Educated guess. Otherwise what is to make the difference between no-load funds that a company will hold without extra charge, vs those that they will not hold at all, vs those that they will only hold if you pay a buy and/or sell transaction fee? An agreement has to be in place and it is in my view reasonable that some consideration (in cash or in kind – as in I’ll carry your funds and you carry mine) is part of that agreement.
I hope that helps.
From what I have read and heard, brokerages hold Vanguard funds to gain/maintain credibility due to their popularity. Vanguard does not pay for “shelf space” and never has. This is one of the more interesting parts of the Vanguard story. There was a pretty good bogleheads podcast with Burton Malkiel where he talks about the early days of Vanguard and how taken aback the brokerages were with their new approach. If you hold low cost ETFs or mutual funds with ML, they really aren’t making any money off of you. It’s a lot like how we (former FW’ers) optimize credit card cash back while not carrying a balance. We’re not profitable customers but there aren’t enough of us to move the needle. There are plenty of profitable customers that are brought in with these various incentives to make up for it. Regardless, if ML gains something from holding my Vanguard funds and it doesn’t cost me anything more than holding them elsewhere … and I get all of those benefits, that’s a win-win, so good for them.
How? When you have your entire account balance in a third party mutual fund, how do they make money off you? You keep saying “Of course they do, duh!” with no substance. Saradon gave a plausible guess. You, nothing even close.
The reality is they hope to make money off you by selling you additional products. If you dont buy additional products from them, they dont make money off you.
And no, credit cards do not charge merchant fees of 4% or more. 3% is pretty much the top end, unless you’re in a very risky business. And when I use my 6% grocery cashback card exclusively at grocery stores, I am not a profitable customer because I know for certain grocery stores are not paying an exchange fee that’s more than 6%.
Do you think Costco and other big retailers pay that interchange rate? Not even close. ML does not make money from people who only hold Vanguard mutual funds. But if I am wrong and they do, cool, good for them.
Given the discussion, I thought these not-too-old articles (2017 and 2018) might be of interest:
and
They appear to show that Vanguard’s fees are too low to share revenue, or not enough to matter, however other firms are handling this in different ways than directly charging a transaction fee as I thought they would.
In addition, these are Index funds. Depending on where you land on the ‘quasi-religious’ (logic need not always apply) debate of active vs. passive management strategies (each has their arguments, and again, I am no expert) fees are higher on those than passive index funds. But then again, to me, it’s only rates of return that matter, especially those that minimize losses in down markets better than other investments.
This discussion went rather far afield from cash-back credit cards, sorry about that. But it seemed kind of inevitable as B of A’s rewards strategy seems inextricably tied up in total assets at the bank, including ML, which really ties them together, especially since their rewards start at only having $20k at ML or B of A, which loops in far more people in this kind of thing than usual, where ‘householding’ more often starts with a couple of hundred thousand dollars at least at a ‘traditional’ brokerage firm.
They make a pittance, if any, off of you when you invest in something like Vanguard. That is not their target audience with this card.
For people with wealth (and $100k in investable funds generally filters out the riff raff), they’re offering the credit card as a loss leader in the hopes that they can advertise their entire portfolio of products and services to you. It’s not very different from a timeshare presentation. They get your financial data, the ability to market to you, and some chance at selling profitable Merrill Lynch products to you in exchange for a lucrative credit card deal. Chase’s Private Client is similar although they don’t use the card as bait, it’s the Sapphire Banking package and a personal banker.
They don’t convert everyone, but they convert enough people that the unprofitable ones are more than paid for by the fish they are able to catch.
Here is a new offer, up to $1000 bonus for $200K asset:
Time to move another account there.
What is that limit? I see “earn unlimited points”.
Darn. Bummer
I’m working today to expand my stable of 2% reward credit cards. Thought I had one in Illinois at BCU (Baxter Credit Union). I am retired from a company on their membership eligibility list. But called them and that is insufficient to qualify me for membership. They insist you must be actively working for the company right now.
Still, if you qualify you might want to give them a look. List of eligible companies appears to have many from around the Chicagoland region.
As for me: if at first you don’t succeed, try, try again. These 2% credit cards are a great source of tax free income, so worth the effort.
PSECU Founders CC deal expiring end of this week:
I just applied for this and was accepted.
Get $150 bonus from PSECU along with chance for 2% reward
You will get a 1.5% reward straightaway. To get the 2% reward you will need at least $500 going into your PSECU checking every month. That should be easy.
Deal dies a mean and ugly death on Friday.
The Doctor is reporting that Chase Amazon cardholders are getting targeted offers of up to 4% cash back:
If you have this card, it might be worth checking the link to see if you were selected. 4% back on general purchases is crazy good. I doubt any new apps would be targeted with this offer, but who knows.
Sorry, that was the credit limit BoA gave me.
The $100 fee pays for itself if you checkin bags on a flight. This year, you can just buy four $25 airline gift cards and use those at the airport in the future.
Just opened a checking and savings with them’ planning to get a mortgage. Will look at CC, didn’t realize it was 2% cashback!
Wrote that 21 days ago. Today the results are in and . . .
Woo Hoo, it all came out great!
I followed through and opened a free PSECU checking just for the purpose of accessing the extra one-half percent. Used Alliant to deposit five hundred bucks via ACH which I promptly withdrew. Will need to do that each month; it’s not a big deal.
Anyway, my first statement just closed and I received a sweet 2% reward. Also by accident:
I ran a test on my new PSECU credit card to see if they would grant rewards when I used the card to buy a CD. They did. But also, because it was only a test I bought the minimum sized CD I was permitted to purchase: $500.
I completely forgot that PSECU was running the bonus promotion I wrote about up thread. So no sooner did I buy that CD than PSECU deposited a hundred and fifty bucks into my savings. I was like: where the heck did that come from?
I’m not a CC bonus person so they take me by surprise. Anyway, this new PSECU Founders credit card is gonna make me a lot of money going forward thanks to the 2% rewards. It’s a great card and I recommend it.
As usual you tell us about a good deal. After reading, I decided to check it out. Looked good.
I applied online, & since I have an acct with PSECU, the process was simple. Accepted & card should arrive in 7-10 days. They don’t give many instructions. So I’m following your advice & is it ACH $500 per month? .
Reads like it is a regular credit card. Its called Founders Reward Card. (guess no debit transactions)
Uh, yes. You need a free PSECU checking account. You link that account at Alliant (or wherever you wish). You ACH at least $500 each month into your PSECU checking. That qualifies you for the extra one-half percent reward. If you fail one month to ACH the five hundred bucks, your reward for that month will still be 1.5%.
There are no requirements to use the card so many times each month or anything akin to that.
Sounds as if you missed the $150 bonus, though, unless you applied back when I first posted the deal . . . together with a warning the bonus deal would soon expire.
I’m very surprised when checking my PSECU acct that the Founders Reward acct is already showing.
I just talked to a rep that tells me as long as I have the $500 in my share acct that I will qualify for the $150 bonus. That bonus is still good for new accts as long as the $500 is processed before the deal expires. I’m going to ACH the $500 tomorrow. (probably won’t know for sure until my closing date 10/25/2020)
Like you I’ll use Alliant to make the monthly ACH. So I’m wondering if you don’t charge anything during the month, what is the 2% based upon? Is it the $500?
There is also a $150 bonus for opening a checking account so you can easily double dip on this since you’re already ACH’ing the $500 each month to get the 2%. This also meets the criteria for the checking bonus.
I don’t think it will work for those of us that already members of PSECU.