In the face of declining caps and declining rates on RCAs, I went through a preliminary exercise to determine how best to deploy my available cash across 11 RCAs so as to earn the maximum interest with an attainable (for me) number of debit transactions (without resorting to multiple $1 fillups at the local gas station), given the information available (and which is volatile).
Basic assumptions made, using Beacon’s RCA as an example:
1. Timing of when the max cap is reached is not considered. For example, the account may start the month at Beacon with $20K but it is depleted during the month as the required transactions are made. Even if it is then replenished to $20K, the effect of the timing on the interest earned is not considered.
2. Requirements for e-statements, ACH deposits, etc are not relevant to the decision, as they are already being satisfied.
Working with a simple spreadsheet, thus far my intuitive choice, to allocate funds in order of declining “interest earned per transaction” (not by rate offered on the account) until I run out of available cash has given me the best result. That means some of my RCAs will be virtually emptied, leaving only minimal amounts as placeholders (anticipating future cash availability), and with minimal (maybe 1-2 transactions occasionally) debit card activity. In my case, the last RCA funded with cash currently available isn’t funded to the maximum.
Once the dust settles, I’ll repeat the allocation exercise, but focusing on “interest earned per transaction” seems to be key to finding a workable solution.
Interest earned per transaction = (cap amount * (annual rate earned/12)) / number of debit transactions required. So, for example, the calculation for the Beacon RCA is: ($20000*(3.97/12)/ 15 = $4.41. That is, if you fund your Beacon RCA so that you earn the 4%APY (approx 3.97%rate), you earn approximately $4.41 of interest each month with each of the 15 debit card transactions required.
Naturally, for the highest total interest earned, you would allocate funds based on the highest rates offered. However, that may result in a requirement for more transactions than you are able or willing to make.
Has anyone else done any work in this area? If so, what criteria did you use?