Cash back credit card vs high yield bank account?

[Anonymous]

So I wanted to get a high yield bank account. I noticed almost all of them require certain number a debit cards transactions to qualify for the maximum interest rate. It downed on me that each debit card transaction will cannibalize a cash back transaction .

It's hard to make an apples to apples comparison since there is so much variance between each high yield bank account offer. Interest rates, number debit card transactions, direct deposit requirements, type of credit pull, account max, etc.

Anyways, I ran some numbers based on the previous 12 months credit card spend. I would need just over $6k in a high yield bank account to "equal" what I would I earn in cash back over the same time period. Plus it is something else that has to managed. I can only afford to put about $4k-$5k away now in a high yield bank account.

The word "equal" was put in quotes because debit cards are not equal do to the lack of the same consumer protections credit cards have.

Advice? Am I missing something?

[SouthJamaica]

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@Anonymous wrote:

So I wanted to get a high yield bank account. I noticed almost all of them require certain number a debit cards transactions to qualify for the maximum interest rate. It downed on me that each debit card transaction will cannibalize a cash back transaction .

It's hard to make an apples to apples comparison since there is so much variance between each high yield bank account offer. Interest rates, number debit card transactions, direct deposit requirements, type of credit pull, account max, etc.

Anyways, I ran some numbers based on the previous 12 months credit card spend. I would need just over $6k in a high yield bank account to "equal" what I would I earn in cash back over the same time period. Plus it is something else that has to managed. I can only afford to put about $4k-$5k away now in a high yield bank account.

The word "equal" was put in quotes because debit cards are not equal do to the lack of the same consumer protections credit cards have.

Advice? Am I missing something?

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No I don't think you're missing anything. I think you've made a very valid point.

There are some cash back debit cards but I don't think they're recommended. See https://www.bankrate.com/banking/checking/think-twice-about-debit-card-reward-programs/

[Revelate]

Hrm actually I think it is slightly worse than that too.

Credit cards allow you 30 days grace basically, actually probably would be 45 days average I suppose but 30 for easy math.

When you use a debit card your cash is gone that day, if you use a credit card that money is sitting somewhere else, in my case nominal 6% that I plan my investments around... which works out to .5% every single month in our example.

Say 2000 statement balance per month, 10 bucks per month you are losing via a debit card, and that’s 120/year effectively assuming my math isn’t twisted.

Wondering now if my math is off cause leveraging that one should arguably never ever use a rewards debit card unless you are getting around 7-8% in my case.

[Anonymous]

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@Revelate wrote:
Hrm actually I think it is slightly worse than that too.

Credit cards allow you 30 days grace basically, actually probably would be 45 days average I suppose but 30 for easy math.

When you use a debit card your cash is gone that day, if you use a credit card that money is sitting somewhere else, in my case nominal 6% that I plan my investments around... which works out to .5% every single month in our example.

Say 2000 statement balance per month, 10 bucks per month you are losing via a debit card, and that’s 120/year effectively assuming my math isn’t twisted.

Wondering now if my math is off cause leveraging that one should arguably never ever use a rewards debit card unless you are getting around 7-8% in my case.

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To clarify your point, .5% is want you calculating for not having the credit card's grace period which allows you to float money and earn more interest? I did not consider that. I am probably the only dumb ass who had not thought about that.

Do you mind me asking what are 6% investments? If you prefer not to reveal online, then I understand.

[Anonymous]

If you're okay with parking $4-5K in a HY Savings, I would choose one without any hoops to jump through for "maximum" rate. 

Then choose a good rewards CC for daily spend. 

I only have one debit card that increases my earnings on my checking account, if I use it 12X per statement period. etc.

Which is fine because it's my main checking, but i wouldn't sign up for another one. 

[Anonymous]

Most of these 3-4% APY checking accounts require at least 10 debit card purchases. Some also require direct deposit and some also have usage requirements on a credit card from them! Some also require these debit card purchases to be chip and signature, meaning they can't be low-value or online purchases to qualify. When you can earn North of 2.00% (Some banks are a full 2.50%) on a common HYSA with no or low minimums and no or high maximums, the difference becomes less valuable, maybe only $30/yr. ($3k -- a common maximum balance for such an APY -- at 1.00% higher than a common HYSA.) 

Others already mentioned the perks of credit cards as well. One extended warranty claim could easily outweigh the additional interest for a decade, especially when factoring in that this interest will be taxed!

[Revelate]

6% is basically the historical return of the S&P 500: basic index investing essentially gets you that.

Short term doesn’t work out but if I am talking long term finances that’s the line I go and gauge any long term investment around personally.

Can do better than that admittedly but some of my investments have done markedly worse too haha.

[Anonymous]

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@Anonymous wrote:

So I wanted to get a high yield bank account. I noticed almost all of them require certain number a debit cards transactions to qualify for the maximum interest rate. It downed on me that each debit card transaction will cannibalize a cash back transaction .

It's hard to make an apples to apples comparison since there is so much variance between each high yield bank account offer. Interest rates, number debit card transactions, direct deposit requirements, type of credit pull, account max, etc.

Anyways, I ran some numbers based on the previous 12 months credit card spend. I would need just over $6k in a high yield bank account to "equal" what I would I earn in cash back over the same time period. Plus it is something else that has to managed. I can only afford to put about $4k-$5k away now in a high yield bank account.

The word "equal" was put in quotes because debit cards are not equal do to the lack of the same consumer protections credit cards have.

Advice? Am I missing something?

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You missed that "certain number a debit cards transactions" is not the same as "certain total dollar amount of debit cards transactions". That said there is one or two 'banks' which has in small print a rule that says 'if we don't like what your debit trasnactions for whatever reason, we will give you 0% APY' which you should stay away from as they will not like your transactions.

There are many 'creative' ways to jump through the same hoops, such as 10 * $0.5 amazon GC balance reload, 30 * $0.25 utility bill payments, etc. There are also many lists of such methods on the inter-web that you can look at to find 'inspiration'.

You would not earn much back in cash back over the same time period when the total amount is a few dollars. You are also not likely to dispute and file chargeback on your utility bill. Thus it is quite feasible to do both rather than having to choose.

[Anonymous]

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@Anonymous wrote:

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You missed that "certain number a debit cards transactions" is not the same as "certain total dollar amount of debit cards transactions". That said there is one or two 'banks' which has in small print a rule that says 'if we don't like what your debit trasnactions for whatever reason, we will give you 0% APY' which you should stay away from as they will not like your transactions.

There are many 'creative' ways to jump through the same hoops, such as 10 * $0.5 amazon GC balance reload, 30 * $0.25 utility bill payments, etc. There are also many lists of such methods on the inter-web that you can look at to find 'inspiration'.

You would not earn much back in cash back over the same time period when the total amount is a few dollars. You are also not likely to dispute and file chargeback on your utility bill. Thus it is quite feasible to do both rather than having to choose.

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The bank I was considering was Tab bank. They require 15 debits with a minimum $5 per transaction. The thing is, a few years I DID have to dispute my utitlity bill (long story).

The issue is opportunity cost, hassle, lost of consumer protections, potential vector of having your debit card number compromised with your money stolen from your account.