find the small effort worthwhile for the $800 or so bucks per year.
bobbun
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Re: is 2.5% worth the minor inconvenience? [checking account

Post by bobbun »

I have never found the debit card thing to be a big deal. I have a fair number of small charges every month that I would be making anyway (lunch, for example) that count. I use a rewards card for bigger transactions, and the debit card for petty cash type expenses. I'm sure the bank would prefer it the other way, but that's not how the terms are spelled out!
bungalow10
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Re: is 2.5% worth the minor inconvenience? [checking account

Post by bungalow10 »

I do this on an account that pays 3% on the first 10k. I find it to be worth it. The key is generating those debit transactions, I have 12 of them that total to $12.12 each month...
An elephant for a dime is only a good deal if you need an elephant and have a dime.
spencer99
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Re: is 2.5% worth the minor inconvenience? [checking account

Post by spencer99 »

I did this for a couple years when my EM balance was more and the interest offer higher. I found the hassle minimal once everything was set up. Bottom line was that I used a debit card a few times a month rather than my usual credit card. Easy money.
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rollingkansas
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Re: is 2.5% worth the minor inconvenience? [checking account

Post by rollingkansas »

Just out of curiousity, have any of you who have similar accounts managed to somehow "automate" your required monthly debit card purchases? While I understand that it would probably be more work to automate the purchases than it would be to just use my debit card, the idea of having some kind of redundant process earn money for me every month excites me haha
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midareff
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Re: is 2.5% worth the minor inconvenience? [checking account

Post by midareff »

Not to mention scratching your whatevers while hopping on one foot and whistling. How much trouble are you willing to go to for $20.83 a month in interest... (less taxes).
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rollingkansas
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Re: is 2.5% worth the minor inconvenience? [checking account

Post by rollingkansas »

midareff wrote:Not to mention scratching your whatevers while hopping on one foot and whistling. How much trouble are you willing to go to for $20.83 a month in interest... (less taxes).
I look at it as two extra six packs of microbrews a month.
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Re: is 2.5% worth the minor inconvenience? [checking account

Post by DTSC »

For me, $250 is nothing to laugh at.

How much do you make per hour at work? How many hours do you have to work to make $250?

This would be a no-brainer for me. My natural gas company (Nicor) actually allows online payments using debit cards. So it would take me just a few minutes to set things up to make 10x $4 payments to pay my gas bill every month.

In fact, I would really appreciate it if you PM me the name of the bank!
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Re: is 2.5% worth the minor inconvenience? [checking account

Post by bungalow10 »

I timed how long it took me to make my 12 transactions - it was less than 10 minutes and that was multitasking. I will spend 10 min for $25.

At the same time I also do a $985 transaction that gets me 2% back on my Fidelity credit card... another $230/year or so in extra money (in addition to the 2% I get back for my normal spending).
An elephant for a dime is only a good deal if you need an elephant and have a dime.
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WallyBird
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Re: is 2.5% worth the minor inconvenience? [checking account

Post by WallyBird »

Yes, it's worth it to me. My CU does 2.5% with similar hoops and qualifiers.

It's $3 minimum on the debit card transactions, so I just use that card for small purchases. Larger buys go on the mileage or the cash back card. The effort is negligible, and hey, it's $250 or so a year. :sharebeer
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rec7
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Re: is 2.5% worth the minor inconvenience? [checking account

Post by rec7 »

bungalow10 wrote:I timed how long it took me to make my 12 transactions - it was less than 10 minutes and that was multitasking. I will spend 10 min for $25.
If you do not mind me asking. How did you do that?
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Re: is 2.5% worth the minor inconvenience? [checking account

Post by nisiprius »

The big question is how long it will last. I think you will find that it doesn't last too long, and that they will cut either the interest rate or the number of dollars on which they pay it, fairly soon, because that's always been my experience with unusually good bank deals, and 2.5% seems unusually good. However, that's not a reason not to try it, as long as you don't mind being seduced and abandoned.

When you open the account I would look them straight in the eye and ask how long the deal will last. You never can tell, you may get an answer. When I opened a similar account and asked that question, they looked uncomfortable and said "We've heard it will be changing in August but I can't tell you what the new terms will be."

I had a similar account. I decided that with a little bit of change in my habits I could satisfy the requirements--in my case 12 point-of-sale swipes per month, 1 ACH transaction per month, and e-delivery of statements--without closing our "traditional" bank account and without disrupting my life at all.

My experience was that it worked exactly as advertised--it wasn't like one of those carnival games that looks easy and is impossible--and for three years I got the stated interest rate every month, no problems. HOWEVER, this was because part of my retirement fitness plan is to buy a lot of our groceries on foot, and I knew I could get at least 15 swipes/month that way. One caution: you had best have a fat safety margin on the number of point-of-sale purchases because of slight irregularities of the dates of the monthly billing cycle and some uncertainty as to exactly the exact date on which a swipe is "counted."

When I started, the account paid 3.99% on the first $50,000. It was almost instantly cut to $25,000. The interest rate declined to 1%. The last straw was was cutting the cap from $25,000 to $10,000. In short, at about $250/year I thought it was worth the effort, at $100/year I did not. Your evaluation may vary.

Oh, I forgot--it did cost me about $20 to order checks (because I wanted to use it as a checking account). On the other hand, they gave me a very strange set of three Corningware fridge-to-microwave cooking pieces on which the lids didn't quite fit as an account-opening gift, so that was worth something.
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letsgobobby
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Re: is 2.5% worth the minor inconvenience? [checking account

Post by letsgobobby »

It has been this way for years.

I buy my gas with debit, saves me 3%, gets 4-8 debit transactions per month, very easy.
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Toons
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Re: is 2.5% worth the minor inconvenience? [checking account

Post by Toons »

DTSC wrote:For me, $250 is nothing to laugh at.

How much do you make per hour at work? How many hours do you have to work to make $250?

This would be a no-brainer for me. My natural gas company (Nicor) actually allows online payments using debit cards. So it would take me just a few minutes to set things up to make 10x $4 payments to pay my gas bill every month.

In fact, I would really appreciate it if you PM me the name of the bank!
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nisiprius
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Re: is 2.5% worth the minor inconvenience? [checking account

Post by nisiprius »

DTSC wrote:...My natural gas company (Nicor) actually allows online payments using debit cards...
The deal is not necessarily the same at every bank, but I don't think this would have worked at my bank. Their literature specifically used the word "swipe" and said that the card needed to be used at a point of sale. I don't use my debit card online so I don't know how an online transaction "looks" to the bank.

Also, one probably wants to exercise reasonably good faith about the purchases. Banks have canceled this kind of account when customers satisfied the requirement by making only tiny transactions; there is sometimes fine print in the terms and conditions that you cannot fulfill the condition with "de minimis" transactions.
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Stupendous
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Re: is 2.5% worth the minor inconvenience? [checking account

Post by Stupendous »

I think it's worth it. I get 3% on $15K. I use self checkout at the grocery store and break up my groceries. I do the same at the gas station. That makes it easy then once done I revert to my reward credit cards.
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Re: is 2.5% worth the minor inconvenience? [checking account

Post by Buffetologist »

I avoid debit cards completely.

If it gets compromised,
1) the money comes out of your account
2) All of your checks bounce
3) You call and they fix it - it takes days.
4) Everyone who you bounced a check to charges a fee.

When my credit card gets compromised
1) They notify me or I notify them
2) I fill out some paperwork
3) They send me another card

And if it's 2.5%, that's only 1.5% more than the best online bank which pays 1%. So now we're talking about $150 extra pre-tax profit. Take off your taxes, and it's likely under $100.

That's just not worth the potential cost and hassle, IMHO.

It's better to get cash back credit card.
Last edited by Buffetologist on Thu May 15, 2014 5:15 pm, edited 1 time in total.
dickenjb
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Re: is 2.5% worth the minor inconvenience? [checking account

Post by dickenjb »

DTSC wrote:For me, $250 is nothing to laugh at.

How much do you make per hour at work? How many hours do you have to work to make $250?
1.25 hours. I did two telephone consulting gigs on Tuesday, each lasted 1:13 and I billed $243 for each.

I wouldn't do what the OP is describing, but then I do not carry debit cards.

If someone finds it worth their while to jump through these hoops, more power to them.

I have a friend who is an AARP Tax Aide and he says "stoozing" is real popular with his clients. They will open and close bank accounts for $50. Makes for a lot of 1099's come tax time.

Anyway, different strokes for different folks, banks & CU's wouldn't offer these deals if they didn't appeal to some.
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Re: is 2.5% worth the minor inconvenience? [checking account

Post by investor1 »

I do it. I tend to have frequent small purchases (~$1), so I use my debt card at the beginning of the month until I have the required amount of transactions. I have been doing it for years, so I don't really put much thought or effort into it, and it makes me about $500/year.
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Re: is 2.5% worth the minor inconvenience? [checking account

Post by Steady »

So 3 dollar min purchases 10 debit charges a month your spending 30 bucks to get 20 bucks might as well not use that bank and get a fidelity credit card and get 2% back on all purchases.
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Re: is 2.5% worth the minor inconvenience? [checking account

Post by surfstar »

I did when the rate was initially 4-5% a few years ago.

Now that it has dropped below 1.5% for 'rewards checking', its not worth my effort. One less card in my wallet now.
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Re: is 2.5% worth the minor inconvenience? [checking account

Post by Alskar »

For me the answer to the OP's question is "yes, absolutely".

My local CU has a reward checking account with an interest rate of 2.25% APY up to $25K. They require 12 debit/credit transactions a month as well as the usual ACH deposit, electronic statement and logging in once per month. I keep the liquid portion of my emergency fund in this account. The interest rate is more than I can get anywhere else without an EWP. I earn $562 per year on my checking account.

I've had this account since early 2009 and I've never failed to qualify for the high interest. Like Nispirus, I've wondered how long it can last, but here we are 5+ years later and no end in sight. I will continue using this account for as long as they offer it.

Using data from my Quicken accounts I determined that if I put all transactions less than $12 on my credit/debit card, I would get the required 12 transactions. That has proven to be correct. My credit/debit transactions seldom go over $100 per month. My highest paying CC (Fidelity AMEX) gives me 2% cashback. If I put that $100 on my AMEX I would only earn $2. So I give up $2 in cashback for $47 per month in interest. Works for me!
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Re: is 2.5% worth the minor inconvenience? [checking account

Post by Kevin M »

I've been through several RCAs. Current one is earning 3% on $20K, and requires 15 purchases. I do my small purchases with this card, and use my cash-back CCs for everything else.

As Nisi points out, these deals typically don't last. Mine is changing in a way I haven't seen yet. Starting in July, they'll require five purchases of $51 or more instead of the current 15 of any size. Haven't decided if I'll continue with it or not.

Other notes. Some online purchases count with my card. My monthly Netflix billing counts. Purchases at Amazon count, but you have to set it up correctly; the default is to use it as a debit card, so you have to override that and set it up as a credit card. Buying one of Bill Bernstein's e-books for $1 is a nice way to get a purchase in.

As others have pointed out, you have to factor in taxes and lost cash-back on credit cards. The latter is why I've been using the card for small purchases. If I spend $200/month on the RCA card, I lose $4 at 2% cash back, and I earn about $50/month on the RCA card, so $4 isn't much to give up. And of course you can earn about 1% with no strings attached in an online savings account, so you're really owning earning the after-tax difference between the RCA rate and that.

One reason I like the RCA is that I can just keep it topped off and pay all my monthly bills out of it, rather than having to worry about having enough in a low-yielding checking account to cover the bills. Of course a downside is that when the deal becomes unattractive, I need to switch all auto deposits and payments to another account.

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Drew31
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Re: is 2.5% worth the minor inconvenience? [checking account

Post by Drew31 »

Timely post as I just noticed a local bank offering something almost identical. Been trying to decide so this has been very helpful to read through the varying opinions. Still undecided if it is worth it...
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Re: is 2.5% worth the minor inconvenience? [checking account

Post by Alskar »

Kevin M wrote:Starting in July, they'll require five purchases of $51 or more instead of the current 15 of any size. Haven't decided if I'll continue with it or not.
That's a new wrinkle I hadn't heard of before. My RCA put a cap on ATM fee reimbursements at $25/month, but they haven't put limits on the transaction size yet. I have very few charges over $51 in a month so that restriction would likely be a deal-killer for me. I will cross that bridge if I come to it. Thanks for the heads up!
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Re: is 2.5% worth the minor inconvenience? [checking account

Post by john94549 »

Too funny. When Rewards Checking first came out, I calculated the time and aggravation entailed to achieve the (modest) rewards. It wasn't worth it then, and I guarantee you, it's not worth it now. Reductions in both caps and rates, you'd need quite a few accounts, and more than quite a few transactions, and a way to keep track of everything. I suspect you'd wind up buying lots of stuff you don't need (ten bags of pretzels, bought one at a time) just to satisfy the idiotic requirements.
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Re: is 2.5% worth the minor inconvenience? [checking account

Post by Browser »

Been doing that for at least 4 years with my CU. Requires 12 purchases per month with the debit card used as credit, and one direct deposit per month. At first they offered 3% on balances up to $25K and now it's 2.5% up to $20K; still pretty good. So, it hasn't quickly disappeared at all (cross fingers and toes). I use my credit cards for everything anyway, so I just make sure to use it first in the month to get my 12 purchases in. I also try to use it for smaller purchases, so I can use my other cash-back cards for the larger ones. When you find a short-term CD yielding 2.5% let me know. Right now the best rate on Bankrate.com is 2.30% on a 5-year with a minimum $25K, so you can kiss your money goodbye for a 5 year cruise to get this one.
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Re: is 2.5% worth the minor inconvenience? [checking account

Post by john94549 »

Browser wrote:Been doing that for at least 4 years with my CU. Requires 12 purchases per month with the debit card used as credit, and one direct deposit per month. At first they offered 3% on balances up to $25K and now it's 2.5% up to $20K; still pretty good. So, it hasn't quickly disappeared at all (cross fingers and toes). I use my credit cards for everything anyway, so I just make sure to use it first in the month to get my 12 purchases in. I also try to use it for smaller purchases, so I can use my other cash-back cards for the larger ones. When you find a short-term CD yielding 2.5% let me know. Right now the best rate on Bankrate.com is 2.30% on a 5-year with a minimum $25K, so you can kiss your money goodbye for a 5 year cruise to get this one.
Exactly. You proved my point. So, for someone with $200K kicking around, he or she would need (a) ten direct deposits; (b) 120 debit transactions/mo; and, (c) a way to keep track of everything. Aside from the 120 debit transactions, how would one (seriously) get ten different direct deposits? All this for a "delta" of what, a hundred fifty basis points/year. Seems like a lot of effort for three hundred bucks or so per annum.
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Re: is 2.5% worth the minor inconvenience? [checking account

Post by ajcp »

john94549 wrote:
Browser wrote:Been doing that for at least 4 years with my CU. Requires 12 purchases per month with the debit card used as credit, and one direct deposit per month. At first they offered 3% on balances up to $25K and now it's 2.5% up to $20K; still pretty good. So, it hasn't quickly disappeared at all (cross fingers and toes). I use my credit cards for everything anyway, so I just make sure to use it first in the month to get my 12 purchases in. I also try to use it for smaller purchases, so I can use my other cash-back cards for the larger ones. When you find a short-term CD yielding 2.5% let me know. Right now the best rate on Bankrate.com is 2.30% on a 5-year with a minimum $25K, so you can kiss your money goodbye for a 5 year cruise to get this one.
Exactly. You proved my point. So, for someone with $200K kicking around, he or she would need (a) ten direct deposits; (b) 120 debit transactions/mo; and, (c) a way to keep track of everything. Aside from the 120 debit transactions, how would one (seriously) get ten different direct deposits? All this for a "delta" of what, a hundred fifty basis points/year. Seems like a lot of effort for three hundred bucks or so per annum.
I don't think anyone does that or has suggested anyone else do that. It's something you keep an emergency fund in, not something you put hundreds of thousands of dollars in. As to OP's question, it's entirely a personal one. I don't have one, but obviously some feel it's worth it.
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Re: is 2.5% worth the minor inconvenience? [checking account

Post by Kevin M »

RCAs obviously aren't for large amounts of money. They are a high-yield substitute for a regular checking account. I really don't go to any extra effort to get my 15 purchases done; just pull out a different card for small purchases.

I must admit that once I get my RCA purchases done for the month, it feels weird using my 2% cash-back American Express for small purchases.

As already acknowledged, the main downside for me has been having to switch accounts every few years. For this reason I stuck with my previous, lower yielding RCA for quite awhile before switching to my new one, which I had known about for some time (it is with a CU that I bought a good CD from, so I was already a member).

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Re: is 2.5% worth the minor inconvenience? [checking account

Post by Browser »

I don't use it for "emergency funds", I use it as my primary checking account. I max out the balance to earn the most interest I can because I can't earn that much anywhere else virtually risk-free. What's not to like?
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Re: is 2.5% worth the minor inconvenience? [checking account

Post by hcrossing »

I receive 2.5% up to $25k for 10 transactions per month. I do three $.05 transactions at the gas station every week until I reach 10 transactions. $.50 for my fairly decent interest each month isn't bad.
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