Miles and points can be an added “dividend” when you have stocks, bond, or cash invested with banks and brokerage houses. Earning miles and points should be secondary to ensuring investment returns, but can be done easily while sticking to an investment plan.
Step One–Determine Your Asset Allocation
For the purposes of this discussion, we’re not deciding how much of our portfolio is split between stocks and bonds. Both stocks and bonds can be transferred between brokerage houses easily and it really doesn’t matter who holds your portfolio (customer service issues aside!) We are deciding how much of our portfolio we are keeping in cash. Cash positions would include savings accounts, checking accounts, and CD’s. Many investment advisors say that a good rule of thumb is to hold your “age in bonds.” For example if you are 60 years old, your portfolio should be 40% stocks and 60% bonds. With interest rates being so low, I haven’t felt comfortable buying bonds, so I use cash positions as a proxy for my bond allocation. Asset allocation is a personal decision, but once you’ve decided your mix, you’ll have two different baskets for earning miles and points–one for stocks and bonds, and the other for cash or cash equivalents.
Step Two–Placing Your Stock/Bond Portfolio To Earn Miles and Points
This is the easy one! Brokerage accounts can be moved easily with a few clicks of the mouse. I have moved accounts back and forth between TradeKing, Fidelity, Charles Schwab and others over the years. I really don’t care where my stock certificates are electronically stored! For years now Fidelity has offered 50,000 American, Delta or United miles for opening new accounts with at least $100,000 in assets. You have to keep the money in 9 months before you transfer it out, and then you must wait 3 months before opening up a new account; therefore, you can do this once a year! B. and I have cycled through this for the last several years. I just completed the requirements for Bonus Number 4.
Bank of America and Merrill Edge have an interesting symbiotic relationship. Merrill Edge is an online trading spin off from the old Merrill Lynch and is owned by BOA. If you open a BOA checking account and have at least $100,000 with Merrill Edge, you earn Platinum Honors status. If you hold the BOA Travel Rewards credit card, and have this status with BOA, you earn 2.6% on ALL SPEND which can be used to offset travel spending. They also offer a cash back card, but that doesn’t excite me. I got the Travel Rewards card, opened a BOA checking account with $500, and moved my IRA over to Merrill Edge. The kicker is that Merrill Edge gave me a cash bonus to move my account!
Step Three–Placing Your Cash Positions
This is the challenging part because you want your cash to earn the highest interest rate possible. If you dump your cash into a money market or checking account that earns miles, please be aware of the trade off you are making to earn those miles.
BankDirect offers a checking account that earns American Airlines miles but only pays 0.01% on your balance! You do however earn 100 miles for every $1000 you have on deposit every month. The sweet spot is earning 5000 every month with a checking account balance of $50,000. The account has a service fee of $12/month. I calculated that with the service fee and the lost interest, the AAdvantage miles that I earn cost about 0.4 cents each. I think that this is fair value since I usually get about 2 cents value per mile when I redeem for an American award ticket.
When I opened the newest account with Fidelity, I actually had a large cash portion in it from a brokered CD that I had at the previous broker. Brokered CDs pay a lower interest rate that those you buy at banks or credit unions. I’m not ready to buy more stocks and just want to open a new CD. The highest interest rate I could get on a 9-month CD was 0.75%. Because I could get an online savings account or 1-year CD for 1%, I am losing 0.25% on the money I tie up with the brokered CD, and that is my cost to earn the 50,000 Delta miles. I calculate that I am, in essence, buying Delta miles for 0.41 cents apiece. I would buy Delta miles all day long at this price.
Earning miles or points with your stock/bond portfolio is just gravy along with your capital gains (or losses!) and dividends. When you’re earning miles and points with your cash you give up some interest in order to do so. You then need to calculate how much you are paying to earn those miles and points.
Taxes and Miles and Points
When a broker pays you an bonus to move an account, you will owe taxes on this amount. Miles and points are considered to be “rebates” and you don’t owe tax on them. This makes the game even more fun and profitable!
We are in an exceptionally low-interest rate environment right now. International monetary experts are even talking about negative interest rates. It seems prudent to consider any bonuses you might be able to get from banks and brokers, whether it be cash bonuses or miles and points.