You need two things:
- Direct Deposit in Checkings within 90 days of account open (get $300)
- $15k in Savings within 30 days of account open (get $200)
Do both: (get $400).
Think you have to keep $15k in account for 90 days, so if you put it near day 20 you’ll lose less on opportunity cost interest.
Need to maintain $1500 in checking and $300 in savings to avoid monthly fee. Or you can deposit $500 per month in checkings and sweep it into a High Yield Savings Account (HYSA) while keeping the $300 in savings.
Think the sweep is complicated, so $52.5 interest loss in the checkings might be worth it, because it’ll take 14 years to breakeven. One month you might switch jobs and forget to DD. But it might be a trap—I will elaborate later on.
It’s also not a $900 bonus, because at 3.5% you lose $131.25 in interest from the $15k in a HYSA. So more like $750 or so. Nevertheless, 750 is 5 percent of 15000, so making the equivalent of 20% yearly (5% in 3 months) is still a great deal.
Everything isn’t compared to $0 growth, it’s compared to the risk-free rate. According to Mark Carney’s Value(s) book, banks transform short-term to long-term. So they may not put it in treasuries but rather mortgages and car loans.
According to Gemini:
In institutional investing, before anyone spends a single dollar, they ask: “Does this beat the 3-month Treasury Bill?”
Carney:
The second important role of banks is to transform the maturities of assets and liabilities. Banks take short-term liabilities, usually in the form of deposits, and transform them into long-term assets, such as mortgages or corporate loans. Households and businesses can therefore do the reverse, holding short-term assets and longerterm liabilities. This helps them to plan for the future and to manage risks arising from uncertainties over their cash flows.
Money Restriction Limits
You don’t want to move money near end of 30 days. Chase limits pulls at $2500 per day. Wires cost $15, ACH is free but takes longer. Recently FedNow started RTP payments.
I think there’s a battle/conflict between Mastercard Connect and Plaid, as between ACH which is controlled by banks and RTP which is controlled by the Fed.
How does Chase make money?
Savings
Risk-free interest rate. If you put $15k there and Chase earns 3.5% on it, they get $525 after one year. Around two years, and they’ve recouped their $900 initial signup bonus. Meanwhile your account is getting around 0.1% interest.
In reality it’s more like $17k or so because you direct deposit and maintain a minimum balance, and it also has the effect of redirecting monies away from their competitors.
The existence of this bonus likely is because interest rates are current higher than near-zero, for they would otherwise not make much money doing this.
Checkings
Regarding the checkings account:
The opportunity cost loss from the 3.5% RFR vs 0% is there, then the checking account loses $52.5 per year anyways. So in reality you pay a $52.5 fee or a $180 fee to keep the checking account open.
Are the two accounts different?
Yes, Checkings is supposedly harder to maintain for a bank due to fraud/ATM/more transactions/etc.
Time Horizon of Equities
A question I asked myself: can I go “fishing” in stocks? Put some money in and withdraw it at a certain time later? Perhaps with enough good skill, I could be guaranteed to find the ones that go up?
The issue, it seemed, was
- not knowing the exit time
- the risk involved because you could time it badly.
Luckily, people already investigated these topics and gave names to what I was thinking about.
Sequence of Returns Risk (SORR) is not complex. It just says: lose money, harder to gain the same money back due to percentage growth. So don’t lose money! Heard this at least 2-3 times. Swensen, Buffet, people in industry.
I don’t understand how the stock market/time horizon keeps going up though. Did finance people mathematically work this out already? It seems a high Sharpe ratio is good because it’s higher returns for fewer units of risk, but there are many other heuristics people use: Sortino, Calmar, Omega, etc.
Two-account Method
So-called Nastiest, Hardest Problem in Finance: “decumulation” according to Sharpe. Supposedly perpetually withdrawing 4% from the portfolio annually is dangerous, so some advocate for “2-yr” lockboxes/ladders.
So supposedly you fill the box when the market is high to avoid needing to sell when it’s low, a sort of time-magic teleportation of money as is common in finance.
So it seems like if you have more liabilities and dependants, then your living expenses box has to be safer: TIPS. For me, I can do Money Market/Bonds. Otherwise, the majority of your money is in a place where it should grow.
Next, the size of your expenses box depends upon how much risk you feel is in your life. If you have wealthy parents: perhaps very little. If you know you have a guaranteed job offer, also perhaps little. Tough market with low hiring? Maybe 1-2 years. The size of the expenses box is just the time duration you think needed to exist without dipping into the principal of the other box.
Weird mental visualizations
I’m sort of imagining a two-tank piston/tank model thing where one fills/inflates and the other deflates depending upon one’s income.
The most helpful thing from the above conversations was seeing my total account/investments/money as “two tanks” with a fixed monthly spend for one of them, rather than all as one giant number.
I still don’t fully see what happens with regards to when to sell stocks to refill the tank, though the “peak cutting within 2 year duration” sorta makes sense. And combined with the fact that income exists, doesn’t that make the “peak cutting” irrelevant? As that’s only a deflation stage?
And if you had some sort of machine/capital rather than just labor, these things could earn income forever, so it would just infinitely inflate? What does that mean for people who have nothing but their labor? Do they just get infinitely poorer?
TIPS
Was wondering why buy TIPS (1-2%) instead of treasuries (3-4%). Supposedly the become high percentage if inflation is underpriced, and the bonds get crushed in value. Seems like at the end of the day beyond all the mathematical concepts, finance is just about making predictions of the future and other people.