Re-Thinking Rewards Checking Accounts

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JoMoney
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Re-Thinking Rewards Checking Accounts

Post by JoMoney »

I have been a long time advocate of doing all my spending on a rewards credit card and paying the balance in full each month.
I have dismissed bank debit cards for their inferior liability protections (e.g. Clark Howard 'Why You Should Never Use a Debit Card To Pay For Anything').

It was an easy decision for me. There were reasonable places to get acceptable interest rates on my cash, my credit card gave me 2% cash back on spending, and most of my excess savings was going into stock allocation that I could funnel into after-tax 401k contributions my prior employer's plan allowed. Times have changed. :annoyed

I'm now in a very fortunate predicament of having excess cash to save (even after maxing out Series I Savings Bond contribution), but there just aren't any reasonable yielding options. I'm currently in a bank paying nothing, but offered a big bonus to open the account, and that will keep some of the money tied up for a few months. I've been eyeing First Foundation's Online Savings with 0.75% APY , which is relatively high but $75 on $10,000 there for a year leaves me yawning about whether it's worth my time to even go through application process if I'm going to wind up moving it again a few months down the road.

Now I'm being confronted with a B&M bank (FirstBank) with branches near me advertising a 3.0% APY on up to $25,000 for jumping through rewards checking hoops and using the bank account Debit Card for transactions *(see edit below). $300 on $10,000 is enough to get me scheming :wink:

If I spend $10,000 a year on my rewards credit card (which is a bit of a stretch for me) @ 2% that's $200, and if I open the simple High Yield savings @0.75% on $10,000 that's $75 for a total of: $275

If I have $10,000 in the 3% APY rewards checking, start using the debit card for my spending rather than credit card, I'll earn $300 just on that base deposit amount, and I'll like get it up closer to the $25k cap so it would be closer to a comparison of $750 to use a debit card relative to maybe half that if I'm using my rewards credit card and easy terms simple high-yield savings

Do Boglehead's have some input for me to consider on this?

I apologize if this deemed 'investing' and not 'personal finance', I was on the edge as to which sub to post in, but since this is a finance decision I'm personally considering this is where I posted it. Or is is it a 'personal consumer issue' with the banking services I choose :? :confused

----- Edit to update:----
* Back with an update/correction about the specific First Bank "Performance Checking" account I was considering.
As I understand it now, it is NOT a typical "Rewards Checking Account" that make you jump through hoops to earn the special interest rate.
The 15 debit transactions + direct deposit is only the requirement to avoid the $11.95 monthly service fee, which re-colors my opinion of it a couple different ways:
- It's a separate consideration if I want to use a debit card to save $11.95 each month. Even if I potentially pay $143.40 in a year of monthly service charges, it would still net me a better interest rate then I can get elsewhere. :happy
- With the interest rate not being a "rewards" benefit, I'm more skeptical that this is a teaser rate too good to be true, and won't last :?

We'll see how it goes. :wink:
-----
Another edit:
If anyone looks at this, and is considering and in an area eligible to open an account at First Bank mentioned above, be aware that apparently they've added a promotion to do so with a $100 bonus if you open the account online with promo code: SWITCH2FB
https://www.first.bank/Personal/Spend/C ... onus-Offer
Unfortunately I missed out on that :annoyed
Last edited by JoMoney on Wed Jan 13, 2021 10:05 am, edited 2 times in total.
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JoMoney
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Re: Re-Thinking Rewards Checking Accounts

Post by JoMoney »

I think I already found a wrinkle in this.
The $200 I might get from $10,000 in 2% reward credit card bonus is a tax free "rebate" money.

$300 in $10,000 of 3% rewards checking interest is $200 after federal/state taxes :annoyed
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MishkaWorries
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Re: Re-Thinking Rewards Checking Accounts

Post by MishkaWorries »

JoMoney wrote: Fri Dec 25, 2020 8:35 pm First Foundation's Online Savings[/url] with 0.75% APY , which is relatively high but $75 on $10,000 there for a year leaves me yawning about whether it's worth my time to even go through application process if I'm going to wind up moving it again a few months down the road.

Now I'm being confronted with a B&M bank (FirstBank) with branches near me advertising a 3.0% APY on up to $25,000 for jumping through rewards checking hoops and using the bank account Debit Card for transactions. $300 on $10,000 is enough to get me scheming :wink:
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Re: Re-Thinking Rewards Checking Accounts

Post by 7eight9 »

JoMoney wrote: Fri Dec 25, 2020 8:41 pm I think I already found a wrinkle in this.
The $200 I might get from $10,000 in 2% reward credit card bonus is a tax free "rebate" money.

$300 in $10,000 of 3% rewards checking interest is $200 after federal/state taxes :annoyed
I took a cursory look at the offer. 15 debit card transactions a monthand direct deposit. If (and this is a big if) you can do micro-transactions and have them count as the 15 required (pay a dollar on your utility bill - reload Amazon gift card multiple times - pump $1 of gas 15x, etc.) then why not get the best of both worlds? Park $25K @ 3% and keep your regular spend on a 2% cash back credit card?
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decapod10
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Re: Re-Thinking Rewards Checking Accounts

Post by decapod10 »

I guess I don't see them as comparable. The credit card rewards you get for spending, the checking account "rewards" you get for saving. They aren't mutually exclusive, and they can't really replace each other. If you put the $10k in a checking account, what happens to the $10k in credit card spending? As I see it, the best combination would be to open the checking account and then still spend with the credit card. If there are some debit card hoops you have to go through to keep the 3% interest, you can buy 6 packs of gum on the debit card, then do the rest of the spending on the credit card.
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Re: Re-Thinking Rewards Checking Accounts

Post by JoMoney »

I guess the issue is I'm not thrilled at the idea of manufacturing debit purchases, my expectation was to simply replace my normal credit card spending with debit spending. Direct deposit isn't an issue, but the 15x monthly debit transactions would probably be beyond my normal transactions of even credit card spending. I could do the tricks like breaking up Amazon purchases into multiple small gift card purchases, multiple transactions at the grocery self-check-out, etc..

But if I'm going to do that, I suppose, like suggested.. I could just manufacture all 15 necessary debit transactions and continue to use my reward card to boot... hmmm...
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UpperNwGuy
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Re: Re-Thinking Rewards Checking Accounts

Post by UpperNwGuy »

I get those offers all the time, and I just ignore them. Am I passing up free money? Probably. Am I happier by passing it up? Definitely. I hate debit cards, and any attempt by a bank to encourage me to use debit cards instead of credit cards for my purchases just gets me annoyed.
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Re: Re-Thinking Rewards Checking Accounts

Post by tomsense76 »

JoMoney wrote: Fri Dec 25, 2020 8:41 pm I think I already found a wrinkle in this.
The $200 I might get from $10,000 in 2% reward credit card bonus is a tax free "rebate" money.

$300 in $10,000 of 3% rewards checking interest is $200 after federal/state taxes :annoyed
Not sure what tax bracket apply, but if is one in a higher federal tax rate, that would be ~1/3 being taxed. So 3% before tax would be equivalent to 2% after tax. This is ignoring the benefit of the savings account rate, which may make the HYSA solution squeak out ahead. If you are in a lower tax bracket though, maybe the 3% works out to be a better deal (even with tax included).

FWIW have also been musing about how to improve yield on the fixed income side of the equation. Am looking at using the stable value fund in my 401k for the longer end of my emergency fund ( viewtopic.php?t=333779 ). This would effectively be tax free (at least in the time horizon where the emergency fund is used) or potentially taxed at capital gains rates (selling equities in taxable and buying them with stable value fund in 401k). This comes up in the wiki as well.
Jags4186
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Re: Re-Thinking Rewards Checking Accounts

Post by Jags4186 »

You pay taxes on interest, you don’t on CC rewards. Instead of futzing with a rewards checking account (which all inevitably get nerfed at some point), just take that $10k and open an account with a new account bonus. You should be able to nab at least $300 on $10k opening 1 account and do all your spending on your 2% CC. Then you get the best of both worlds!
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Re: Re-Thinking Rewards Checking Accounts

Post by JoMoney »

tomsense76 wrote: Fri Dec 25, 2020 9:23 pm
JoMoney wrote: Fri Dec 25, 2020 8:41 pm I think I already found a wrinkle in this.
The $200 I might get from $10,000 in 2% reward credit card bonus is a tax free "rebate" money.

$300 in $10,000 of 3% rewards checking interest is $200 after federal/state taxes :annoyed
Not sure what tax bracket apply, but if is one in a higher federal tax rate, that would be ~1/3 being taxed. So 3% before tax would be equivalent to 2% after tax. This is ignoring the benefit of the savings account rate, which may make the HYSA solution squeak out ahead. If you are in a lower tax bracket though, maybe the 3% works out to be a better deal (even with tax included).

FWIW have also been musing about how to improve yield on the fixed income side of the equation. Am looking at using the stable value fund in my 401k for the longer end of my emergency fund ( viewtopic.php?t=333779 ). This would effectively be tax free (at least in the time horizon where the emergency fund is used) or potentially taxed at capital gains rates (selling equities in taxable and buying them with stable value fund in 401k). This comes up in the wiki as well.
Tax rate I used was estimating 24% Federal + 9% California = 33%
I didn't go into the whole portfolio, but I'm also making use of a "Stable Value Fund" in my new employers 401k plan for all my new contributions... trying to get my FI balance up. I have an IRA that I could sell stocks and buy a bond fund if I was anxious about getting the asset-allocation right, but I'm not in a hurry for that, I find the bond yields disgusting, and I'm really trying to avoid buying stocks in my taxable account - for absolutely irrational reasons I'm trying to avoid any 1099-B's or capital gains taxes.. trying to 'simplify' my taxes to just W2 & 1099-INT for the time being...
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Re: Re-Thinking Rewards Checking Accounts

Post by sport »

UpperNwGuy wrote: Fri Dec 25, 2020 9:15 pm I get those offers all the time, and I just ignore them. Am I passing up free money? Probably. Am I happier by passing it up? Definitely. I hate debit cards, and any attempt by a bank to encourage me to use debit cards instead of credit cards for my purchases just gets me annoyed.
+1 I feel this way too.
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Re: Re-Thinking Rewards Checking Accounts

Post by decapod10 »

JoMoney wrote: Fri Dec 25, 2020 9:08 pm I guess the issue is I'm not thrilled at the idea of manufacturing debit purchases, my expectation was to simply replace my normal credit card spending with debit spending. Direct deposit isn't an issue, but the 15x monthly debit transactions would probably be beyond my normal transactions of even credit card spending. I could do the tricks like breaking up Amazon purchases into multiple small gift card purchases, multiple transactions at the grocery self-check-out, etc..

But if I'm going to do that, I suppose, like suggested.. I could just manufacture all 15 necessary debit transactions and continue to use my reward card to boot... hmmm...
If you're going to go through the trouble, it's probably much higher yield to either chase credit card bonuses (churning) and/or use multiple credit cards in order to maximize rewards points.
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Re: Re-Thinking Rewards Checking Accounts

Post by k3vb0t »

We utilize reward checking accounts and love them AND our multiple credit card reward/signup bonuses. You can have the best of both worlds.

Maybe it is having two kids, but we have no problem getting the required number of swipes and still enjoying a bounty of credit card rewards.

It really isn’t that hard to go through grocery checkout and just have them put one item on the debit swipe first, then the rest on my rewards card. I don’t do the Amazon micro transactions because that will eventually get caught/nerfed. I’m willing to support my local credit union with actual swipes to thank them for the many, many years of above rate interest rewards.

I would agree that putting $10,000 in spend to get $300 in taxable interest is a poor choice... but, put say $1,000 per year of spend on the debit (or significantly less), earn $300 (and more once you fill the account up) AND get $180+ in credit card cash back on the remaining spend. Best of both worlds.

You could even reward yourself by spending half of the interest income you earn in order to justify the annoyance of having to do it. Not the spreadsheet-accurate-Boglehead way, but something to consider. Park $25k there, earn $60 in interest, and spend $30 of it to pay yourself for the hassle. Maybe you wouldn’t normally pay for a $10 car wash, but you do that as one of your debit swipes each month and reward yourself that way, etc.
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Re: Re-Thinking Rewards Checking Accounts

Post by JoMoney »

Jags4186 wrote: Fri Dec 25, 2020 9:30 pm You pay taxes on interest, you don’t on CC rewards. Instead of futzing with a rewards checking account (which all inevitably get nerfed at some point), just take that $10k and open an account with a new account bonus. You should be able to nab at least $300 on $10k opening 1 account and do all your spending on your 2% CC. Then you get the best of both worlds!
That's probably the route I'll go, that's where I'm at for the time being with a few months to go before I complete the current new account 'bonus' terms. I was just so surprised by this 3% APY offer I saw it made me start re-thinking things...
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Re: Re-Thinking Rewards Checking Accounts

Post by Jags4186 »

JoMoney wrote: Fri Dec 25, 2020 9:48 pm
Jags4186 wrote: Fri Dec 25, 2020 9:30 pm You pay taxes on interest, you don’t on CC rewards. Instead of futzing with a rewards checking account (which all inevitably get nerfed at some point), just take that $10k and open an account with a new account bonus. You should be able to nab at least $300 on $10k opening 1 account and do all your spending on your 2% CC. Then you get the best of both worlds!
That's probably the route I'll go, that's where I'm at for the time being with a few months to go before I complete the current new account 'bonus' terms. I was just so surprised by this 3% APY offer I saw it made me start re-thinking things...
Those rewards checking deals all inevitably lower the interest rate, or decrease the amount you can earn the interest rate on. And then you end up having an account at some random credit union in Michigan or Illinois that isn’t particularly easy to close. It just isn’t worth it in my experience.
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Re: Re-Thinking Rewards Checking Accounts

Post by JoMoney »

Jags4186 wrote: Sat Dec 26, 2020 8:45 am
JoMoney wrote: Fri Dec 25, 2020 9:48 pm
Jags4186 wrote: Fri Dec 25, 2020 9:30 pm You pay taxes on interest, you don’t on CC rewards. Instead of futzing with a rewards checking account (which all inevitably get nerfed at some point), just take that $10k and open an account with a new account bonus. You should be able to nab at least $300 on $10k opening 1 account and do all your spending on your 2% CC. Then you get the best of both worlds!
That's probably the route I'll go, that's where I'm at for the time being with a few months to go before I complete the current new account 'bonus' terms. I was just so surprised by this 3% APY offer I saw it made me start re-thinking things...
Those rewards checking deals all inevitably lower the interest rate, or decrease the amount you can earn the interest rate on. And then you end up having an account at some random credit union in Michigan or Illinois that isn’t particularly easy to close. It just isn’t worth it in my experience.
Thanks... This particular bank has a B&M location near me, put a sign up outside advertising it which is what directed me to it. Very well may be a teaser as I don't recall seeing it offered before. On the other hand, when I started looking around the Internet it does look like this sort of thing has been around for awhile and offered several different places, but mostly through online only Fin-Tech apps, credit unions in places I've never been, and accounts with gotcha fees.
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Re: Re-Thinking Rewards Checking Accounts

Post by 8foot7 »

The technology to detect patterns of micro transactions like $1 utility payments and 15 packs of gum over the month is getting better and better and Kasasa (the brains behind many of these accounts) is getting much more reliable at providing reports of folks not using the account as intended. You’ll find more of these accounts with the legalese that you are intended to put your primary spending on the account and if you are gaming things they reserve the right not to pay etc.

To be sure all institutions aren’t on this path. But the number goes up continuously. And if they pull the rug six months into your year you’ve spent some mental and physical effort for very little reward.
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Re: Re-Thinking Rewards Checking Accounts

Post by JoMoney »

8foot7 wrote: Sat Dec 26, 2020 9:25 am The technology to detect patterns of micro transactions like $1 utility payments and 15 packs of gum over the month is getting better and better and Kasasa (the brains behind many of these accounts) is getting much more reliable at providing reports of folks not using the account as intended. You’ll find more of these accounts with the legalese that you are intended to put your primary spending on the account and if you are gaming things they reserve the right not to pay etc.

To be sure all institutions aren’t on this path. But the number goes up continuously. And if they pull the rug six months into your year you’ve spent some mental and physical effort for very little reward.
Thanks... If I went this direction, I don't think I would be trying to manufacture spending, I would direct my spending to it, just have to make sure I'm using my debit card to buy lunch, gas, grocery... everything...
At this point, my bigger concern is I might be uneasy about handing the debit card tied to my primary bank account through every drive through window, shady gas pump, and online web site :?
Followed up by the idea that I might find some new credit card deal or bank account a few months later and be trying to re-tool all my finances.

I think I really need a deep dive into how much risk I'm being exposed to using a debit card vs credit :annoyed
... maybe some consideration about what it might mean to my credit if I go full Dave Ramsey and not using credit at all
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Re: Re-Thinking Rewards Checking Accounts

Post by stan1 »

Helps if you have a reliable source for micro-transactions. At work we had a $1.25/cup coffee machine that took credit/debit cards.
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Re: Re-Thinking Rewards Checking Accounts

Post by humblecoder »

JoMoney wrote: Sat Dec 26, 2020 9:37 am
8foot7 wrote: Sat Dec 26, 2020 9:25 am The technology to detect patterns of micro transactions like $1 utility payments and 15 packs of gum over the month is getting better and better and Kasasa (the brains behind many of these accounts) is getting much more reliable at providing reports of folks not using the account as intended. You’ll find more of these accounts with the legalese that you are intended to put your primary spending on the account and if you are gaming things they reserve the right not to pay etc.

To be sure all institutions aren’t on this path. But the number goes up continuously. And if they pull the rug six months into your year you’ve spent some mental and physical effort for very little reward.
Thanks... If I went this direction, I don't think I would be trying to manufacture spending, I would direct my spending to it, just have to make sure I'm using my debit card to buy lunch, gas, grocery... everything...
At this point, my bigger concern is I might be uneasy about handing the debit card tied to my primary bank account through every drive through window, shady gas pump, and online web site :?
Followed up by the idea that I might find some new credit card deal or bank account a few months later and be trying to re-tool all my finances.

I think I really need a deep dive into how much risk I'm being exposed to using a debit card vs credit :annoyed
... maybe some consideration about what it might mean to my credit if I go full Dave Ramsey and not using credit at all
Not sure why this is even a question.

Option A: $10,000 @ 0.75% HYSA +$10,000 2% cash back card
$75 interest (taxed at 1/3) -> $50 after tax
$200 cash back
$250 total

Option B: $10,000 @ 3%+$0 cash back
$300 interest (taxed at 1/3) -> $200 after tax
$200 total

Add to that your justified concerns about using your debit card for purchases, Option B seems like an absolute loser to me.

The only way this makes any sort of sense is if you continue to use your 2% cash back card for purchases and limit your debit purchases to micro transactions that meet the minimum required to get the bonus rate.
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Re: Re-Thinking Rewards Checking Accounts

Post by lakpr »

humblecoder wrote: Sat Dec 26, 2020 11:47 am Not sure why this is even a question.

Option A: $10,000 @ 0.75% HYSA +$10,000 2% cash back card
$75 interest (taxed at 1/3) -> $50 after tax
$200 cash back
$250 total

Option B: $10,000 @ 3%+$0 cash back
$300 interest (taxed at 1/3) -> $200 after tax
$200 total

Add to that your justified concerns about using your debit card for purchases, Option B seems like an absolute loser to me.

The only way this makes any sort of sense is if you continue to use your 2% cash back card for purchases and limit your debit purchases to micro transactions that meet the minimum required to get the bonus rate.
That red-bolded portion is how you should be using the RCAs. Even if the bank does not allow micro transactions, let's say you charge about $15 per purchase and 15 such purchases per month, you spend $225 on a debit card. In return, you get 3% on $25k = $750, after taxes = $500. Less 2% rewards you would have earned on a credit card = $4.50. Net profit = $495.50 per year.

If you have a spouse and have the spouse open an individual account, that's another $495.50 per year = $991 per year.

Unlike the sign up bonuses you get this year in and year out (or at least until they nerf the scheme).

I am with Lake Michigan Credit Union, which offers 3% on a $15k balance, per SSN, so that's $450 per year. $900 for me + my spouse. LMCU does accept micro transactions (I pay my Xfinity bill as 10 separate transactions), so that's an easy $900 before-tax, or $600 after-tax.

Better than chasing the sign up bonuses.
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Re: Re-Thinking Rewards Checking Accounts

Post by lakpr »

stan1 wrote: Sat Dec 26, 2020 10:14 am Helps if you have a reliable source for micro-transactions. At work we had a $1.25/cup coffee machine that took credit/debit cards.
Amazon gift-card reloads!! Not going away any time soon unless Amazon changes its policy to reload gift cards or Amazon itself goes bankrupt. Probability of either event is extremely low, IMO.
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Re: Re-Thinking Rewards Checking Accounts

Post by tj »

humblecoder wrote: Sat Dec 26, 2020 11:47 am
JoMoney wrote: Sat Dec 26, 2020 9:37 am
8foot7 wrote: Sat Dec 26, 2020 9:25 am The technology to detect patterns of micro transactions like $1 utility payments and 15 packs of gum over the month is getting better and better and Kasasa (the brains behind many of these accounts) is getting much more reliable at providing reports of folks not using the account as intended. You’ll find more of these accounts with the legalese that you are intended to put your primary spending on the account and if you are gaming things they reserve the right not to pay etc.

To be sure all institutions aren’t on this path. But the number goes up continuously. And if they pull the rug six months into your year you’ve spent some mental and physical effort for very little reward.
Thanks... If I went this direction, I don't think I would be trying to manufacture spending, I would direct my spending to it, just have to make sure I'm using my debit card to buy lunch, gas, grocery... everything...
At this point, my bigger concern is I might be uneasy about handing the debit card tied to my primary bank account through every drive through window, shady gas pump, and online web site :?
Followed up by the idea that I might find some new credit card deal or bank account a few months later and be trying to re-tool all my finances.

I think I really need a deep dive into how much risk I'm being exposed to using a debit card vs credit :annoyed
... maybe some consideration about what it might mean to my credit if I go full Dave Ramsey and not using credit at all
Not sure why this is even a question.

Option A: $10,000 @ 0.75% HYSA +$10,000 2% cash back card
$75 interest (taxed at 1/3) -> $50 after tax
$200 cash back
$250 total

Option B: $10,000 @ 3%+$0 cash back
$300 interest (taxed at 1/3) -> $200 after tax
$200 total

Add to that your justified concerns about using your debit card for purchases, Option B seems like an absolute loser to me.

The only way this makes any sort of sense is if you continue to use your 2% cash back card for purchases and limit your debit purchases to micro transactions that meet the minimum required to get the bonus rate.
Comparing $10,000 in spending on a 2% card to a debit card seems absolutely ridiculous. Nobody would spend $10,000/month on the debit. If you need 15 transactions, let's say you grab a take out lunch every work day for around $8 each and let's say you don't want to bother counting up to 15 so that you know when to switch to the credit card, let's say its 20 days x $8 = $160.00 $160 x 2% = $8.00 in lost rewards. Who wouldn't pay $8/mo in lost credit card rewards to earn $200 after tax?
tj
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Re: Re-Thinking Rewards Checking Accounts

Post by tj »

lakpr wrote: Sat Dec 26, 2020 12:44 pm
humblecoder wrote: Sat Dec 26, 2020 11:47 am Not sure why this is even a question.

Option A: $10,000 @ 0.75% HYSA +$10,000 2% cash back card
$75 interest (taxed at 1/3) -> $50 after tax
$200 cash back
$250 total

Option B: $10,000 @ 3%+$0 cash back
$300 interest (taxed at 1/3) -> $200 after tax
$200 total

Add to that your justified concerns about using your debit card for purchases, Option B seems like an absolute loser to me.

The only way this makes any sort of sense is if you continue to use your 2% cash back card for purchases and limit your debit purchases to micro transactions that meet the minimum required to get the bonus rate.
That red-bolded portion is how you should be using the RCAs. Even if the bank does not allow micro transactions, let's say you charge about $15 per purchase and 15 such purchases per month, you spend $225 on a debit card. In return, you get 3% on $25k = $750, after taxes = $500. Less 2% rewards you would have earned on a credit card = $4.50. Net profit = $495.50 per year.

If you have a spouse and have the spouse open an individual account, that's another $495.50 per year = $991 per year.

Unlike the sign up bonuses you get this year in and year out (or at least until they nerf the scheme).

I am with Lake Michigan Credit Union, which offers 3% on a $15k balance, per SSN, so that's $450 per year. $900 for me + my spouse. LMCU does accept micro transactions (I pay my Xfinity bill as 10 separate transactions), so that's an easy $900 before-tax, or $600 after-tax.

Better than chasing the sign up bonuses.
I prefer chasing the signup bonuses personally, it's much less capital intensive, often I just have to divert a couple direct deposits to trigger them, you can utilize your larger balances in long term investments, or, you can recycle the same funds over and over triggering new sign up bonuses. $25k in the Rewards Checking earns you $750 per year, but in both 2019 and 2020 I will have over $3k in 1099-INT income, the bulk of which is from sign up bonuses.
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Re: Re-Thinking Rewards Checking Accounts

Post by lakpr »

tj wrote: Sat Dec 26, 2020 1:06 pm
lakpr wrote: Sat Dec 26, 2020 12:44 pm
humblecoder wrote: Sat Dec 26, 2020 11:47 am Not sure why this is even a question.

Option A: $10,000 @ 0.75% HYSA +$10,000 2% cash back card
$75 interest (taxed at 1/3) -> $50 after tax
$200 cash back
$250 total

Option B: $10,000 @ 3%+$0 cash back
$300 interest (taxed at 1/3) -> $200 after tax
$200 total

Add to that your justified concerns about using your debit card for purchases, Option B seems like an absolute loser to me.

The only way this makes any sort of sense is if you continue to use your 2% cash back card for purchases and limit your debit purchases to micro transactions that meet the minimum required to get the bonus rate.
That red-bolded portion is how you should be using the RCAs. Even if the bank does not allow micro transactions, let's say you charge about $15 per purchase and 15 such purchases per month, you spend $225 on a debit card. In return, you get 3% on $25k = $750, after taxes = $500. Less 2% rewards you would have earned on a credit card = $4.50. Net profit = $495.50 per year.

If you have a spouse and have the spouse open an individual account, that's another $495.50 per year = $991 per year.

Unlike the sign up bonuses you get this year in and year out (or at least until they nerf the scheme).

I am with Lake Michigan Credit Union, which offers 3% on a $15k balance, per SSN, so that's $450 per year. $900 for me + my spouse. LMCU does accept micro transactions (I pay my Xfinity bill as 10 separate transactions), so that's an easy $900 before-tax, or $600 after-tax.

Better than chasing the sign up bonuses.
I prefer chasing the signup bonuses personally, it's much less capital intensive, often I just have to divert a couple direct deposits to trigger them, you can utilize your larger balances in long term investments, or, you can recycle the same funds over and over triggering new sign up bonuses. $25k in the Rewards Checking earns you $750 per year, but in both 2019 and 2020 I will have over $3k in 1099-INT income, the bulk of which is from sign up bonuses.
I believe it is actually MORE capital intensive chasing the sign up bonuses, but agree with you that the reward is commensurately higher. With the LMCU example I quoted above, I complete the 10 debit transactions times 2 for myself and my spouse ... takes about 20 minutes on a Sunday per month. We do NOT have to move our money frequently, it can remain where it is. That is a significant factor for us in not chasing the bonuses.

We used Chase Checking + Saving bonus offer as a comparison; that bonus can be had only once every 2 years (??, not up to date), and it's $500 for the combo that locks up $1500 in checking account plus $15k for savings. That's only $500 per person over 2 years = $250 per year per person, or for me + my spouse, that's $500 per year. With LMCU, we earn $900 per year (and all comparisons are on pre-tax basis). I am aware that you can move the money out to another bank and earn that money, but the convenience of NOT having to move our accounts beats out the lure of higher rewards.
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Re: Re-Thinking Rewards Checking Accounts

Post by my name »

The reward checking accounts were great during the years of the great recession. The regional banks needed cash. When brokerage MM accounts were paying nothing, the banks were paying 4% interest on up to $25,000. It was great for money you needed to or wanted to keep in cash, and insured. I had an account at 2 banks, and 3 at one point. I was making a few thousand $$$ a year. To get my 10 debit card swipes per account, I'd ring up the $1.09 bananas at the grocery store, and put the rest on the Amazon Chase card that paid me 3% for anything bought at Amazon, 2% at restaurants, gas or drug stores, and the rest 1%. Chase lets you use your rewards to pay down your credit card bill - so cash back - or you can use it to discount Amazon purchases further than their low price. I believe I'll have free books for life. And I did buy my kitchen sink at Amazon. Worked out well.

The 4% dropped after the recession years. It is now 1.5 % on up to $15,000 at my bank. Very few banks have it now. I now have just 1 of these accounts for my checking, bill pay, and it serves also as my saving account / emergency fund. Banks that are advertising with higher interest are using it as a marketing tool, and these rates don't seem to last long term. It is just to get you in the door now. It is a pain to switch banks around, especially if you are set up for bill pay and check writing.
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Re: Re-Thinking Rewards Checking Accounts

Post by tj »

my name wrote: Sat Dec 26, 2020 1:42 pm The reward checking accounts were great during the years of the great recession. The regional banks needed cash. When brokerage MM accounts were paying nothing, the banks were paying 4% interest on up to $25,000. It was great for money you needed to or wanted to keep in cash, and insured. I had an account at 2 banks, and 3 at one point. I was making a few thousand $$$ a year. To get my 10 debit card swipes per account, I'd ring up the $1.09 bananas at the grocery store, and put the rest on the Amazon Chase card that paid me 3% for anything bought at Amazon, 2% at restaurants, gas or drug stores, and the rest 1%. Chase lets you use your rewards to pay down your credit card bill - so cash back - or you can use it to discount Amazon purchases further than their low price. I believe I'll have free books for life. And I did buy my kitchen sink at Amazon. Worked out well.

The 4% dropped after the recession years. It is now 1.5 % on up to $15,000 at my bank. Very few banks have it now. I now have just 1 of these accounts for my checking, bill pay, and it serves also as my saving account / emergency fund. Banks that are advertising with higher interest are using it as a marketing tool, and these rates don't seem to last long term. It is just to get you in the door now. It is a pain to switch banks around, especially if you are set up for bill pay and check writing.
This is why I can't use these as a primary checking/savings account. It would be a hassle to change everything. I haven't used a rewards checking account in a few years, but I just signed up for liberty.financial, which is 3.3% on $20k for 15 debit swipes. We'll see how long it lasts.
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Re: Re-Thinking Rewards Checking Accounts

Post by JoMoney »

tj wrote: Sat Dec 26, 2020 1:03 pm...
Comparing $10,000 in spending on a 2% card to a debit card seems absolutely ridiculous. Nobody would spend $10,000/month on the debit. If you need 15 transactions, let's say you grab a take out lunch every work day for around $8 each and let's say you don't want to bother counting up to 15 so that you know when to switch to the credit card, let's say its 20 days x $8 = $160.00 $160 x 2% = $8.00 in lost rewards. Who wouldn't pay $8/mo in lost credit card rewards to earn $200 after tax?
It was not $10,000/month , it's $10,000 a year... which is about what my annual credit card spending is, on a 2% cash back card.
I had given that example, because if I redirected that spending to to a debit card I would lose that $200 in 'bonus' money, in exchange for earning the higher interest on a reward checking.
You (and others) are right that it's not an all or nothing situation, optimally I would try to use both, and have my "lunch" card to try and get to the 15x transactions each month, and my "everything else" card ...

I just need to decide how much un-simplifying I'm willing to do. It's an amount that I think might be worth the effort for me. I would just find myself undoing things that I had previously tried to simply and doing things (like using a debit card) that I've said I would never do :?
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Re: Re-Thinking Rewards Checking Accounts

Post by sport »

The whole premise of the high interest checking account with a debit card implies a fairly large balance in the checking account. However, this large balance might be exposed to debit card fraud or errors. Accordingly, I would suggest that this setup should be considered only if you can put a fairly low limit on the size of the debit card transactions. It is one thing to try to get back $100 transferred fraudulently and quite another to try to get a $10,000 transaction reversed.
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Re: Re-Thinking Rewards Checking Accounts

Post by tj »

sport wrote: Sat Dec 26, 2020 3:54 pm The whole premise of the high interest checking account with a debit card implies a fairly large balance in the checking account. However, this large balance might be exposed to debit card fraud or errors. Accordingly, I would suggest that this setup should be considered only if you can put a fairly low limit on the size of the debit card transactions. It is one thing to try to get back $100 transferred fraudulently and quite another to try to get a $10,000 transaction reversed.
This is a fair point. I wonder if you can set maximum purchase limits on the Rewards Checking debit card.
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Re: Re-Thinking Rewards Checking Accounts

Post by JoMoney »

sport wrote: Sat Dec 26, 2020 3:54 pm The whole premise of the high interest checking account with a debit card implies a fairly large balance in the checking account. However, this large balance might be exposed to debit card fraud or errors. Accordingly, I would suggest that this setup should be considered only if you can put a fairly low limit on the size of the debit card transactions. It is one thing to try to get back $100 transferred fraudulently and quite another to try to get a $10,000 transaction reversed.
It is a concern, but I doubt the debit card would even allow a transaction of that size and likely has a daily total limit much less (just guessing based on every other debit card I've seen.) Most debit cards have a Visa " Zero Liability " promise, as long as any fraudulent activity is reported in a timely manner... I'm not worried that I won't notice a charge I didn't make quickly (I check my statements and accounts frequently). I expect the bigger concern is that if it happens I'm in a situation where I have to fight to get my money restored to me (which could impact bill payments) as opposed to a credit card where it's just a credit balance in limbo while the bank does whatever "investigation" they do on these claims.
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Re: Re-Thinking Rewards Checking Accounts

Post by camillus »

My wife and I each have reward checking accounts and need to do these transactions. I have our debit cards set up as payment options on Amazon (correctly as “debit cards” which requires you check a box). Our default payment option on Amazon is a 5% cc.

Once a month, I zip through transactions on both cards.

50 cents, 51, 52...

I’d say it takes 3 mins per card. I have a monthly reminder to do this on my phone. There is some other regular activity on the debit cards via utility autopay, etc.

The Amazon gift card balance gets used up with household purchases.

I suppose banks could disallow this by requiring $750 monthly debit spending instead of a number of transactions.

Credit cards:
5% Amazon card (no fee) set as default payment on AMZN, otherwise kept in drawer.
6% grocery card (AF) as default payment for instacart, also kept in drawer
2% card rides in my wallet.
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Re: Re-Thinking Rewards Checking Accounts

Post by my name »

JoMoney wrote: Sat Dec 26, 2020 4:14 pm
sport wrote: Sat Dec 26, 2020 3:54 pm ... this large balance might be exposed to debit card fraud or errors. Accordingly, I would suggest that this setup should be considered only if you can put a fairly low limit on the size of the debit card transactions. It is one thing to try to get back $100 transferred fraudulently and quite another to try to get a $10,000 transaction reversed.
I doubt the debit card would even allow a transaction of that size and likely has a daily total limit... Most debit cards have a Visa " Zero Liability " promise, as long as any fraudulent activity is reported in a timely manner... I expect the bigger concern is ... I have to fight to get my money restored to me ...
I've had no problem for a decade with my debit card / accounts. I set a low limit on withdrawals including ATMs so no one would clean out my account. I have alerts set-up so I know about any money movements. I have done wire transfers for over a hundred thousand dollars in a real estate transaction - I got that from a Vanguard account to my bank account, then wired to real estate company. I chose to do this at the bank and had the banker to it. My contact at the other end said when it was received before I left the bank. Interesting that the big brokerages will not wire transfer a 401K to another brokerage's IRA, like Fidelity to Vanguard, because it might get to the wrong account. They send you a huge check, made out correctly to the other brokerage, but you have to get it to the other brokerage - I did overnight mail. I have sold stock and had the brokerage transfer money into my bank account, then I transferred that to Vanguard. I have transferred money between the bank and Vanguard many times. Also, I lost a thumb drive with financial data (later found it under my sofa). I spoke to my bank branch manager and she assured me if there was a problem of funds withdrawn that was not done by me, that the bank would take care of me. I check my statements/accounts monthly, plus have the alerts mentioned. The police would get involved, but the bank would make me whole.

You may be overthinking your worrying about having a debit card.
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Re: Re-Thinking Rewards Checking Accounts

Post by JoMoney »

my name wrote: Sat Dec 26, 2020 6:04 pm ... You may be overthinking your worrying about having a debit card.
I am prone to do that, Thanks! :beer
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Re: Re-Thinking Rewards Checking Accounts

Post by Samosa22 »

JoMoney wrote: Fri Dec 25, 2020 9:08 pm I guess the issue is I'm not thrilled at the idea of manufacturing debit purchases, my expectation was to simply replace my normal credit card spending with debit spending. Direct deposit isn't an issue, but the 15x monthly debit transactions would probably be beyond my normal transactions of even credit card spending. I could do the tricks like breaking up Amazon purchases into multiple small gift card purchases, multiple transactions at the grocery self-check-out, etc..

But if I'm going to do that, I suppose, like suggested.. I could just manufacture all 15 necessary debit transactions and continue to use my reward card to boot... hmmm...
15 Amazon reloads, $0.50 each. Takes less than 3 minutes per month.
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Re: Re-Thinking Rewards Checking Accounts

Post by nalor511 »

Jags4186 wrote: Fri Dec 25, 2020 9:30 pm You pay taxes on interest, you don’t on CC rewards. Instead of futzing with a rewards checking account (which all inevitably get nerfed at some point), just take that $10k and open an account with a new account bonus. You should be able to nab at least $300 on $10k opening 1 account and do all your spending on your 2% CC. Then you get the best of both worlds!
You pay taxes on deposit account opening bonuses too, but not new cc account bonuses
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Re: Re-Thinking Rewards Checking Accounts

Post by JoMoney »

nalor511 wrote: Tue Dec 29, 2020 2:18 am
Jags4186 wrote: Fri Dec 25, 2020 9:30 pm You pay taxes on interest, you don’t on CC rewards. Instead of futzing with a rewards checking account (which all inevitably get nerfed at some point), just take that $10k and open an account with a new account bonus. You should be able to nab at least $300 on $10k opening 1 account and do all your spending on your 2% CC. Then you get the best of both worlds!
You pay taxes on deposit account opening bonuses too, but not new cc account bonuses
I've heard you do get a 1099 for credit card bonuses if it's for referrals (vs a rebate on spending)
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Re: Re-Thinking Rewards Checking Accounts

Post by tj »

JoMoney wrote: Tue Dec 29, 2020 8:31 am
nalor511 wrote: Tue Dec 29, 2020 2:18 am
Jags4186 wrote: Fri Dec 25, 2020 9:30 pm You pay taxes on interest, you don’t on CC rewards. Instead of futzing with a rewards checking account (which all inevitably get nerfed at some point), just take that $10k and open an account with a new account bonus. You should be able to nab at least $300 on $10k opening 1 account and do all your spending on your 2% CC. Then you get the best of both worlds!
You pay taxes on deposit account opening bonuses too, but not new cc account bonuses
I've heard you do get a 1099 for credit card bonuses if it's for referrals (vs a rebate on spending)
Referral income technically isn't a sign up bonus. It's only a sign up bonus for the person that you refer.
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Re: Re-Thinking Rewards Checking Accounts

Post by JoMoney »

Back with an update/correction about the specific First Bank "Performance Checking" account I was considering.
As I understand it now, it is NOT a typical "Rewards Checking Account" that make you jump through hoops to earn the special interest rate.
The 15 debit transactions + direct deposit is only the requirement to avoid the $11.95 monthly service fee, which re-colors my opinion of it a couple different ways:
- It's a separate consideration if I want to use a debit card to save $11.95 each month. Even if I potentially pay $143.40 in a year of monthly service charges, it would still net me a better interest rate then I can get elsewhere. :happy
- With the interest rate not being a "rewards" benefit, I'm more skeptical that this is a teaser rate too good to be true, and won't last :?

We'll see how it goes. :wink:
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Re: Re-Thinking Rewards Checking Accounts

Post by tj »

JoMoney wrote: Wed Dec 30, 2020 4:41 pm Back with an update/correction about the specific First Bank "Performance Checking" account I was considering.
As I understand it now, it is NOT a typical "Rewards Checking Account" that make you jump through hoops to earn the special interest rate.
The 15 debit transactions + direct deposit is only the requirement to avoid the $11.95 monthly service fee, which re-colors my opinion of it a couple different ways:
- It's a separate consideration if I want to use a debit card to save $11.95 each month. Even if I potentially pay $143.40 in a year of monthly service charges, it would still net me a better interest rate then I can get elsewhere. :happy
- With the interest rate not being a "rewards" benefit, I'm more skeptical that this is a teaser rate too good to be true, and won't last :?

We'll see how it goes. :wink:
Intriguing! I don't know how that rate is sustainable. I guess it depends on your tax rates to determine if the deal si profitable after tax.

I signed up for liberty.financial, but I still don't know if I want go through the hassle of using it.
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Re: Re-Thinking Rewards Checking Accounts

Post by JoMoney »

tj wrote: Wed Dec 30, 2020 6:01 pm
JoMoney wrote: Wed Dec 30, 2020 4:41 pm Back with an update/correction about the specific First Bank "Performance Checking" account I was considering.
As I understand it now, it is NOT a typical "Rewards Checking Account" that make you jump through hoops to earn the special interest rate.
The 15 debit transactions + direct deposit is only the requirement to avoid the $11.95 monthly service fee, which re-colors my opinion of it a couple different ways:
- It's a separate consideration if I want to use a debit card to save $11.95 each month. Even if I potentially pay $143.40 in a year of monthly service charges, it would still net me a better interest rate then I can get elsewhere. :happy
- With the interest rate not being a "rewards" benefit, I'm more skeptical that this is a teaser rate too good to be true, and won't last :?

We'll see how it goes. :wink:
Intriguing! I don't know how that rate is sustainable. I guess it depends on your tax rates to determine if the deal si profitable after tax.

I signed up for liberty.financial, but I still don't know if I want go through the hassle of using it.
https://liberty.financial "Vertical Checking" 3.3% on up to $20k hmm... I missed your mentioning that earlier :oops:
Unless I max out the $25k at First Bank, that might have been a better option + the Liberty Financial account appears to rebate up to $15 of other bank ATM fees
I do like that First Bank is a B&M located near me though, and it appears they've been offering this rate since at least June 2020, so hopefully it will stick around. It is good to see that there are options out there.
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Re: Re-Thinking Rewards Checking Accounts

Post by JoMoney »

Just added an edit/updated... If anyone looks at this, and is considering and in an area eligible to open an account at First Bank mentioned above, be aware that apparently they've added a promotion to do so with a $100 bonus if you open the account online with promo code: SWITCH2FB
https://www.first.bank/Personal/Spend/C ... onus-Offer
Unfortunately I missed out on that :annoyed
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Re: Re-Thinking Rewards Checking Accounts

Post by exodusNH »

UpperNwGuy wrote: Fri Dec 25, 2020 9:15 pm I get those offers all the time, and I just ignore them. Am I passing up free money? Probably. Am I happier by passing it up? Definitely. I hate debit cards, and any attempt by a bank to encourage me to use debit cards instead of credit cards for my purchases just gets me annoyed.
I with you here. The mental burden of trying to keep all that straight is simply not worth it.

I keep my $25K emergency fund at CIT Bank. It's now at 0.50%. It was 2.05% when I opened it a couple of years ago. I have additional cash at Vio Bank at 0.66%. I use that for paying my property taxes (which aren't escrowed) and my homeowner's insurance -- those are known expenses that I don't want to tie up in the market.
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Re: Re-Thinking Rewards Checking Accounts

Post by Stubbie »

exodusNH wrote: Wed Jan 13, 2021 10:16 am
UpperNwGuy wrote: Fri Dec 25, 2020 9:15 pm I get those offers all the time, and I just ignore them. Am I passing up free money? Probably. Am I happier by passing it up? Definitely. I hate debit cards, and any attempt by a bank to encourage me to use debit cards instead of credit cards for my purchases just gets me annoyed.
I with you here. The mental burden of trying to keep all that straight is simply not worth it.

I keep my $25K emergency fund at CIT Bank. It's now at 0.50%. It was 2.05% when I opened it a couple of years ago. I have additional cash at Vio Bank at 0.66%. I use that for paying my property taxes (which aren't escrowed) and my homeowner's insurance -- those are known expenses that I don't want to tie up in the market.
+1
I'm in the stage of life where I am consolidating accounts, not looking for reasons to open new ones. $100 payoff for having a bank make me jump through a bunch of hoops is not worth it to me. Opened an Ally savings account for emergency fund years ago and have never looked back. Currently pays 0.50% like most of the others. Have always had great customer service which is the most important factor for me.
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Re: Re-Thinking Rewards Checking Accounts

Post by Farmboyslim83 »

lakpr wrote: Sat Dec 26, 2020 12:44 pm
humblecoder wrote: Sat Dec 26, 2020 11:47 am Not sure why this is even a question.

Option A: $10,000 @ 0.75% HYSA +$10,000 2% cash back card
$75 interest (taxed at 1/3) -> $50 after tax
$200 cash back
$250 total

Option B: $10,000 @ 3%+$0 cash back
$300 interest (taxed at 1/3) -> $200 after tax
$200 total

Add to that your justified concerns about using your debit card for purchases, Option B seems like an absolute loser to me.

The only way this makes any sort of sense is if you continue to use your 2% cash back card for purchases and limit your debit purchases to micro transactions that meet the minimum required to get the bonus rate.
That red-bolded portion is how you should be using the RCAs. Even if the bank does not allow micro transactions, let's say you charge about $15 per purchase and 15 such purchases per month, you spend $225 on a debit card. In return, you get 3% on $25k = $750, after taxes = $500. Less 2% rewards you would have earned on a credit card = $4.50. Net profit = $495.50 per year.

If you have a spouse and have the spouse open an individual account, that's another $495.50 per year = $991 per year.

Unlike the sign up bonuses you get this year in and year out (or at least until they nerf the scheme).

I am with Lake Michigan Credit Union, which offers 3% on a $15k balance, per SSN, so that's $450 per year. $900 for me + my spouse. LMCU does accept micro transactions (I pay my Xfinity bill as 10 separate transactions), so that's an easy $900 before-tax, or $600 after-tax.

Better than chasing the sign up bonuses.
+1 on LMCU, been with them for several years. Also do the Xfinity thing, can do the same with Verizon Wireless. Takes 5 minutes a month for 2 accounts.
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Re: Re-Thinking Rewards Checking Accounts

Post by JoMoney »

FWIW, I already made my decision and opened the account I talked about in the OP. After finding out the 3% APY didn't require jumping through hoops (it's only to waive the $11.95 monthly account fee) that cinched it for me.
I only bumped this thread to point out the $100 bonus they're now offering (that I missed out on).

I am still considering ways to simplify my spending and saving though, and considering whether I'll just pay the monthly fee or make use of the debit card, or maybe move all of my spending (except travel and large irregular purchases) to debit card - I do like having a consolidated statement of what my regular expenses are each month.
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Re: Re-Thinking Rewards Checking Accounts

Post by exodusNH »

Stubbie wrote: Wed Jan 13, 2021 10:26 am +1
I'm in the stage of life where I am consolidating accounts, not looking for reasons to open new ones. $100 payoff for having a bank make me jump through a bunch of hoops is not worth it to me. Opened an Ally savings account for emergency fund years ago and have never looked back. Currently pays 0.50% like most of the others. Have always had great customer service which is the most important factor for me.
Though I will say 3.3% on up to $20K is enticing... The requirement for 15 debit transactions gives you an idea how much they make off of those fees. But I don't do 15 transactions now (or even the before times!) and would drive myself nuts trying to keep track of it.

I'm sure there's a clause in the agreement that they can cancel the deal if you make lots of little transactions.
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Re: Re-Thinking Rewards Checking Accounts

Post by rich126 »

Every time I go down the path of chasing new account bonuses, I have a bad record of screwing something up and not getting the full bonus. Not always but at times I mess something up or it is a hassle to close the account.

I've recently decided to sign up for bonuses from Schwab and Cap One. We'll see if I follow the rules correctly this time.

I know anything that requires a bunch of transactions per month I won't do. Direct deposit or putting in a minimum amount I can handle. I think I should delegate this stuff to my GF who is better at reading rules/instructions.
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