Can I Bank on It?
August 23, 2016 3:28 PM   Subscribe

I have a Bank of America rewards card. I'm thinking about using the option of a BOA savings account to cash out my rewards for more cash back. Is this a mirage of a deal and will I incur unwanted financial scrutiny because of it?

In the past, I've cashed out my points. I know that I can also potentially get more cash back if I cash out through a Bank of America Savings account. I am wary of opening a new account, however, simply because my employment situation is in flux and I don't want to court unnecessary attention from financial institutions (we both have excellent credit scores, our mortgage is our only big debt and we pay off our credit card each month). Am I being paranoid for no reason? Is the benefit of cashing out through the savings account really akin to 10% back?
posted by tafetta, darling! to Work & Money (8 answers total)
You really do get an additional 10% of reward points by putting them in a BOA savings account. Is that what you're asking, or some other math?
posted by Ms Vegetable at 3:37 PM on August 23, 2016 [1 favorite]

Response by poster: I wanted to confirm the truth of the 10%, but I'm mostly concerned about the financial and credit score/report pitfalls of opening a new account.
posted by tafetta, darling! at 3:39 PM on August 23, 2016

Financial pitfalls will take the form of fees or reduced interest rates.

BOA should have documented somewhere a full list of fees that could potentially accompany a new savings account. They may ore may not make it easy to find, but I'm pretty sure they have to disclose them by law.

Watch out for things like minimum balances, or fees that kick in if you don't have a linked account, or you don't have a linked account that gets the right number of direct deposits or debit card transactions.

You'll also want to look at whether you are accepting a lower interest rate on your savings account in exchange for the 10% rewards bonus. Maybe other banks that don't have the rewards bonus have higher savings account interest rates? Interest rates on normal person savings accounts are abysmal, of course, so I wouldn't expect to do that much better. You can also, likely, game this by keeping the minimum amount of money in that account and transferring out the bonus dollars ASAP.

I don't think that the existence of bank accounts affects credit scores one way or the other. Therefore, any credit score pitfalls should take the form of a "hard" pull on your credit report. Since you already have a BoA rewards card (I'm assuming a credit card), there's probably less of a chance that they'd do a "hard" pull on you. Hard pulls are really only something you need to worry about if you are thinking about opening a new credit account in the next 90 days or so (and even then, only if you feel like your credit is otherwise marginal because I think it's like a 10 point hit or something).

Basically, what BOA is trying to do by offering you this deal is to get you to save your money in one of their savings accounts (once you open it, you're more likely to make deposits into it). Since savings account interest rates are basically zero, the money you keep in a BOA savings account is money that BOA has basically free access to to loan out to other people at some non-basically-zero rate. They may also be hoping that you'll screw up and end up having to pay fees, but mainly, they'll make money off of you if you keep using your BOA credit card (transaction fees) and keep deposits in your savings account, so they are giving you an incentive to do that.
posted by sparklemotion at 3:51 PM on August 23, 2016 [1 favorite]

10% of 1% cash back is 0.1%. That's not very much at all, for the risk of having an account that incurs "too many transactions" or "too few transactions" or "paper statements" or "electronic statements" or whatever other fees they decide to charge you.

I have a 5% (!) cash back card from Key Bank (5% on everything) and I've seen ads for cards that give as much as 10% back (for certain purchases, up to certain limits, etc.)

I think you'll be better off looking for a card with a higher basic cash back than fooling around with large percentages of small percentages. (If you're already getting 5% back from BofA, then by all means grab that extra half point, but be aware that BofA wouldn't be making an offer they expected to lose money on. They must either be expecting to make more money by loaning out what you put in savings, or by setting you up to incur bank fees.)
posted by spacewrench at 4:03 PM on August 23, 2016 [5 favorites]

BOA should have documented somewhere a full list of fees that could potentially accompany a new savings account. They may or may not make it easy to find, but I'm pretty sure they have to disclose them by law.

I just looked for this, and it doesn't seem like they are hiding the ball. The "Overview" page lays out the same information regarding fees and fee waiver requirements that are listed in the full fee schedules [PDF], so it seems like they are playing fair.

Basically, if you don't have the right kind of checking account with them (and I assume you aren't a Preferred Rewards $20K balance member), you'll need to keep a $300 average daily balance in a 0.01% interest savings account to avoid a $5 monthly fee.

Bankrate lists a number of savings accounts offering at least 1% interest. So, you'd basically be forgoing 0.99% interest on at least $300 every year (basically $3) to avoid $60 in fees.

Assuming that you play BOA's game perfectly, it seems like you'd probably come out on top, but it really depends how much more that $3 you'd be getting in rewards per year.
posted by sparklemotion at 4:08 PM on August 23, 2016 [1 favorite]

As far as I know, opening a saving account does not involve a credit check, they don't care about your employment history etc. I've opened savings accounts at the local bank for myself as a n very part time consultant and for children who were unemployed and under age without issue, other than the question of how to avoid ridiculous fees on small balances.
posted by metahawk at 5:15 PM on August 23, 2016 [1 favorite]

Having a savings account - or an extra savings account - is deeply unlikely to harm your credit.

Opening lots of credit accounts can be seen as a risk because it gives you the ability to borrow much more than you can pay back across various lenders. A savings account, on the other hand, holds no such risk - it's literally just a place for money to sit in the bank. You don't need to pay it off. You're not lending it or giving to other people. You can't withdraw more than you have. It's FDIC-insured. You really can't get in trouble with a savings account - it's the most benign type of account you can have - so it doesn't really impact your credit score.

The trouble you *can* get in with a savings account is that the interest rates for savings accounts usually earn far below the rate of inflation, meaning the longer you let your money sit in a savings account, the less buying power it has. You may also need to keep a minimum balance across your accounts with BoA for the savings account to be fee-free. But if this is a savings account designed to give you a 10% bonus on certain types of transfers, that far exceeds inflation, and as long as it doesn't cost you money to have the account, it's totally worth it. Save away!
posted by eschatfische at 9:18 PM on August 23, 2016

I have this card and as other people mentioned, there is a minimum average daily balance to avoid the fees. As far as I can recall, there wasn't a hard pull on my credit to open the savings account so as long as you can afford to park $300 in the account you're fine.

And while the B of A card gives you 3% cash back on gas and 2% on groceries (up to a quarterly cap), there are better cash-back cards out there. If you want cash back, there are cards that will give you 1.5% (Capital One Quicksilver) or 2% (Citi Double Cash) across-the-board. Amex has the Blue Cash card but there are fees and they shut me down on the legacy product for abusing the 5% cash back categories.

Of course, applying for a new credit card does require a hard pull on your credit. But some would say that the best time to open up new lines of credit is before you change jobs or lose a job. But that's a totally different discussion.
posted by QuantumMeruit at 12:23 PM on August 24, 2016

« Older Audio/Video Sync w/X1 Xfinity+Optical Audio   |   Podcasts of People Monologuing? Newer »
This thread is closed to new comments.