Robinhood Gold versus Bank of America Preferred Rewards Platinum Honors
/[To the reader: since I think a lot of people will be using affiliate links to sell this product, I’m not including any links, including my own referral links, in this post]
Robinhood, the online brokerage founded and aggressively marketed back when money was free, and which used that perch to make fee-free stock trading the new normal, recently announced a 3% cashback credit card, available only to its brokerage customers that pay for their “Gold” tier, which seems to currently cost $5.99 per month.
This is the rare product release which immediately had people in my real-world ambit asking, “have you seen this? What’s the catch?”
So I want to start by saying that there is no catch, and this is one of the best all-in-one financial products out there. Virtually everyone should sign up, once it’s widely available.
But that’s not especially interesting. What’s interesting is how it stacks up against the next-best product on the market: the Bank of America Preferred Rewards program, which has been the gold standard for cashback credit card rewards until now.
So, let’s take a look.
Robinhood Gold is a perfectly-designed all-in-one financial product
If you sign up for Robinhood Gold and get approved for their new credit card, then you earn 5% APY on your uninvested Robinhood balances and 3% cashback on all your credit card purchases.
Since Robinhood Gold is sold as a bundle, a lot of people are going to misunderstand that these are two entirely different products. The 5% APY offered on balances up to a million or so dollars of insured deposits (depending on how many FDIC partners they have any given week) is competitive, but it’s not best-in-class; Vanguard is paying 5.28% on uninvested cash in their own brokerage’s sweep account as of today.
Meanwhile, the 3% cashback offered by their new credit card, whenever it becomes available, is genuinely higher than any other product on the market.
So before we go further, let me repeat: most people are better off signing up for this bundle than they are doing anything else in the world of credit cards or banking.
Bank of America Preferred Rewards
It sounds funny to call such a bizarre program “simple,” but until the latest Robinhood announcement, the simplest, highest-earning cashback program has been Bank of America’s Preferred Rewards, which offers a 75% bonus on all the cashback earned on their own, non-co-branded credit cards. Since the highest unbonused earning on those cards is 1.5%, with Preferred Rewards those cards are usually said to earn 2.625% cashback on unbonused spend.
2.625% is lower than 3%, which means the new Robinhood product will earn higher rewards than one of the Bank of America cards on all unbonused spend.
Unlike paying for access to Robinhood Gold, qualifying for Preferred Rewards is an ordeal. I’m currently several months into the process of raising my average monthly balance until I qualify for their Platinum Preferred tier, upon which occasion I’ll transfer all the money back out until my next requalification period.
Breakeven points and resiliency
To calculate a breakeven point between Robinhood Gold and Bank of America Preferred Rewards, or any other cashback product, just divide the roughly $72 annual fee of Robinhood against the next best alternative.
A fee-free 2% cashback card, like the Citi Double Cash, is better for annual unbonused spend below $7,200: at that point the additional 1% paid by Robinhood matches the $72 cost of the membership.
Likewise, if you’re earning less than 5% APY on the funds held in your Bank of America accounts, or anywhere else, then you can consider the higher interest paid on your Robinhood balance to be “offsetting” the cost of the monthly fee.
This exercise is probably worth doing even if you don’t break even, for an unrelated reason: resiliency. I use resiliency to mean minimizing the downside when misfortune strikes. It’s much easier to shift between cards earning similar — although not identical! — rewards when one or more cards gets shut down. Shifting from a hotel card to an airline card to a cashback card is a much easier transition to make than shifting from rewards-earning credit cards to nothing.
Conclusion
For most people, under most circumstances, the Robinhood Gold proposition is airtight, for now. They should sign up, throw as much of their money as possible into their cash savings account, and use the card for all their purchases.
Whether an experienced travel hacker who has a range of similar cards earning similar value, or an experienced saver earning higher interest rates on the same balances, should do so is an exercise left for the reader.
