I’ve been using high-interest rewards checking accounts and other “gimmick” accounts for so long, I had somehow convinced myself that everybody else was using them, too. So imagine my shock listening to a recent episode of the Milenomics Squared podcast, hosted by two of the savviest guys I know, when they both essentially said, “it seems like too much work.”
If Sam and Robert can’t be bothered to set up high-yield accounts, what hope do the rest of you have? So for their sake and yours, here is my extremely simple, straightforward guide to earning double or triple your current interest rate on totally liquid, federally-insured cash savings.
Find a high-interest rewards checking account
Many big cities have credit unions or banks offering their own branded version of rewards checking accounts, but the place I usually start is depositaccounts.com.
Select the highest-interest account you’re eligible for (hint: you’re probably eligible for all of them), and verify the interest rate is still correct.
I use Consumers Credit Union’s Free Rewards Checking since they’ve historically offered the highest rates (5.09% APY on up to $10,000), but that’s subject to change, so while I’ll use it as my example below, don’t interpret that as a permanent recommendation or endorsement.
Find the requirements to trigger the highest interest rate
I know Consumers Credit Union’s requirements best, but they’re all pretty similar:
- set up electronic statement delivery
- direct deposit $500 per month
- make 12 signature debit transactions totaling $100 per month
- spend $1,000 on one of the bank’s credit cards
Open the account
Each bank and credit union will have its own eligibility requirements; in the case of Consumers Credit Union, I had to join the “Consumers Cooperative Organization,” which has a one-time fee of $5 and is integrated into the credit union account-opening process.
Many credit unions and some banks will perform a “hard” credit pull during account opening, so ideally you’ll also want to open a linked credit card at this point in order to hopefully combine the two applications on your credit report.
This may also be an opportunity to fund your new accounts with an existing credit card in order to earn free credit card rewards, typically capped at a few thousand dollars. If you take this route, be sure to set the cash advance limit on the card you use to $0, in order to prevent any fees or interest charges from sneaking in.
Automate meeting the requirements
Once your new accounts are opened and you’ve received your debit and credit card, it takes about 10-15 minutes to automate meeting the account requirements.
- Set up electronic statement delivery.
- Change your payroll direct deposit to send the required minimum deposit to your new checking account (e.g. $500 if monthly, $250 if biweekly). Most modern payroll processors are happy to chop up your paycheck into as many accounts as you request.
- Configure 11 repeating monthly payments of $1 each to an eligible payee through a service like Plastiq. If you are new to Plastiq and enroll using a referral code (mine is 532426) you can receive “Fee-Free Dollars” that make your first $500 in payments free. If you don’t have Fee-Free Dollars, you’ll pay $0.01 per payment, so this would cost up to $0.11 per month in that case.
- Configure one repeating monthly payment of $89. This will bring your total monthly debit card purchases to the necessary $100.
- Finally, spend $1,000 per month on your new credit card. If you decide to use Consumers Credit Union, their Visa Signature Rewards card is the best option because it offers bonus points on up to $6,000 in annual grocery store spend.
The total, maximum cost of this technique annually is perhaps 10-15 minutes of your time and $12 in Plastiq fees (if you don’t have and can’t earn any Fee-Free Dollars), plus any purchase and liquidation fees if you meet the $1,000 monthly credit card spend requirement with manufactured spend, minus the value of any rewards earned on that spend.
The total interest earned on the maximum high-interest balance of $10,000, at 5.09% APY, is $509. This sum is taxable, but so is the interest earned on low-interest accounts and bank account signup bonuses, so this is truly an apple-to-apples comparison.
Note that if you want to earn a higher interest rate on more than $10,000, this procedure is quite scalable as you move down the list of high-interest accounts and discover additional options. And, of course, spouses and partners offer additional account-opening opportunities.
Hopefully this post has convinced you how easy it is to maximize the interest you earn on your savings.
Sadly, I have no confidence that it has convinced you to actually do so. And that, dear readers, is the blogger’s burden to bear alone.
Or, conversely, how that 1% interest is good enough. With the foregone 1.625% delta in cashback rates on BoA Premium/Travel Rewards (at the Preferred Platinum Honors level) and the $2.60 a month in Plastiq fees, that’s $226 in charges to chase that $509. Is the risk of something going wrong, rates declining yet again, etc. worth $183 a year? ($509 – $100 – $226)
Do I really want to drag myself to the Walmart that sells the money orders, or liquidate the $1,000 in MS online at a 2% fee (which wipes out the interest earned that month).
Or would I rather chase another bank bonus, pay down my mortgage or HELOC, MS the office store on the way home from work or to visiting friends and relatives for negative dollar amounts, or do something other than monitor yet another bank account?
Time is money and I’ve wasted enough of it in Walmart over the years when kiosks existed. Thanks to CSR Pay Yourself Back, at least I’ll been able to cash out most of it at a favorable rate.
To be fair I have thought about Consumers when the amount they paid high interest on was $25,000, but then again, I could never justify holding $25,000 in cash that wasn’t used to fund a bank bonus elsewhere, especially when I have access to six figures in 3% APR money for any real emergency. YMMV always.
Anyone know how automated spending like this could be applied to high volume credit card purchasing through buyer’s clubs for the sake of hitting points and min spend requirements?