What are the limits to this?
Why are two people having to do it?
Where did the 7200 annual come from (I'm sure from the limits but that's why I'm asking). Your example above had someone earning $21 per CVS visit, and Mr. Pants said 5 trips to CVS x 2 people. That is 210/mo, or about 2500 annual. Not following where the numbers are coming from yet.
Limits on Serve?
Limits on Bluebird?
Limits on AmEx Blue Card?
Besides CVS I see WalMart mentioned - do they sell the Vanilla reloads or other cards that work with it? Any other stores?
This has been quite the active thread last night and this morning... Let me chime in with my summary of how this works and an explanation of my numbers. (This will also be a great practice run for me to go over it with my wife :) )
First let me define manufactured spending. Everyone knows what manufacturing is to create something; to manufacture a Boeing 777 is to build it. Everyone knows what spending is, when we transfer money for good or services.
Well Manufactured Spending is creating the illusion of spending. When we charge $1000 we generally get $1000 worth of product or service, if you go to an ATM it is a cash advance and you get hit with huge fees, credit cards don't want you taking cash off your cards without buying something, they think that is very risky.
Mustachians use cards with some form of rewards be it travel or cash back when charging things, so if you have a 2% rewards card and you charge $1000, you really only spend $980. If it is 5% rewards card you only spend $950. So you are getting your products and services for a discount. Now let's say if what you were to buy is a gift card with a face value of $1000 and you got cash back from your card still have your initial buying power retained in the new gift card, that would be considered manufactured spending.
Ideally you want to be able to keep the money you spend as liquid as possible so buying a gift card that is for a specific store or restaurant is not as useful as a generic Visa or AmEx gift card. But even a gift card is not cash, so even though you have an extra $20 or $50 reward that you manufactured it is not as liquid as cash it's a reward and you have a gift card, I would rather have my cash.
So now comes AmEx Serve/Bluebird and the class of products that make this a lot more robust...
Serve is a product offered by American Express to address the unbanked and underbanked market. It is a reloadable prepaid debit card which can be used anywhere AmEx is accepted. It has a mobile app for iOS and Android as well as a website, you can pay bills to any merchant that accepts AmEx via ACH and anyone else AmEx will send a check to in 3-5 days (even your cousin Phil). Here is the link to find out all about this bank replacement product
https://www.serve.com/AmEx also offers Bluebird which is a sister product
https://www.bluebird.com/ but you can only have one or the other.
Serve is an individual account tied to your social security number, so you get one and you SO gets one.
There are many ways to add money to your Serve account, direct deposit, taking a picture of a check with a mobile app, a bank transfer via a linked account, another Serve account. The key way that is important for this thread is you can load money onto a Serve account via either a Vanilla Reload card or directly via a credit card charge at either CVS or 7-11.
You can read about Vanilla Reload here
https://www.vanillareload.com/, they are prepaid pin based debit cards that can be purchased you can see the various places you can buy them on their website, CVS and 7-11 are on the list. The cards can be loaded with $20 to $500 a per card charge of $3.95.
I will focus on the CVS swipe as it is the most lucrative (no charge like the Vanilla Reload Cards), you can go into a CVS store and swipe your credit card and charge up $500 per transaction to load your Serve card. (You can do 2 $500 transactions per day) It will appear immediately as available. Depending on your credit card carrier the charge will show up as charge or a cash advance, AmEx and Chase seem to charge as of now, not cash advances. The charges are done by CVS and processed through the Vanilla Reload network (an InComm company).
So if you have a credit card that gets you a nice reward at CVS like the old AmEx Blue Cash card which earns 5% cash back at drug stores you can maximize your cash back.
As to limits the AmEx Blue Cash card has no upper limits on cash back but you need to spend $6500 at 1% before the 5% kicks in.
As to limits on the Serve card here is the link to the limits of the amounts the can be loaded and spent per month on a given card
https://www.serve.com/help/#/fees-and-limits-1It is $10k per month and $100k per year loaded and spent.
You can load $1000 per day per card via swipe at CVS and an additional $200 per day via credit card online for a total of $1200. The maximum per month at CVS is $5000, the maximum online is $1000. So the maximum per month in total per credit card is $6000.
My math consisted of 2 cards, one for my wife and one for myself, going to CVS 5 days each and both charging the $1000 daily limit so that is a total of $10,000 per month charges on an AmEx Blue card at CVS get 5% cash back. That is $500. I wrongly assumed the online daily load of $200 per card per person would also earn me 5%, but since that will not be at CVS, I will only earn 2% on my Fidelity AmEx card on the remaining $2000 I can load on the 2 cards. So my total monthly cash back will $540 (after the first month meeting the $6500 threshold). Annually $6220, not the $7200 I initially indicated.
Now I can just use the Serve bill pay to pay off my AmEx Blue and my AmEx Fidelity credit cards and collect my cash back. That would be true Manufactured Spending, however neither of those cards is due immediately, so I plan on taking advantage of the float for the next 30 to 45 days on my 0% $12,000 loan.
I have a HELOC with a balance of over $12k at a rate of 2.49%, since that rate is higher than any money market account currently I deposit all of my current income into the HELOC to temporally reduce the balance and have an effective savings rate of 2.49%, when my bills come due I simply borrow the money back from my HELOC and the balance becomes "true" again and my bills get paid.
I will treat this borrowed $12k the same way; I will reduce my HELOC balance temporally to save on the interest and when the credit card bills are due borrow back the money from the HELOC and pay the credit cards minus the cash back rewards which will then become permanent debt reduction.
I will actually probably use Serve to pay some of the bills that normally are paid by check rather than borrow from the HELOC it will make it look more sincere, like my mortgage utilities etc...
So I will make $6220 in cash back annually and then what you do with the float is your own calculation, in my case it is a minimum of $240 in interest savings, plus whatever compounding effect this all has on the HELOC balance.
Now I know saverocity is an advocate of this being the tip of the iceberg and there are many other programs you can use like Evolve Money, Paypal, Amazon Payment Services etc... and you can float a lot of money and earn a lot more, and he is correct you can run a ton of money through this, I will however caution anyone in doing any of this for a few things. First just using Serve along for one person is charging $6k per month, for you and an SO it is $12k, ask yourself how much did you actually charge in normal spend before doing this? I charge up to $8k a month regularly and my comfort level beyond $12k in Manufactured Spending is not very high. To do this you are tying up a lot of money and these programs
ARE NOT BANKS they are
NOT REGULATED BY THE FED and you can get into a lot of trouble if your money gets locked up, so if you charge $20k or $30k or $100k do you have the liquidity to pay those bills if you get into a situation where your money is tied up. AmEx is the only company offering a service like this whose backing I trust, I am also a loyal large enough customer that I can raise a concern on the credit card side if need be even though they are separate businesses. I'm also a stock holder, which adds weight if they want to lock up my funds. The funds at AmEx at held in custody at AmEx Centurion Bank or Wells Fargo, I am not concerned with the viability of either bank. Lastly the TOS on these programs can and most likely will change at some point having too much exposure is probably not as advisable. As far as people's concerns on the Serve accounts getting locked, from what I have read it is usually in a violation of the TOS, don't fund your Serve card with your SO's credit card or vice versa, only fund with your own funds etc... follow the TOS and you should be ok as far as other providers I have no idea.
AmEx is generally making money on Serve in at least two ways by getting more card swipes by putting more AmEx cards in people's hands, and they are also investing the float of funds in reserve that people deposit.
As far as the AmEx Blue Cash Card they make 1.4% on the first $6500 charged, then loss 2.6% thereafter, but no one knows the deal they have with Vanilla/InComm they might get enough to cover the CVS cash back charges and still come out ahead. AmEx gets 2.4% as an interchange fee per card swipe at the register.
Remember there is really no such thing as a free lunch; the banks are making money on these products, even if we think we are figured them out.
-Mister FancyPants
