In this article, we’re going to dive right into the Bank of America credit card ecosystem. This is the arrangement that I use to maximize cash back on credit card purchases in categories that don’t have bonuses through other cards. This is also where I also make a profit while prepaying my federal taxes.
Note, all of the Bank of America and MerrillEdge links are publicly available. I do NOT receive any compensation if you sign up for their services. This is what I use to maximize returns on purchases that I’d otherwise have to make anyway.
Overview of the Bank of America system
Bank of America offers credit cards that participate in their Preferred Rewards program. In a way, it’s somewhat convoluted and I hesitated for years before taking the leap myself. It does take several months (Yikes!) to get situated if you are not already a banking or investment customer, but afterwards it runs on autopilot.
Within the Preferred Rewards program, there are several tiers that increase cash back to your purchases. For the highest tier (Platinum), you receive an extra 75% of cashback/points to whatever benefits you might already receive from their cards. With the Bank of America Premium Rewards card, you can get 2.625% cash back on all non-bonused category purchases. To qualify, you might have at least $100,000 combined between the Bank of America and MerillEdge investment ecosystem. This initially sounds daunting, but realize that you don’t have to (and shouldn’t) park that amount of cash in a checking account earning 0% interest. MerrillEdge is Bank of America’s investment arm (they purchased Merrill Lynch Investment services several years ago), and they offer low-cost ETFs and funds that are essentially equivalent to other investment firms like Vanguard. The goal is to park $100,000 in one of the funds (I use the S&P500 and total market ETFs) in order to qualify for Premium Rewards to maximize your credit card returns.
Steps to getting 2.625% cashback
- Open a MerrillEdge investment account if you don’t already have one — It takes roughly a week to open the account and transfer funds into the investment account. You obviously don’t have to transfer $100,000 at once, and can stagger the contributions as you have extra cash to spare. There are various tiers to the program, and the goal is to get at least $100,000 in the account to maximize your returns.
- Open a checking account with Bank of America — This can be done simultaneously with the MerillEdge account, as they require a checking account in order to qualify for the Premium Rewards program. Be sure to link your checking account to the MerillEdge account. I typically did not bank with Bank of America, so I opened the lowest tier checking account and keep a minimum balance to avoid fees.
- Wait for 3 months — This is the waiting game. The Premium Rewards program calculates your average balance of all accounts every 30 days, and it requires a minimum of 3 months to qualify for the top tier.
- Apply for the Bank of American Premium Rewards Credit Card. This card offers 2% back on all dining purchases and 1.5% on everything else. You also receive $100 of statement credit for airline incidental charges, and a single $100 back on Global Entry/TSA Precheck credit. There is an annual fee of $95. Combined with the Platinum Tier, you can receive 2.625% back (1.5 x 1.75 = 2.625) on all purchases!
Paying your taxes using a credit card to make money
Many of us who are self-employed physicians have to prepay federal and state taxes. This is a cool 15.3% tax to cover FICA, plus the graduated income tax schedule. This can cover roughly a 30+% effective tax rate that you could prepay using a credit card.
You might also like: How to reduce your taxes with combined W2 and 1099 income
To pay your taxes with a credit card, simply head over to irs.gov/payments. There are a few third-party processors–all of them charge roughly a 2% surcharge when you pay via credit cards. In this case, you’d get an arbitrage of 0.625%. That means you’d come out ahead by $6.25 for every $1000 of taxes you pay using the credit card.
You might also like: The Ultimate Credit Card Guide (and how I earned over $50,000 through credit cards)
How redemption works
What I dislike about some credit card programs is that there are sometimes shenanigans on how to actually redeem your credits. The Bank of America Premium Rewards system is straightforward. Each ‘point’ is worth a penny. Redemption can be directed towards statement credit, checking account, investment account, or even a check. The process can be automated at any threshold of reward you set.
You can apply for the Bank of America Premium Rewards card here (public link), or head to our credit card list to read about other ones we recommend.
Questions? Sound out below!