One of my favorite ways to earn American Airlines miles is through BankDirect, which pays you in miles instead of money. BankDirect offers 100 miles per month for every $1,000 you have in your account, e.g., if you have $25,000 with them, you receive 2,500 American Aadvantage miles per month ($25,000/$1,000=25 and 25*100=2,500). That ratio holds up for the first $50,000 in deposits each year, after which, the ratio is 25 miles per $1,000. The interest rate you earn is only 0.01%, but who cares? You’ll pick up plenty of miles. The account charges $12 per month.
It’s Time To Care
BankDirect was an unbeatable proposition when interest rates were zero, but banks are starting to push up savings account rates again. It’s easy enough to find an online bank paying 1.25%, which means that they’re starting to compete. Let’s take a look at the trade-off.
BankDirect’s premium rate is good on balances up to $50,000, so let’s assume that’s how much money you have in your bank account (anything lower works increasingly unfavorably toward the BankDirect alternative). That means that you’ll receive 60,000 miles per year, just for leaving your money there. Not bad, right?
Well, I’m not sure, because those 60,000 miles now cost you a bit more. Not in fees, but rather, in what you gave up to get them. $50,000 will now get you $625, although you’ll pay taxes on that money. If you’re in the 25% bracket, that’s $156, although it’s almost entirely offset by the $144 in fees that you’d pay at BankDirect. Your total take from the bank is $613.
At that rate, you are “paying” just over a penny per mile, which is still a pretty good deal. But that’s only if you have exactly $50,000 in BankDirect, which is the point at which you max out your miles. Any balances above that level only give miles at a rate 1/4 of the above, so $1,000 gets you 25 miles per month, or 300 per year. That same $1,000 would get you $9 in interest (after adjusting for taxes). Now, those miles are costing you three cents each, rather than a penny. That is not a particularly good deal.
It works the other way, too. Let’s say you only have $25,000, instead of $50,000. At 1.25%, 25,000 miles gets you $219 in interest (after taxes), but the BankDirect account still costs you $144, so that goes back in the “opportunity cost” bucket. Thus, you’re paying $363 for 30,000 miles, which is what you’d get at BankDirect. That’s a rate of 1.2 cents per mile, which is quickly becoming the level at which I draw the line because, while it’s still easy enough to get a better return when you use the miles, it’s no longer a guarantee.
I’ve always been a fan of BankDirect but, as interest rates dropped, they made changes that affected the rate and cost of earning miles. If they don’t make the account more attractive as rates rise, it may be time to move your money.
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