BankDirect has reduced mileage earning by 75% for deposits over $50,000 in its AAdvantage Mileage Checking and Mileage Money Market accounts, making it no longer possible to use BankDirect to earn AAdvantage miles for half a cent per mile. Here's a quick summary of what's changing:
Effective June 1, 2013
- AAdvantage Mileage Checking with Interest: 100 AA miles for every $1000 of the collected account balance is only up to the first $50,000 on deposit (currently, up to the first $200,000 on deposit). Amounts above $50,000 only will earn 25 AA miles for every $1000, a 75% decrease
- AAdvantage Mileage Money Market: 50 AA miles for every $1000 of the collected account balance is only up to the first $50,000 on deposit (currently, up to the first $200,000 on deposit). Amounts above $50,000 only will earn 25 AA miles for every $1000.
- Similarly, AAdvantage Mileage CDs will only earn the higher number of AAdvantage miles (depends on CD duration) for deposits up to the first $50,000 (currently, up to the first $200,000 on deposit)
What This Means
- Anyone who currently has $50,000 or less with BankDirect and had no intention of increasing this amount is unaffected
- Those who currently have over $50,000, and especially those with large deposits closer to $200,000 (or even a couple $200,000 accounts) are significantly affected, and will likely want to reduce their deposits down to $50,000
- BankDirect is still a good bet for many for a $50,000 mileage checking account, even after this devaluation. But you probably won't want to keep $200,000 in BankDirect any longer. See my revised examples below.
New Example 1: $50,000 Deposit: Account Paying 0.85% APY vs. BankDirect Mileage Checking, Marginal Tax Rate of 35%
Let's suppose your choice is between putting $50,000 in an account that pays 0.85% interest or a BankDirect Mileage Checking Account, and that your account's interest would be taxed at a marginal tax rate of 35%. To keep it simple, I'll ignore the miniscule interest you get with the BankDirect Mileage Checking Account.
- Checking account interest: $425 pre-tax, $276 after tax
- BankDirect Checking, $50,000 on Deposit: 60,000 AAdvantage miles at the end of the year, $144 in fees paid ($12 per month)
- Opportunity cost of BankDirect Mileage Checking: $276 + $144 = $420
- Cost per AAdvantage mile earned via BankDirect: $420/60,000 = 0.7 cents per mile
- Verdict: 0.7 cents isn't as good, of course, as 0.5 cents per mile which has been possible to earn under the current system with $200,000 deposits, but 0.7 cents per mile is still a great deal and less than half what most people value AAdvantage miles at.
Revised Example 2: $200,000 Deposit in an Account Paying 0.85% APY, Marginal Tax Rate of 35%
Until now BankDirect has been an especially good deal for those who could deploy $200,000 in a BankDirect Mileage Checking Account to earn AA miles at half a cent per mile. But with the 75% devaluation in mileage earning for deposits between $50,000 and $200,000, it's no longer such a good deal.
Let's go back to the same assumptions I made above, but assume you now have $200,000 and are deciding between an account paying 0.85% interest or a BankDirect Mileage Checking Account, and that your account's interest would still be taxed at a marginal tax rate of 35%.
- Checking account interest: $1700 pre-tax, $1105 after tax
- BankDirect Checking, $200,000 on Deposit: 105,000 AAdvantage miles at the end of the year, $144 in fees paid ($12 per month)
- Opportunity cost of BankDirect Mileage Checking: $1105 + $144 = $1249
- Cost per AAdvantage mile earned via BankDirect: $1249/105,000 = 1.2 cents per mile
- Verdict: Not worth it–aim to use available funds above $50,000 elsewhere
FAQ
When Do the BankDirect Reduced Mileage Earning Amounts Go Into Effect?
June 1, 2013
Why Haven't I Been Notified Yet?
Snail mail has just gone out to current BankDirect account holders–you'll receive it soon. In the meantime, see BankDirect's pdf chart.
Can I Have Two or More BankDirect Mileage Checking Accounts with $50,000 in Each?
No: BankDirect only permits one BankDirect Mileage Checking Account and one BankDirect Mileage Money Market Account per household. Of course, if you and your partner maintain separate households, you can try to get a checking account for each of you.
Where Should I Put the Amounts Above $50,000 I Currently Have on Deposit at BankDirect?
Only you can figure out what makes the most sense for your financial situation, but here are some ideas:
- Earn up to 50,000 AAdvantage Miles: Use $100,000 to earn 50,000 AAdvantage bonus miles from Fidelity by opening a brokerage account. See Best American AAdvantage Bonus Miles Offers Note that this option is NOT available to you if you or someone in your household works at a financial institution or securities exchange.
- Lower Your Mortgage Rate: If you're shopping for a mortgage, negotiate a lower mortgage rate by offering to keep funds at the bank you'd be getting your mortgage from. You may be surprised by just how much money you can save over the life of your mortgage, especially for larger mortgages or in a place such as NYC.
- Consider a BankDirect CD: While it's obviously not as attractive to lock up your money for 2 years, depending on which way you think interest rates will go and how much you value getting a big chunk of AA miles upfront, you may want to deploy a good chunk in a BankDirect CD. Through May you can earn 1000 AAdvantage miles per $1000 invested in a 24 month Mileage CD up to $200,000. That would get you 200,000 AAdvantage miles 6-8 weeks after opening the CD, giving you almost enough for 3 one ways from the U.S. to Asia in Cathay Pacific First Class.
What are your thoughts on the BankDirect devaluation?
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