Monday, November 14, 2011

Why We Switched To PerkStreet

We recently decided to switch to a PerkStreet checking account even though we were fairly satisfied with our current checking accounts. Why? Rather than have our money sitting in an ING savings account earning 0.9% interest annually, we decided it was worth it to move part of our money to PerkStreet so that we could earn cash back rewards worth more than the 0.9% we are currently earning at ING.

The Details
In order to earn 2% cash back rewards on debit card purchases (without a PIN), you must maintain a minimum $5,000 balance in your checking account at all times. If your account falls below $5,000 you will earn 1% cash back (which is still pretty decent). In addition, there are certain rotating retailers that allow you to earn 5% cash back (limited to $250 a year). To use PerkStreet's example, if you maintain a $5K balance and spend $2,500 a month on your debit card, you can earn $600 in annual rewards.

ING vs. PerkStreet
Here is why we decided to take the plunge. Beware, Math Nerd logic ahead.......I compared my annual rate of return on $5,000 using an ING savings account and Perkstreet checking account rewards.

ING annual rate of return on $5,000 = $45 ($5,000 * 0.9%)  If you want to get technical and include compound interest, then add a whopping 19 cents.
Annual debit card spend to equal ING rate of return = $2,250 ($45 / 2%)  If you look at these numbers, in order to earn the same amount of money as ING using PerkStreet, I will need to spend
$187.50 a month using my debit card (assuming I maintain a $5,000 checking account balance). Since I clearly spend more than that each month on groceries alone, I will end up earning more rewards with the PerkStreet checking account than with my ING savings account. If I play my cards right, I could end up adding $45 a MONTH (not a year) to my savings account by leveraging my PerkStreet rewards. Although there is one more slightly difficult piece to this equation - actually adding to the savings account!

The Catch
When you earn interest on your ING account, the amount is automatically deposited into your ING account every month. The result is an automatic increase in your savings. When you earn cash back for debit card purchases through PerkStreet, you are able to redeem amounts in the form of gift cards including MasterCard, Target or Amazon. If you are using PerkStreet rewards to supplement your savings, you will need to make sure you are transferring money into your savings account as you earn your rewards. For example, if you redeem your rewards for a $50 Mastercard gift card, you can use that gift card to pay for your daily living expenses while transferring $50 into your savings account. An extra step to be sure, but if you are committed to the process you can add a lot more to your savings account balance than it would earn just sitting there all year.

As an alternative, you can earmark PerkStreet rewards for gift buying or traveling expenses (or some other expense) and then completely remove this item from your monthly budget. That way, travel costs will in a sense be "outside your budget". As long as you make the commitment that all travel will be paid for through PerkStreet rewards and none of your monthly income will be used towards this expense, then you can earmark an additional amount to put in your savings each month.

This Idea Is Not For.....
Those people who are trying to get their spending habits in order or think that these rewards might encourage them to actually spend more. If you are working Dave Ramsey's Total Money Makeover plan and using those envelopes stuffed with cash, then keep on doing what you're doing! If based on your current level of debit card spending you might earn significant rewards, then you might want to think about signing up.

The Best Part
This is the first time EVER in my life that I've had the option of maintaining a minimum checking account balance of $5,000. I've lived most of my life with a very small amount of money (if any) left at the end of the month. Yet another reward for all of the hard work I have put into my finances this past year.

Stay tuned,

Did you decide to participate in National Bank Transfer Day? Are you considering leaving your big bank? What are the reasons that will make you switch?
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