BankDirect Devaluation FAQ and Strategy

TravelSort reader John writes “I have $200,000 parked at BankDirect.  When should I move $150K out of BankDirect?  My wife has the Money Market Account which I could fund up to the 50K max.

Trying to sort out the best mileage earning opportunities for these funds given the BankDirect Devaluation that comes next week, but dont want to pull the funds to quick and miss out on the last distribution of miles at current rates.

Thinking about Fidelity.”

As I wrote in BankDirect Devaluation: 75% Reduced Mileage Earning for Deposits Above $50,000, effective June 1, 2013, BankDirect will only pay 100 American Airlines AAdvantage miles per $1000 of the collected account balance up to the first $50,000 on deposit for the AAdvantage Mileage Checking with Interest Account. Any balances above $50,000 will only earn 25 AAdvantage miles for every $1000. 

When to Move Funds Out of BankDirect?

June 1, 2013 is the date you'll want to move funds above $50,000 out of your BankDirect AAdvantage Mileage Checking account. Make sure to keep funds in through May 31, 2013, as your May balance will earn at the current rate of 100 AAdvantage miles per $1000, up to $200,000. So if you currently have $200,000 in your BankDirect AAdvantage Mileage Checking Account, you'll earn 20,000 miles, even though this will post sometime in June. If you kept that $200,000 in the account for June 2013, you'll only earn $8750.

Should I Open a BankDirect AAdvantage Mileage Money Market Account?

You're limited to 2 BankDirect transactional accounts per household, so if you're lucky enough to already have two BankDirect AAdvantage Mileage Checking Accounts, one each for you and your spouse or partner, you won't be able to also open a BankDirect AAdvantage Mileage Money Market Account.

I was told that we wouldn't be able to open a second BankDirect AAdvantage Mileage Checking Account, which I view as preferable to a Mileage Money Market Account even with the $12 monthly fee, because it pays double the miles up to $50,000 account balance: 100 AAdvantage miles per $1000 on deposit, rather than only 50 AAdvantage miles per $1000 on deposit. Because of this, the AAdvantage Mileage Money Market Account could be a good option, even though it will only get you 2500 AAdvantage miles per month, albeit with no $12 monthly fee.

Should I Open a BankDirect AAdvantage Mileage CD?

The attractiveness of CDs depends on your point of view on where interest rates are headed. If you think they'll increase enough over the life of the CD, you won't want to lock your money up for the miles. But if you share my view that interest rates are likely to be very low for the coming year or even longer, then it could well make sense to take out a BankDirect AAdvantage Mileage CD. 

Do you need to take out an AAdvantage Mileage CD before the end of May? Only if you don't want to do too much paperwork: starting in June, the BankDirect Mileage CDs will earn:

• 1000 AAdvantage miles for every $1000 invested in a 24 month CD up to $50,000
• 500 AAdvantage miles for every $1000 invested in a 12 month CD up to $50,000
• 250 AAdvantage miles for every $1000 invested in a 6 month CD up to $50,000

But since you can take out multiple CDs, the only difference between buying a CD now vs. in June is getting 1 $200,000 CD vs. 4 $50,000 CDs, or 1 $100,000 CD vs. 2 $50,000 CDs.

Where Else Should I Move Money in Excess of the $50,000 per BankDirect Account?

Some folks are fortunate to already have a grandfathered BBVA AAdvantage mileage account to earn miles with and will move BankDirect funds to it, but no new account holders are accepted for the mileage accounts so this isn't an option for most.

Hence, my recommendations for amounts in excess of $50,000 are:

1. Fidelity Offer: 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. If you've already taken advantage of this offer, consider opening it for your spouse or partner.

2. Lower Your Mortgage Rate: If you're shopping for a mortgage or refinancing, 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. In particular, take a look at First Republic Bank. There's a reason why Mark Zuckerberg has a mortgage with First Republic Bank when he doesn't need one (granted, you won't be able to replicate his 1% adjustable rate mortgage, but rates could still be better than alternative banks'–shop around).

3. Get one or more BankDirect CDs: see above–starting in June, you want to keep each CD to $50,000. You get the benefit of getting the AAdvantage miles upfront, although do make sure you're willing to lock up your money for the duration of the CD term, as there's a 3% penalty for early withdrawals.

Best American AAdvantage Bonus Miles Offers