It’s been said for years not to keep any savings accounts or checking account with more than a few dollars in it at a bank you have credit card accounts at, since they can try to seize your savings to repay your debt. I received a notice from PenFed that they are changing their terms as of Oct 1 to include this exact language:
To protect us if you are in default on any credit extended or cash advanced under this account, you have granted a security interest in all of your shares, deposits, payments and dividends which may be received, whether held jointly or individually, up to the amount
of your outstanding balance. The foregoing security interest includes the right to apply funds available to you in any jointly held account on your date of death. This does not include your individual retirement account (IRA). We may take all the shares needed by us to repay your credit extension or cash advance. If it is necessary to take all of your shares for the payment of this account, you understand your membership in PenFed may end. Collateral securing other loans with the credit union may also secure this loan.
I thought this was relatively a given, but I guess it’s worth pointing out. I also received the same notice this morning. We don’t do this, except for the $500 requirement in the PenFed checking account to get the 2% cash back on the power cash rewards card.
Also, we have a mortgage with NFCU, which is where paychecks are direct deposited. We also have about $100k of unsecured credit with them, but we don’t really use it at all so no worries there.
It’s a rule of thumb that can be violated if you understand the risks involved. It’s not just about you being a deadbeat: Let’s say your daughter discovers meth, steals your credit card, and somehow goes on a cross-country binge maxing it out without tripping the fraud alert mechanism. There’s a disagreement between you and the financial institution in regards to whether or not the transactions were authorized that could take a little while to settle.
This might not be the most convenient time to discover that your financial institution has this right if your nest egg is meager and you have most of it with the same one you have that credit card with.
Now if you’re a FWF-regular, have multiple checking accounts, and have your wealth spread around so that a single account getting locked up isn’t going to throw your life in disarray then you might be able to ignore Brad’s Rule. But for the average reader who hasn’t thought through all that and weighed the pros and cons the simple rule of thumb presented isn’t a bad guiding principle.
Obviously, the same goes for bank accounts you may overdraft. I worked on a large retail bank loss mitigation team whose goal was to return negative balance accounts to non-negative status.
We “offset” money from an account with a positive balance to accounts with a negative balance, without advance notice (aside from the disclosures at account opening). There were some pretty strict firewalls between CC customer data and deposit account customer data, so we didn’t offset across business units at the time, but certainly it would be no more complicated to do so.
I’m kinda with Quaters here. We bank among others with Chase and it’d be a financial loss to not use their credit cards to milk sign-up bonuses (southwest companion pass deals, CSR, 5% freedom categories, etc).
Could we find another bank for checking needs. Probably but then we’d lose some relationship perks (free safety deposit box, preferred rates, etc), have to switch a ton of direct deposits and bill payments. Plus we’d have potentially more inconvenient ATM/branch options.
And the risks seem minimal to me. I’m not liable for fraudulent CC transactions and have alerts on them so I cannot imagine many scenarii where I’d end up liable for tons of legit charges.
Now if I was faced with huge medical bills I could not pay, I’d probably put them on CC with plan to default. Then I think I’d just ACH move my money to another bank with whom I don’t plan to rack up debt. Of course, I’d also probably look at 0% CC offers first. But anyway, it’s something to be aware of in case you plan on defaulting on CC debt.
If you plan to default, don’t pay the bill. No reason to put it on CC and ruin the relationship with the bank in addition to ruining your credit. Medical debt is treated differently than CC debt. Less harsh, from what I’ve read.
True, but it’s not just about defaulting. If you’re doing any sort of MS on the credit card - they could lock down your deposits with their bank. The reverse is true to - if you’re using the deposit account for any sort of MS - they could close out your credit cards.
Seems like it should be a rule of thumb to keep things segregated. Of course, as you mentioned, if you understand the risks you’re free to accept them.
In some instances like taking advantage of BoA Travel Rewards/Premium Rewards with the 2.625% everywhere card you have to keep a lot of assets. But I put them in Merrill Edge in an IRA, and don’t deposit excessive MOs with BoA.
Guilty as charged. Sometimes I prioritize my convenience/minimal time spent on that kind of stuff rather than the dollars associated. But I still use a higher % CB card than 1.5.
I have the Capital One Quicksilver - it’s only 1.5% but it’s useful for foreign transactions since it has no fees, whereas most 2% cards do have fees. The USAA limitless card has no foreign fees but I’m not eligible for USAA membership.
Only reason I would is if there’s some other specific benefit (extended warranty, refund protection, ease of dispute process, trip delay protection, etc.) But it depends on what you’re buying and who you’re buying it from.
I didn’t realize penfed offered 2% with a checking account, thought you had to have military service.
I use AARP for dining and Gas, 3-2-1 for Groceries, Amazon Prime for Amazon and CapOne Quicksilver for everything else (which isn’t too much). But they double MFG warranties and I took advantage of that with a Nexus 5x bootloop that died at 14 months off of eBay.
When I decided on those cards Quicksilver was the best at 1.5% without jumping through hoops. So don’t scratch too hard…
DO NOT keep more in one account than FDIC coverage limits
DO NOT link PayPal to an account with any more money than you are willing to lose.
etc…
Co-Mingling checking and credit cards doesn’t meet that threshold for me. Than again, I’m not MS’ing and don’t plan on defaulting without clearing out the bank account first.
I think it should be the other way, if you dabble in risky behavior and can’t afford to lose/wait for your money don’t use mix credit and banking.