143 lines
6.7 KiB
HTML
143 lines
6.7 KiB
HTML
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<title>Bank of America Preferred Rewards Probably Suck</title>
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<h1>Bank of America Preferred Rewards Probably Suck</h1>
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<h3>2023-04-03</h3>
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<p>Bank of America (BofA) has a rewards program that is tiered based on how much of
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money you have with BofA or an associated Merrill account. There are five tiers
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that they offer, with (among other things) a credit card percent bonus:</p>
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<table>
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<thead>
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<tr>
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<th>Tier Name</th>
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<th style="text-align:right">Minimum Balance Required (USD)</th>
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<th style="text-align:right">Credit Card Bonus</th>
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</tr>
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</thead>
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<tbody>
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<tr>
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<td>Gold</td>
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<td style="text-align:right">20,000</td>
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<td style="text-align:right">25%</td>
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</tr>
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<tr>
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<td>Platinum</td>
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<td style="text-align:right">50,000</td>
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<td style="text-align:right">50%</td>
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</tr>
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<tr>
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<td>Platinum Honors</td>
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<td style="text-align:right">100,000</td>
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<td style="text-align:right">75%</td>
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</tr>
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<tr>
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<td>Diamond</td>
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<td style="text-align:right">1,000,000</td>
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<td style="text-align:right">75%</td>
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</tr>
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<tr>
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<td>Diamond Honors</td>
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<td style="text-align:right">10,000,000</td>
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<td style="text-align:right">75%</td>
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</tr>
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</tbody>
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</table>
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<p>The credit card percent bonus is an additional amount of points or cash back
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based on how much you original were going to get. For example, a 75% percent
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bonus on a 1.5 points per dollar purchase gives you an additional 1.125 points,
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or an effective rate of 2.625 points back.</p>
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<p>Preferred Rewards also comes with a interest rate booster on a savings account,
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from 5% on the Gold tier to a maximum of 20% at the Platinum Honors and above.
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That sounds nice, except that the base Annual Percent Yield (APY) on these
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savings account as of writing this, is a whopping 0.01% APY. Not 1%. 0.01%.
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They're generous enough to round up, though, so Gold gets an rate of 0.02%,
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Platinum Honors and higher gets an astounding 0.04%. What a steal!</p>
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<p>High Yield Savings Accounts (HYSA) are FDIC-insured accounts that offer a high
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interest rate for money in your account. Because they are a savings account, you
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cannot ever lose numerical value in this account. They have a variable APY
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though, so while it may have a high APY now, it might not in the future.</p>
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<p>As of March 2023, they have an APY from anywhere of 2% to 5%.</p>
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<p>If you look at just APY alone, it's clear that if you're looking to park an
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emergency fund or have short-term plans in mind, it makes absolutely no sense to
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keep your money at BofA. But if you attempt to consider the credit card bonus,
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it might not be as clear. After all, earning an extra percent or two on your
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credit card purchasing is incredibly enticing. In reality, it only makes sense
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if you have an brokerage account with Merrill and you're happy with what Merrill
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offers.</p>
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<p>Lets consider the total value that a person gets from keeping money in a BofA
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savings account and getting the credit card bonus over moving to a HYSA. We'll
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say that the person wants to keep it in a savings account as they want to save
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this money as an emergency fund. We'll also assume that additional points have a
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100 to 1.00 USD exchange rate.</p>
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<div><canvas id="myChart"></canvas></div>
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<br>
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<table>
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<tbody><tr>
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<td><label for="saved">Savings (USD)</label></td>
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<td class="alignRight fill" id="savedDisplay">25%</td>
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<td><input id="saved" type="range" min="0" max="120000" step="5000" value="50000"></td>
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</tr>
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<tr>
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<td><label for="hysaPercent">HYSA APY (%)</label></td>
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<td class="alignRight fill" id="hysaPercentDisplay">25%</td>
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<td><input id="hysaPercent" type="range" min="0" max="9" step="0.05" value="3.75"></td>
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</tr>
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<tr>
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<td><label for="monthlySpending">Monthly Spending (USD)</label></td>
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<td class="alignRight fill" id="monthlySpendingDisplay">25%</td>
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<td><input id="monthlySpending" type="range" min="0" max="10000" step="200" value="2000"></td>
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</tr>
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<tr>
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<td><label for="avgBasePoints">Avg. points gained per USD (Without preferred rewards)</label></td>
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<td class="alignRight fill" id="avgBasePointsDisplay">25%</td>
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<td><input id="avgBasePoints" type="range" min="0" max="5" step="0.5" value="3"></td>
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</tr>
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</tbody></table>
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<script src="./chart.js"></script>
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<p>Playing around with the chart, you'll notice that with the bare minimum to get
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the Platinum tier, generous amounts of spending on your cards, and an HYSA APY
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of 0.5%, you <i>still</i> get better returns in the HYSA than keeping money in
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the savings account. Even if you were to find a scenario where you are earning
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more with the credit card bonus, unless you're spending that much already (and
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not spending for the sake of bonus points), it makes absolutely no sense to do
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so.</p>
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<h2>What about Money Market Mutual Funds?</h2>
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<p>Merrill also offers Money Market Mutual Funds (MMMFs) such as <a href="https://www.blackrock.com/cash/en-us/products/282697" rel="noopener noreferrer">TTTXX</a> and offer
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competitive rates to a HYSA outside BofA. However, the key difference here is
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that they are not FDIC-insured and run the risk of
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<a href="https://www.investopedia.com/terms/b/breaking-the-buck.asp" rel="noopener noreferrer noopener noreferrer">"breaking the buck"</a> They are also much more sensitive to
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fluctuations in the market. As a result, even the risk is miniscule, they are
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fundamentally in a different risk class than a savings account.</p>
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<p>If you think that the Preferred Rewards are valuable enough to expose your
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emergency funds and/or short-term holdings to the market, then sure, it's a way
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to have the best of both worlds. However, for me, I've decided that it's not,
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especially with the current situation.</p>
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<h2>When does it make sense?</h2>
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<p>I think there are only a few real scenarios where keeping your money in a BofA
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savings account is reasonable.</p>
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<ul>
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<li>You already have a brokerage account in Merrill that meets the minimum for a
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tier.</li>
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<li>You are willing to invest your savings/emergency fund into a Money Market
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Mutual Fund AND think the Preferred Rewards are worthwhile.</li>
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<li>You have less than 10k in savings AND HYSA APYs are below 0.7% AND you spent
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over 5k per month.</li>
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</ul>
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<p>I put less than a couple hundreds of dollars on my BofA card, so there's almost
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zero incentive for me to keep my money with BofA. In fact, with inflation as
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large as it is, I'm losing an incredible amount of purchasing power by keeping
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it in a BofA saving account.</p>
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