Moving money for card rewards pays only if the extra rewards beat what you give up

The short answer

A card that pays more when you keep money with its bank only helps if the extra rewards are larger than what the move costs you. Julia compares the whole move: the card rewards, the money given up elsewhere, the account costs and your access to the cash.

In her example, $20,000 of yearly purchases earns $400 at 2% and $600 at 3%, so the better card adds $200. To qualify, the family would need $25,000 in a particular account. If that account's yield is 2 percentage points lower than where the cash sits now, the move costs $500 a year before taxes and compounding. The family would be $300 worse off, and Julia would keep her current setup.

The break-even is simple. The extra $200 divided by the $25,000 moved is 0.8%, or 80 basis points. If the new account's yield is more than 0.8 percentage points lower, the lost interest uses up the extra reward before any other cost. If the program takes investments you already own and you can move them without selling, the answer can change.

Count only the spending that gains

Start by checking that all $20,000 really belongs in the comparison. If some purchases already earn 3% or more on another card, moving them creates no improvement. Only the spending that gains a better return should help justify the account move.

Otherwise you can accept a real cost on your savings in exchange for extra rewards that your existing cards already provide.

Put a price on the cash you move

Compare the new account's yield with where your cash is now. Julia's example runs like this:

• Extra card rewards: $200 a year.
• Interest lost on $25,000 at a yield 2 percentage points lower: $500 a year, before taxes and compounding.
• Net result: $300 worse off.

To find the most yield you could give up, divide the extra $200 by the $25,000 moved. That is 0.8%, or 80 basis points. Account rates change, so keep an eye on that difference after you move.

When the move is investments instead of cash

Change what moves and the comparison changes. If the program accepts investments you already own, you can move them without selling, you keep the same investments and you pay no extra ongoing account cost, you do not have the same lost savings interest to count. The extra card reward could be much more appealing.

Check exactly what can move:

• Which accounts and assets count toward the program?
• Can the new account hold those investments?
• Are there transfer charges or account fees?
• Does the service suit you, and does a transfer offer come with restrictions?

Moving investments without selling them is called an in-kind transfer. Some funds, fractional shares or unsupported investments may need different treatment. If investments must be sold, tax consequences can follow, so understand the transfer before authorizing it and get appropriate advice when a sale is involved.

Keep the investment choice separate from the card reward. An extra percentage is not a good reason to buy something you do not otherwise want or to take substantially different risk.

Read what the boost actually is

Bank of America's rewards structure is a real example of this relationship model: eligible balances and program status connect to benefits on certain cards. Other institutions have their own versions, and their assets, averaging periods and boosts are not interchangeable. Read the program rules alongside the card terms, because a card might take part in one bonus while a category or special earning rate is excluded from another.

Check what the advertised percentage means too. A 50% rewards bonus can mean a boost to the base reward, not 50% of your purchase back. With a base rate of 1.5%, a 50% boost adds 0.75 percentage points, for a total of 2.25%. On $10,000 of eligible purchases that earns $225, not $5,000.

When you actually qualify

Knowing the rate is half of it. You also need to know when you earn it.

• A program may use an average over a period rather than the balance you deposited today.
• Enrollment and benefits can take time to activate.
• Ask what happens if market values fall or you withdraw money.
• If you qualify for only part of the year, use that period in the rewards calculation.
• Existing customers should check transition rules, because a newly announced tier may take effect at a different time from a change on an older account.

Your account's actual status matters more than a general comparison chart.

Make the comparison twice, once with any introductory offer and once without it. A strong first-year incentive may justify a move that later rewards alone would not support. Write a first-year comparison and a later-year comparison, and include any continuing fees or lower earnings in both where they apply.

Keep access to cash in the decision as well. Emergency money and upcoming bills need to remain available on terms that work for you, and a small monthly reward should not make a necessary payment harder.

Before you act

Julia's Wallet Check here covers the whole relationship: extra card rewards, money given up elsewhere, account costs and access to your cash. A higher earning rate can improve a card's Wallet Score, but only under the relationship assumptions attached to that rating. Do not carry the highest advertised rate into your decision and leave out what it took to qualify.

On the bank's and the card issuer's pages, check:

• which accounts and assets count, and how the balance is measured
• when the boost starts, how long it lasts and which categories it excludes
• the new account's yield and fees against where your money is now
• what happens to the boost if balances fall or you withdraw money

If the extra rewards cover the real costs and the accounts suit your plans, the move can be worth considering. If you would have to accept lower returns or less convenient access, write that trade down in dollars first. The amounts here are Julia's worked examples, and program terms may have moved since the lesson was recorded.