5.9 KiB
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| Bank of America Preferred Rewards Probably Suck |
Bank of America Preferred Rewards Probably Suck
2023-04-03
Bank of America (BofA) has a rewards program that is tiered based on how much of money you have with BofA or an associated Merrill account. There are five tiers that they offer, with (among other things) a credit card percent bonus:
| Tier Name | Minimum Balance Required (USD) | Credit Card Bonus |
|---|---|---|
| Gold | 20,000 | 25% |
| Platinum | 50,000 | 50% |
| Platinum Honors | 100,000 | 75% |
| Diamond | 1,000,000 | 75% |
| Diamond Honors | 10,000,000 | 75% |
The credit card percent bonus is an additional amount of points or cash back based on how much you original were going to get. For example, a 75% percent bonus on a 1.5 points per dollar purchase gives you an additional 1.125 points, or an effective rate of 2.625 points back.
Preferred Rewards also comes with a interest rate booster on a savings account, from 5% on the Gold tier to a maximum of 20% at the Platinum Honors and above. That sounds nice, except that the base Annual Percent Yield (APY) on these savings account as of writing this, is a whopping 0.01% APY. Not 1%. 0.01%. They're generous enough to round up, though, so Gold gets an rate of 0.02%, Platinum Honors and higher gets an astounding 0.04%. What a steal!
High Yield Savings Accounts (HYSA) are FDIC-insured accounts that offer a high interest rate for money in your account. Because they are a savings account, you cannot ever lose numerical value in this account. They have a variable APY though, so while it may have a high APY now, it might not in the future.
As of March 2023, they have an APY from anywhere of 2% to 5%.
If you look at just APY alone, it's clear that if you're looking to park an emergency fund or have short-term plans in mind, it makes absolutely no sense to keep your money at BofA. But if you attempt to consider the credit card bonus, it might not be as clear. After all, earning an extra percent or two on your credit card purchasing is incredibly enticing. In reality, it only makes sense if you have an brokerage account with Merrill and you're happy with what Merrill offers.
Lets consider the total value that a person gets from keeping money in a BofA savings account and getting the credit card bonus over moving to a HYSA. We'll say that the person wants to keep it in a savings account as they want to save this money as an emergency fund. We'll also assume that additional points have a 100 to 1.00 USD exchange rate.
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Playing around with the chart, you'll notice that with the bare minimum to get the Platinum tier, generous amounts of spending on your cards, and an HYSA APY of 0.5%, you still get better returns in the HYSA than keeping money in the savings account. Even if you were to find a scenario where you are earning more with the credit card bonus, unless you're spending that much already (and not spending for the sake of bonus points), it makes absolutely no sense to do so.
What about Money Market Mutual Funds?
Merrill also offers Money Market Mutual Funds (MMMFs) such as TTTXX and offer competitive rates to a HYSA outside BofA. However, the key difference here is that they are not FDIC-insured and run the risk of "breaking the buck" They are also much more sensitive to fluctuations in the market. As a result, even the risk is miniscule, they are fundamentally in a different risk class than a savings account.
If you think that the Preferred Rewards are valuable enough to expose your emergency funds and/or short-term holdings to the market, then sure, it's a way to have the best of both worlds. However, for me, I've decided that it's not, especially with the current situation.
When does it make sense?
I think there are only a few real scenarios where keeping your money in a BofA savings account is reasonable.
- You already have a brokerage account in Merrill that meets the minimum for a tier.
- You are willing to invest your savings/emergency fund into a Money Market Mutual Fund AND think the Preferred Rewards are worthwhile.
- You have less than 10k in savings AND HYSA APYs are below 0.7% AND you spent over 5k per month.
I put less than a couple hundreds of dollars on my BofA card, so there's almost zero incentive for me to keep my money with BofA. In fact, with inflation as large as it is, I'm losing an incredible amount of purchasing power by keeping it in a BofA saving account.