Funding Reward Checking Accounts

  |     |   2,298 posts since 2010

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?

  |     |   1,853 posts since 2010
Interesting.  My rules are simpler:

1. Allocate fund to RCAs with the highest APY (no-brainer:D). 

2. Avoid RCAs with extra debit card/ACH requirements (e.g., minimum of $5, $10, or even $20 per debit transactions; direct deposit of $2,500).

The rules are simple because I do not mind making a lot of (unlimited) debit transactions as long as the banks are not fussy about the amount.  Thus the number of required debit transactions does not come into my earning calcuation at all.   

In addition, my debit-card related reductions are usually small compared to my total sum, thus I typically fund every high-interest RCAs to the maximum and forget about the debit card expenses/monthly earned interest completely.  That is, I do not mind a few hundred dollars in overage ( over-the-limit due to monthly nterest) earning near-zero interest.   

Just my case to fit into my situation and preference (of simplicity). 
  |     |   2,298 posts since 2010
Glxpass, I am almost at the same point.   I am extremely fortunate to have RCAs with high caps, good rates (for the time being although I already know one will change and factored it in my analysis) and very reasonable transaction requirements which I can sustain comfortably.  If the rate decline continues or accelerates, my backup position is to resume directing all spending to my cash-back credit card and to go back to chasing CD rates. 

Needless to say, staying flexible and moving nimbly when opportunities present themselves (as on this forum, thanks again Ken!!) as you did on the JCU CD is essential at all times. 
  |     |   37 posts since 2010
I'm getting to the point where I'm starting to simplify things with RCAs.  Absent a 4% + alternative to Randolph Bank wiith a decent cap ($20K+), I'm starting to question whether I want to go through the hassle of meeting a bunch of debit card transaction requirements.

That's partly why I went through the effort of opening three JFCU 7.5% APY 75-day CDs for a total of $75K.  It cost me about 8 days of interest from Randolph Bank for that portion of my Randolph Bank funds, but it will allow me 2.5 months to decide what to do with that $75K.

I might violate what I just said above and put some of the remainder of my Randolph Bank funds into several inactive Bank 2 accounts at 4.01% APY, albeit with only a $15K cap and a 15 debit card transaction requirement, but I really don't want to open any more RCAs with similar caps and requirements.

Increased time and much-lowered interest rates for RCAs is not something I particularly want to do, given the shrinking interest differential between RCAs and non-RCA high-yield savings/checking accounts.
  |     |   2,298 posts since 2010
51hh, good comment.  Like you, I prefer to manage my money prudently and as simply as possible.  My debit-card related reductions are almost equal to the interest earned so I don't worry about a few dollars over-the-limit either.   

However, in my case, allocating funds first to the highest APYs (and funding all accounts at that institution - for example if I have 2 RCAs at the institution with the highest APY both get funded to the max) required literally twice the number of transactions I am making now.  That higher figure was unsustainable for me in the long run, and the difference in interest earned was not substantial enough for me to warrant the extra effort.   

I'd prefer to maximize the interest earned, as in your solution, but elect to sub-optimize (once a geek...) since that represents the simplest and most workable solution for my circumstances.   But if rates continue to decline you can be sure I will definitely revisit my allocations.


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