Max Heinritz > Posts

How to get subsidized

The retail finance industry offers us an expansive, complex interface: credit/debit cards, checking/savings accounts, brokerage accounts, retirement accounts, CDs, mortgages, home equity lines of credit, cryptocurrencies, joint accounts, insurance, rewards, incentives of all kinds, etc. There are vast ranges of possible personal decisions and outcomes depending on how one engages here.

This landscape has created a game: subsidize, or get subsidized. Either you generate revenue for these companies – or you extract a portion of wealth transferred from others. I wish it were not this way, but alas, one cannot choose to opt out of the money game, as one can with other competitive games.

How to play depends on your goals.

Simplicity

One possible goal is “simplicity” aka the “this isn’t worth my time” mindset. This might lead to minimizing the number of financial institutions and accounts, for example, to just have one checking account with one debit card at Bank of America. In our increasingly cashless society, something like that is the bare minimum personal finance setup.

But this option leaves money on the table. Your debit card earns you no per-transaction reward, but the bank earns around $.25/transaction. They are making money off you. You could open a credit card with Bank of America that earns you a flat 1.5% cashback, or more with Preferred Rewards status from reaching certain account balance minimum thresholds.

But your checking account also earns you effectively no interest, 0.01% at BoA as of time writing. You could move your money to a savings account at the same institution and earn a whopping 0.03%. Or if you can tolerate slightly more complexity you could open a savings account at Ally online bank and get 3.5% on your cash. With $10k saved, that’s $350/year. But now the setup is more complex… where to strike a balance?

My goals

I’ve landed on the following goals:

Minimize recurring cognitive overhead. I’m happy to invest time upfront researching and configuring. But I don’t want to be burdened with thinking about how to optimize my finances all the time. I’m looking for something closer to “set and forget.”

Maximize rewards percentage per transaction. Where possible, use reward-earning credit cards instead of other payment methods. For each transaction, use cards in a way that maximizes rewards.

Maximize earned interest on cash. Store money in high-yield accounts.

Minimize number of financial institutions and accounts. Related to the first point, simplicity is indeed desirable and also reduces surface area for identity theft and cyberattacks.

Avoid “pay to play” setups. I generally eschew credit cards and memberships that require an annual fee, even if nominally I would receive equal-but-illiquid value back. I don’t want to have to keep track of squeezing all the benefits out of an annual fee each year. Some exceptions below though.

Retain “free” services. Access to in-person banking services such as safe deposit box, quarters, etc. Zero-cost global ATM access. Access to Zelle. Rental car collision damage waiver.

Some of these goals are in conflict and require balance. My hope with this post is to compress the time it takes readers to optimize along these or similar dimensions.

Non-goal: personal finance 101

I assume basic knowledge around avoiding credit card debt, making use of tax-advantaged accounts, self-managed index-based investing, asset allocation, etc. If any of these concepts are unfamiliar I suggest starting here:

https://www.bogleheads.org/wiki/Getting_started

This post is about optimizing around the edges once the basics are in place.

Non-goal: travel rewards

There are two subcultures within the credit card reward community. I’m on “team cashback” rather than “team travel points.”

There are a couple reasons for this. First, I don’t particularly value or spend a lot on traditional travel e.g. hotels, airfare, taxis, rental cars, restaurants, etc. I mostly travel to visit friends and family. Second, optimal use of travel points requires much more ongoing time investment.

For cashback, I dedicate recurring but limited mental energy on the “earn” side: that is, which card to use for which purchase to get the most reward. Once the rewards are earned, I just redeem them to my account.

But for travel points, you can optimize both the “earn” and “redeem” sides, the latter by looking for the best award travel availability on the best airlines at the right times. There is effectively infinite time one could spend to squeeze the most out of points.

The line has to be drawn somewhere… for me, I consider my time to be more valuable than point optimization. I’ll take the money in the bank.

Good credit cards

BILT

US Bank

Bank of America

Robinhood Gold

Chase Amazon Prime Rewards Visa

Wells Fargo Autograph

Good options for stashing cash

Fidelity

Treasury Direct I-bonds