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13 KiB
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404 lines
13 KiB
HTML
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<title>Bank of America Preferred Rewards 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>
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Bank of America (BofA) has a rewards program that is tiered based on how
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much of money you have with BofA or an associated Merrill account. There are
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five tiers that they offer, with (among other things) a credit card percent
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bonus:
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</p>
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<table>
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<tr>
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<th>Tier Name</th>
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<th>Minimum Balance Required (USD)</th>
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<th>Credit Card Bonus</th>
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</tr>
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<tr>
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<td>Gold</td>
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<td class="alignRight">20,000</td>
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<td class="alignRight">25%</td>
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</tr>
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<tr>
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<td>Platinum</td>
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<td class="alignRight">50,000</td>
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<td class="alignRight">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 class="alignRight">100,000</td>
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<td class="alignRight">75%</td>
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</tr>
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<tr>
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<td>Diamond</td>
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<td class="alignRight">1,000,000</td>
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<td class="alignRight">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 class="alignRight">10,000,000</td>
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<td class="alignRight">75%</td>
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</tr>
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</table>
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<p>
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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
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points, or an effective rate of 2.625 points back.
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</p>
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<p>
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Preferred Rewards also comes with a interest rate booster on a savings
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account, from 5% on the Gold tier to a maximum of 20% at the Platinum Honors
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and above. That sounds nice, except that the base Annual Percent Yield (APY)
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on these savings account as of writing this, is a whopping 0.01% APY. Not
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1%. 0.01%. They're generous enough to round up, though, so Gold gets an rate
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of 0.02%, Platinum Honors and higher gets an astounding 0.04%. What a steal!
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</p>
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<p>
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High Yield Savings Accounts (HYSA) are FDIC-insured accounts that offer a
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high interest rate for money in your account. Because they are a savings
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account, you cannot ever lose numerical value in this account. They have a
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variable APY though, so while it may have a high APY now, it might not in
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the future.
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</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>
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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
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sense to keep your money at BofA. But if you attempt to consider the credit
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card bonus, it might not be as clear. After all, earning an extra percent or
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two on your credit card purchasing is incredibly enticing. In reality, it
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only makes sense if you have an brokerage account with Merrill and you're
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happy with what Merrill offers.
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</p>
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<p>
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Lets consider the total value that a person gets from keeping money in a
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BofA savings account and getting the credit card bonus over moving to a
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HYSA. We'll say that the person wants to keep it in a savings account as
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they want to save this money as an emergency fund. We'll also assume that
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additional points have a 100 to 1.00 USD exchange rate.
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</p>
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<div>
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<canvas id="myChart"></canvas>
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</div>
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<br />
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<table>
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<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"></input></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"></input></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"></input></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"></input></td>
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</tr>
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</table>
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<p>
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Playing around with the chart, you'll notice that with the bare minimum to
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get the Platinum tier, generous amounts of spending on your cards, and an
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HYSA APY of 0.5%, you <i>still</i> get better returns in the HYSA than
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keeping money in the savings account. Even if you were to find a scenario
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where you are earning more with the credit card bonus, unless you're
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spending that much already (and not spending for the sake of bonus points),
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it makes absolutely no sense to do so.
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</p>
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<h2>What about Money Market Mutual Funds?</h2>
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<p>
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Merrill also offers Money Market Mutual Funds (MMMFs) such as <a
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href="https://www.blackrock.com/cash/en-us/products/282697/">TTTXX</a> and
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offer competitive rates to a HYSA outside BofA. However, the key difference
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here is that they are not FDIC-insured and run the risk of <a
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href="https://www.investopedia.com/terms/b/breaking-the-buck.asp">"breaking the
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buck"</a>. They are also much more sensitive to fluctuations in the
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market. As a result, even the risk is miniscule, they are fundamentally
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in a different risk class than a savings account.
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</p>
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<p>
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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
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way to have the best of both worlds. However, for me, I've decided that it's
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not, especially with the current situation.
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</p>
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<h2>When does it make sense?</h2>
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<p>
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I think there are only a few real scenarios where keeping your money in a
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BofA savings account is reasonable.
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</p>
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<ol>
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<li>You already have a brokerage account in Merrill that meets the minimum for a tier.</li>
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<li>You are willing to invest your savings/emergency fund into a Money Market Mutual Fund AND think the Preferred
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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 over 5k per month.</li>
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</ol>
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<p>
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I put less than a couple hundreds of dollars on my BofA card, so there's
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almost zero incentive for me to keep my money with BofA. In fact, with
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inflation as large as it is, I'm losing an incredible amount of purchasing
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power by keeping it in a BofA saving account.
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</p>
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<script>
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function monthlyInterest(apy) {
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return Math.pow(1 + apy, 1 / 12) - 1;
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}
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function rawGrowth(base, monthlyFunc) {
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let data = Array(13).fill(base);
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for (let i = 1; i < data.length; i++) {
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data[i] = (data[i - 1] * (1 + monthlyFunc(data[i - 1]))).toFixed(2);
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}
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return data;
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}
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const PLAT_HONORS_THRESHOLD = 100_000;
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const PLAT_THRESHOLD = 50_000;
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const GOLD_THRESHOLD = 20_000;
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function bofaInterestRateFromSavings(savings) {
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if (savings >= PLAT_HONORS_THRESHOLD) {
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return 0.0004;
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} else if (savings >= PLAT_THRESHOLD) {
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return 0.0003;
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} else if (savings >= GOLD_THRESHOLD) {
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return 0.0002;
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} else {
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return 0.0001;
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}
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}
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function bofaAdditionalPoints(basePoints, savings) {
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if (savings >= PLAT_HONORS_THRESHOLD) {
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return basePoints * 0.75;
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} else if (savings >= PLAT_THRESHOLD) {
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return basePoints * 0.5;
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} else if (savings >= GOLD_THRESHOLD) {
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return basePoints * 0.25;
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} else {
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return basePoints;
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}
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}
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function hysaGrowth(base, monthly) {
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return rawGrowth(base, () => monthly).map(v => v - base);
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}
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function bofaSavingsGrowth(base) {
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return rawGrowth(base, savings => bofaInterestRateFromSavings(savings)).map(v => v - base);
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}
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function creditCardGrowth(baseSaved, basePoints, monthlySpending) {
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return bofaSavingsGrowth(baseSaved).map(growth => monthlySpending * bofaAdditionalPoints(basePoints, baseSaved + growth) / 100);
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}
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function bofaCombined(baseSaved, basePoints, monthlySpending) {
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let savings = bofaSavingsGrowth(baseSaved);
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return creditCardGrowth(baseSaved, basePoints, monthlySpending).map((v, i) => v + savings[i]);
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}
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function bofaGrossCombined(baseSaved, basePoints, monthlySpending) {
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let savings = bofaSavingsGrowth(baseSaved);
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return creditCardGrowth(baseSaved, basePoints, monthlySpending).map((v, i) => v + savings[i] - monthlySpending * i);
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}
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function getDatasets(saved, hysaPercent, monthlySpending, avgBasePoints) {
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return [
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{
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label: 'HYSA',
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data: hysaGrowth(saved, monthlyInterest(hysaPercent / 100)),
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borderWidth: 1
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},
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{
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label: 'BofA Savings Interest',
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data: bofaSavingsGrowth(saved),
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borderWidth: 1
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},
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{
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label: 'Credit Card Bonus',
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data: creditCardGrowth(saved, avgBasePoints, monthlySpending),
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borderWidth: 1
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},
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{
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label: 'BofA Savings Interest + Credit Card Bonus',
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data: bofaCombined(saved, avgBasePoints, monthlySpending),
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borderWidth: 1
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},
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{
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label: 'BofA Savings Interest + Credit Card Bonus - Amount spent',
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data: bofaGrossCombined(saved, avgBasePoints, monthlySpending),
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borderWidth: 1,
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hidden: true,
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}
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];
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}
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document.addEventListener("DOMContentLoaded", () => {
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function getOrInit(id, value) {
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const ele = document.getElementById(id);
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ele.value = value;
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return value;
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}
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}
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let saved = getOrInit("saved", 50_000);
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let hysaPercent = getOrInit("hysaPercent", 3.75);
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let monthlySpending = getOrInit("monthlySpending", 2_000);
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let avgBasePoints = getOrInit("avgBasePoints", 1.5);
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Chart.defaults.color = "#ccc";
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Chart.defaults.borderColor = "#9993";
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Chart.defaults.font.family = "'M PLUS Code Latin', sans-serif";
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Chart.defaults.font.size = 16;
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let chart = new Chart(document.getElementById('myChart'), {
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normalized: true,
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type: 'line',
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data: {
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labels: ["Jan", "Feb", "Mar", "Apr", "May", "Jun", "Jul", "Aug", "Sep", "Oct", "Nov", "Dec", "Jan"],
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datasets: getDatasets(saved, hysaPercent, monthlySpending, avgBasePoints),
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},
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options: {
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scales: {
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y: {
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beginAtZero: true,
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animation: false,
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}
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});
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function updateChart() {
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chart.data.datasets = getDatasets(saved, hysaPercent, monthlySpending, avgBasePoints);
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chart.update();
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}
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document.getElementById("saved").addEventListener("input", (ev) => {
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if (ev.target.value) {
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saved = ev.target.value;
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document.getElementById("savedDisplay").textContent = ev.target.value;
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updateChart();
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}
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});
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document.getElementById("monthlySpending").addEventListener("input", (ev) => {
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if (ev.target.value) {
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monthlySpending = ev.target.value;
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document.getElementById("monthlySpendingDisplay").textContent = ev.target.value;
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updateChart();
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}
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});
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document.getElementById("avgBasePoints").addEventListener("input", (ev) => {
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if (ev.target.value) {
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avgBasePoints = ev.target.value;
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document.getElementById("avgBasePointsDisplay").textContent = ev.target.value;
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updateChart();
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}
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});
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document.getElementById("hysaPercent").addEventListener("input", (ev) => {
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if (ev.target.value) {
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hysaPercent = ev.target.value;
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document.getElementById("hysaPercentDisplay").textContent = ev.target.value;
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updateChart();
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}
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});
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});
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</script>
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</body>
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</html> |