Thoughts and feelings about BankAmericard Travel Rewards

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The best deal in travel

In my opinion the best deal in travel hacking is likely the BankAmericard Travel Rewards credit card with Bank of America Preferred Rewards Platinum Honors. That combination turns every dollar in unbonused spend into 2.625 cents towards future travel redemptions.

That's not to say there isn't competition for best deal:

  • A Chase Ink Plus and Sapphire Reserve combination allows you to earn 5 Ultimate Rewards points per dollar spent at office supply stores and redeem them for 1.5 cents each on paid travel.
  • Likewise an Ink Plus combined with the Southwest Companion Pass allows you to redeem those 5 Ultimate Rewards points for (very roughly) 3.2 cents each on Wanna Get Away fares with Southwest when flying with your designated companion, the equivalent of earning 16% on your office supply store spend.
  • An American Express Premier Rewards Gold card and Platinum Business card would let you earn 2 Membership Rewards points at supermarkets and redeem them for 2 cents each towards premium-cabin airfare, plus enjoy the flexibility of Membership Rewards points transfers.

That said, I don't personally have a Travel Rewards card, and suspect the vast majority of travel hackers either don't have or don't use one. Here's everything you need to know about the pros and cons of BankAmericard Travel Rewards and Preferred Rewards with Bank of America.

You need to have a lot of money (occasionally)

To qualify for Platinum Honors with Bank of America Preferred Rewards, you need to have $100,000 in combined balances with:

  • Bank of America;
  • Merrill Lynch, the bank's full-service brokerage business;
  • and Merrill Edge, the bank's self-directed brokerage service.

Sound simple? Hang on tight.

To initially enroll in the program, you need to have an average daily balance over the preceding 3-month period of $20,000 or more (the minimum to qualify for the Gold tier in Preferred Rewards). Each month after that Bank of America checks to see if you're eligible for a higher tier: if you enroll with a 3-month daily average balance of $20,000, you'll be upgraded to the Platinum tier when your 3-month daily average balance reaches $50,000 and to the Platinum Honors tier when your 3-month daily average balance reaches $100,000. That "check" only happens once per month.

After you've reached a tier in Preferred Rewards you keep that status for 15 months. Technically you earn the status for 12 months and then have a 3-month grace period to requalify before being moved to a lower tier or removed from the program. [Edit 1/7/16: Please see Robert's comment for clarification on how the enrollment period and grace period work in practice.]

Three-month average daily balances are a funny thing. You could meet the $100,000 requirement over 3 months in any number of ways, including:

  • Month 1: $100,000. Month 2: $100,000. Month 3: $100,000.
  • Month 1: $0. Month 2: $150,000. Month 3: $150,000.
  • Month 1: $0. Month 2: $0. Month 3: $300,000.

All three variants produce an average daily balance of $100,000 over a 3-month period, but you must have an account for 3 months to qualify. You can't just deposit $300,000 in a new account and enroll in the Platinum Honors tier the following month.

Most people don't have that kind of money in cash, but you might. If you just sold a house or inherited some money, for example, you might have $300,000, and if you aren't in a rush to spend it, parking it with Bank of America for a month would qualify you for the Platinum Honors tier for the next 15 months.

Investing with Merrill Edge

Obviously, most people don't meet the Platinum Honors tier requirements that way. Instead, they open up a Merrill Edge account and move $100,000 or more in cash or securities into their account, and leave them there.

Note: I'm a passive, indexed investor, so all of the following is going to be from the point of view of passive indexed investing.

In writing this post I scoured the ends of the internet to find as complete and accurate information as possible regarding how to transfer, buy and hold Vanguard mutual funds and ETFs with Merrill Edge. Here's what I found.

  • Merrill Edge accountholders can buy shares of Vanguard ETF's and "Investor" shares of most if not all Vanguard mutual funds.
  • As a Platinum Honors accountholder you receive 100 free stock and ETF trades per month, so there would be no cost to purchase Vanguard ETF's with cash. Purchasing new Investor shares of Vanguard mutual funds has a $19.95 fee.
  • This creates an obvious chicken/egg problem: to get free ETF trades, you have to be Platinum Honors, but to be Platinum Honors, you have to have funds in your account.
  • Unless you want to park $100,000 in cash in your account, the obvious solution is to transfer $100,000 (or more) in existing securities from their current custodian.
  • Merrill Edge allows some, but not all, "Admiral" shares to be transferred in-kind from Vanguard. That means you are able to hold in a Merrill Edge account shares that cannot be purchased in a Merrill Edge account.
  • Once you hold Admiral shares with Merrill Edge you can reinvest dividends and capital gains, but you still can't purchase new shares. Admiral shares have the advantage of being lower cost than Investor shares and, in some cases, ETF shares (VTIAX is cheaper than VXUS, for example). You can read way more about this issue here.
  • If your Admiral shares can't be held by Merrill Edge, or if you intend to use Merrill Edge for ongoing contributions and don't want to hold two different share classes in your account, you can convert Admiral shares in all but four Vanguard mutual funds into ETF shares. You can also convert Admiral shares into Investor shares, but since Investor shares have higher fees than ETF's that's unlikely to be your lowest-cost move.
  • ETF shares can be moved in-kind from Vanguard to Merrill Edge, although fractional shares will be sold, not transferred. This may produce a taxable capital gain if the transfer is between taxable accounts.
  • [Edit 1/6/16: See reader EightBall's comment below for more on this issue, and this Boglehead forum post.]If you elect to reinvest dividends from an ETF, Merrill Edge will charge a 10% "fractional share liquidation fee" on any partial shares. In other words, they buy the whole number of shares your dividends can afford, then charge you 10% of the remainder as a convenience fee before depositing the rest in cash. To avoid that fee, you can elect to receive dividends in cash and manually purchase whole ETF shares, which sounds hellishly annoying. This is one reason I personally prefer Admiral shares to ETF's.

This may seem like a lot of trivia. But I'm laying it all out here for two reasons. First, it took me a couple hours of searching and reading to find the answers to all these questions, so hopefully putting it in one place saves somebody else the same trouble. Second, I truly believe the best way to build wealth is the long-term, automated, low-cost purchase of mutual funds tracking broad market indices.

Merrill Edge, like all brokerages, would like you to do as much short-term, manual, high-cost buying and selling of speculative securities as possible.

Merrill Edge new account bonuses

So you're a mid-career upper-middle-class professional, or early-career FIRE enthusiast, and you've got $100,000 sitting in your Vanguard account. You're intrigued by what your humble blogger earlier called "the best deal in travel hacking." The next step is to open a Merrill Edge account and transfer $100,000 in securities in-kind, right?

Not so fast.

Like many online brokerages, Merrill Edge offers signup bonuses for new customers who open accounts with qualifying balances. The standard Merrill Edge bonus is $100-$600 depending on the amount you deposit within 45 days of opening your account.

But that offer periodically goes as high as $1,000 for deposits of $200,000 or more. There's even a landing page for the higher offer, although it includes an expiration date of December 31, 2016.

If you're eager to get the process started of earning Preferred Rewards status and triggering the highest payout on the Travel Rewards credit card, then go ahead and get started. But if you're not in any hurry, then it may be worth waiting for that higher signup bonus to come around again. Even if you just deposit $100,000, the higher bonus pays out $250 more than the standard one, which it would certainly be nice to have in your retirement accounts happily compounding away.

Conclusion

I'm a long way from having $100,000 in my retirement account, so I won't personally be taking advantage of this deal any time particularly soon. But in this era of cheap and plentiful, but unbonused, manufactured spend I do believe earning 2.625% in travel rewards on all purchases is one of the best opportunities widely available — to those who can afford it.