Yeah, that’s right! I made over 1000$ from my bank this year, and you can do the same. (EDIT: We got even more in 2016!)
Here is the thing; most personal finance recommendations will say to keep your money in a high-yield savings accounts and use a good cashback credit card to get 1% back on all your purchases. I say; do the math and see how much you can really get.
Using credit cards for all your purchase can be very advantageous if, and only if, you pay back the full balance on time every single month. Interest on cards are way too high and it will affect your credit score if you are late on payments. If you are good with debt, then you should be more than fine using credit cards for rewards.
I suggest you use a credit card for all your purchases for two reasons,
- It is easier to track since it is all in one place. (Like Personal Capital to track everything)
- You will get rewards for each dollar spent. (Like American Express Gold to maximize your returns)
Now, of course, this assumes you manage your spending and always pay your full balance on time. It is very important to never pay any credit card interest given their high fees (19%+) but that is pretty easy to accomplish if you track your spending habits. Personally, I try to put every single expense on cards, not only store purchases but also municipal taxes, online purchases, work expenses (I get them reimbursed but still get the cashback).
If we put it in numbers, a 1% cash back means that on an average spending of 2000$ a month, you only make 20$ in cashback a month. Not that great!
Where it gets interesting is with travel reward cards. I personally have multiple American Express card and earn a return over 5% in travel points!!! Of course, you need to be a traveler to make it worth it but I know my points will be spent given my urge to see the world. I chose this card simply because the points are not restricted to one single airline. You can also convert your points to Aeroplan or other points companies and combine reward cards to accelerate your accumulation.
It is super easy to apply for multiple cards and accumulate thousands of dollars worth of points over a short period of time. I suggest you do not apply for more than one card a month but some people get away with 4 or 5 times as much without ever getting denied.
They also offer the Starwood Preferred Guest cards that offer free hotel stays just to signup. You can book at more than 1,300 hotels and resorts across eleven distinctive brands, such as St. Regis®, W® and Westin®, across nearly 100 countries. Redeem for stays without blackout dates, even during holidays, for as low as 2,000 points! We used that on our honeymoon and saved a ton by doing so!
If you have a high credit score and good credit history, you can seek out the welcome bonuses many cards offer and apply to them just for the rewards. If you apply to multiple credit cards, you need to look for the minimum purchases required to get the bonus (most American Express cards are $1,500 except the SPG which is only $500 in the first 3 months) and you need to watch your credit score if you are doing too many applications at the same time.
When choosing a credit card you need to consider the annual fee, of course, but with most banks, you can get it waived if you have multiple products with them or apply during a promotion. Make sure you read the fine prints and maximize your rewards by paying attention to the payback structure.
In some cases, some purchases will give out more points depending on the category like gas and groceries. You can optimize your cash back by having different cards for different expenses. Some cards advertise a 5% cashback but the fine print specifies that it is only on groceries and gas then 1% on everything else. You can also look into airline credit card if you fly frequently and plan on using your card to pay for travel expenses. Many airline credit cards are specific to a single carrier but can offer great advantages.
With so many banks and so many choices, you might find it hard to choose the best bank account. Either for your checking or savings accounts, your banking could end up costing you more than you think. The most important thing to remember when shopping for bank accounts is that it should not cost you anything, it should reward you!
For any account you shop for, you should avoid the following fees:
- Account maintenance or administration fees.
- Withdrawal penalty fees.
- Minimum balance penalty fees.
- Deposit penalty fees.
- ATM use fees.
- Account link/online banking fees.
Some banks even use promotions to get you in but will charge you fees after a certain period of time or will charge high fees on less common things like Replacement Debit Cards or Incoming Wires. You should always read the fine prints before signing up for anything.
You should make money, not pay fees
With interest-bearing checking accounts, you will be able to generate a few bucks out of your day-to-day account instead of paying monthly fees. After researching, I found that the Discover Cashback Checking is one of the highest paying checking accounts given its reward structure. You can get 10¢ cash back for every single purchase you make, no matter the dollar amount. Their cap is 100 transactions per month which work out to 120$ in cash back per year. Compared to most other banks where you usually need to pay monthly fees on checking accounts, it is a pretty good deal. On top of this, their cashback checking does not require any minimum balance!
You should save money
For any unplanned little thing that life could bring us, we all need an emergency fund. You should have at least 3 months of living expenses in cash for those unbudgeted events. Some go as far as 6 months but it all depends on your job security and personal preferences. Your emergency fund should not be in a checking account, you should simply open a high-yield saving account and earn a higher interest on those thousands put aside.
I suggest you shop around for the highest paying savings account and pay attention to the services offered. Some online banks will offer ATM access, some others don’t. Some online platform will offer unlimited transactions and no monthly fees, some have some hidden fees…
For Canadians like me, none of the Big Banks offer very high yields. We do have options with online banks such as PC Financials or Tangerine but the service might be lacking.
Another option for those of you who have a brokerage account (you really should!) is to invest in High-Interest Saving Accounts at discount brokers such as symbol BTB100, ATL5000, or RBF2010. To purchase those funds, simply enter a mutual fund order with the proper symbol and make sure your broker does not charge any transaction fees for HISA. These offer higher rates than money market funds and are guaranteed by CDIC up to $100,000.
If you are fine with having an online-only bank without access to ATMs, I found that Alterna Savings offers a great rate on their savings accounts and works great as an emergency fund.
Finally, I’m sure you can achieve and surpass my accomplishments. Simply choose the right card and use the right bank account to maximize your returns. You should do everything to optimize your returns such as keeping your emergency fund in a high-yield savings accounts and opening a cash back checking account on top of optimizing your credit card rewards. On this, let’s see how we do next year!
Be happy, Xyz.