Originally Posted On January 10, 2016
A few posts ago, I discussed a couple of one-time stop ways to generate passive and near-passive income. The idea was, by performing a few small tasks, you could generate amounts of money with a high investment-to-reward ratio. One of the suggestions, specifically, was utilizing Lake Michigan Credit Union's Max Checking account which yields 3% APY on funds up to $15,000 (while containing no account charges).
One of the requirements to generate the 3% interest, though, is that you need to make 10 transactions a month on the account's debit card. This problem might be very specific and not apply to everyone, but if you're only using your rewards card, then it might apply to you, too. Not only do I normally not make 10 transactions a month on my card, but when I do make transactions I make them on my Sallie Mae Mastercard for 1-5% cashback. Obviously I don't want to lose those perks and I'm not going to spend $10 a month on single sticks of gum to get the interest (at the max of $15,000 this would take away 27% of your profits!) so I came up with a plan.
Quit Wasting Money On Card Transactions
I devised a way to get in my transactions without spending any additional cash and without shifting too much of "already spending" money away from my rewards card. Essentially, get your transactions in by making several smaller purchases when filling up at the gas station! You're already buying gas, but I'm only losing the 5% on the amount spent to get in those transactions - which is considerably less than the amount I get from the checking account interest!
Now, some of you may know how credit cards work and are wondering about the morality of this technique. Let me put your mind to ease. Yes, it costs merchants a flat-rate charge or a fraction of their earnings whenever you use your debit/credit card to make a purchase. So if a company were to charge a 25 cent fee to the merchant every time you used your debit card, you would be costing them money by adding additional transactions. Obviously, we don’t want to short-change someone else, we only want to get in a higher number of transactions without appealing to the bank's encouragement of consumerism!
Luckily for us, we have the ultimate resource when it comes to gathering information - the internet! By Googling "Mastercard merchant transaction rates", I was able to come across Mastercard's policy regarding debit cards and credit cards, as well as learn about the difference between the two in regards to their 'approval' systems.
A Brief Lesson On How Debit Transactions Work - When you use a debit card and select debit (not credit), the money is immediately taken out of your debit account and generally a flat-rate fee is applied to the merchant, perhaps with a small percentage fee, as well. When you use the debit card and select credit, though, the charges are different because the bank/company in charge of your account assumes responsibility for that transaction - meaning that if you don't have the money, the purchase will still go through. As far as the merchants/banks see it, this is riskier behavior and to accomodate that risk, they charge the merchants a higher percentage rate - which is generally more than that of a debit transaction.
With Mastercard, this also holds true. They charge a flat-rate fee for debit transactions and a 1.98% purchase price credit transaction charge. So, assuming we round up to 2%, we can make credit transactions using Mastercard that are in $0.50 increments, starting at $0.50, to avoid overcharging away any of the gas station's profit - therefore negating any moral qualms that before were a concern.
At $15,000 in the Max Checking account and spending $5 on gas outside of your rewards card, this is a monthly gain of $37.25 ($37.50 of account interest - $0.25 of lost 5% cashback rewards) or, assuming it takes an additional 15 minutes to perform (which, according to my experience, is probably an overshoot) you have an investment-to-reward ratio of $149/hour! Fill 'er up!