PerkStreet Review Part 2

3/7/12 UPDATE:   The rules have been modified extensively since this review.  Please take the time to understand the changes before you apply.

In the month since Part 1 of my PerkStreet review, the one thing that has become quite clear is that PerkStreet users are passionate about the checking account. The emails and comments have been numerous, and I appreciate every one of them. In response I've done some additional number crunching to again elaborate on why PerkStreet may not be the best option available (yes, I'm maintaining my position in spite of all comments). Before we get to the numbers, let's first recap what PerkStreet is offering. They are offering a checking account that pays you 0% interest, but will give you 1% back on all purchases. Additionally, if you keep over $5,000 in the account (beginning daily balance), any purchase made during that day receives a 2% rebate. In addition, and it appears rather randomly, they offer 5% back on certain items at certain times (limited to $500 annually). For example, on July 20, PerkStreet announced that in honor of National Junk Food Day on July 21, you could get 5% back on fast food purchases. I'm not going to go into why I think even playfully encouraging fast food eating is an ethically questionable thing (although they did include some healthful tips in the blog post), but I will note that this is a 1-day teaser rate that PerkStreet can basically toss out on a whim to keep you hooked into their card usage. You never know when it's going to happen or if it's going to happen in an area of interest to you so you have to pay attention all the time. In psychology we call that variable ratio reinforcement, the same thing thing they use to keep gamblers hooked. Let's forget the ethics for a minute and get down to dollars. In this new example, I've created 3 scenarios:

My Way – Just like it sounds, this is the way I currently exist. It means I put as many purchases as possible on my credit cards and I optimize their usage. In this simple example, I use my PenFed card for gas purchases and my Schwab card for all other purchases. I am also assuming that keep a $7,500 float in my interest checking account. This isn't quite the truth, but I did this to have an accurate comparison to PerkStreet. The interest on the account is .5% and I've assumed it for the 60 days in my credit card billing cycle. It is simple interest, not compounded because the short duration makes any difference nominal.

PerkStreet < $5000 – This scenario assumes I keep a smaller amount in PerkStreet and only reap the 1% rewards except when I hypothetically go to McDonald's on National Junk Food Day.

PerkStreet > $5000 – This scenario assumes I keep a the same amount in PerkStreet as I do in the My Way scenario and being greater than $5000 allows me to achieve 2% rewards on all purchase, again except when I hypothetically go to McDonald's on National Junk Food Day.

Perk Street Comparison Table

	My Way	Perk St < $5k	Perk St > $5k
Banking
Amount in Checking (avg. daily balance)	$7,500.00	$2,500.00	$7,500.00
.5% interest over 60 days	$6.16	$-	$-
Purchases
Gas	$200.00	$200.00	$200.00
Groceries	$500.00	$500.00	$500.00
Entertainment	$300.00	$300.00	$300.00
McDonalds	$15.00	$15.00	$15.00
TOTAL	$1,015.00	$1,015.00	$1,015.00
Cashback
Perk St. 1% Rebate	$-	$10.15	$-
Perk St. 2% Rebate	$-	$-	$20.30
Perk St. 5% National Junk Food Day Rebate	$-	$0.75	$0.75
Schwab 2% to Brokerage on any purchase	$16.30	$-	$-
PenFed 5% cashback for gas	$10.00	$-	$-
TOTAL INTEREST AND CASHBACK	$32.46	$10.90	$21.05

As you can see from the table above, My Way provides a return over 50% greater than PerkStreett 2% and almost 200% better than PerkStreet at 1% rebate. You could rightfully argue that because I only spent about $1000 in the example that the percentages are skewed. These percentages will come down the more you spend because the My Way advantage is largely a result of the interest earned (and the rest from using the PenFed card for gas). However, there were a couple of things I did that helped the PerkStreet scenario. Note that I did not take into account opportunity costs for the PerkStreet scenarios. That is, by leaving money at PerkStreet at 0%, you are missing out on the opportunity for interest elsewhere and so it should count as a negative. Further, in reality, I don't keep that much money in checking. So, a portion of the $7500 in the My Way scenario would actually be earning 1.5% in my money market account. However, to make it as apple to apples as possible, I left that part out of the calculation and just made the balance assumptions the same. Finally, it's highly unlikely that I would have eaten $15 of fast food on National Junk Food Day, but I thought it would be funny to include. No matter how you cut it though, My Way is likely the best way. So, as I concluded in Part 1 of my review, I am not saying PerkStreett is bad in any way. I am saying that the marketing tactics are a bit aggressive. However, if it were my company I'd probably be doing the something similar because you have to get your name out there and get people signed up. Additionally, there are a subset of consumers like myself who use credit cards to their advantage to such a degree that even a 2% rebate on purchases in a checking account becomes an unattractive offer. For many consumers though, this could easily be the most lucrative opportunity available. I eagerly await your comments! Read Part 3 with my response to PerkStreett management comments.