How big of a balance justifies a Bank Direct mileage checking account?

In November I posted about a rumor that Bank Direct would be instituting a $12 monthly service fee for their mileage checking accounts.

With interest rates as low as they are, I figured it wasn’t a half bad deal. For those not familiar with how Bank Direct works, on a mileage checking account they’ll offer you 100 miles per month for each $1,000 you have in your account. In other words, you earn 1,200 miles per year for each $1,000 you keep with them. I’d say American miles can conservatively be valued at 1.5 cents each, so that’s like earning 1.8% interest tax fee (for most people, making it somewhere in the neighborhood of 2.2-2.5% interest if you had to pay taxes on the interest). Not bad for money you can move around at any time.

Well, the monthly service fee has now been confirmed and will be in place starting in January. In other words, a Bank Direct mileage checking account now costs $144 per year. Many thought that the program was hugely devalued when American announced that not all miles earned would count towards million miler lifetime status anymore, so this is two huge hits to Bank Direct in a short period of time.

Anyway, crunching the numbers, say you have $50,000 in a Bank Direct checking account. That would earn you 60,000 AAdvantage miles per year, which is great, though you are paying $144 for the privilege, not to mention the opportunity cost of where you could be investing elsewhere. Still, I value 60,000 AAdvantage miles at roughly $900, so even after the fees we’re looking at the equivalent of $756 in tax free interest, which is about 1.26%.

Obviously if your average balance with Bank Direct is much lower this would be less worthwhile, while if it’s a bigger balance the monthly fee is negligible.

Though this does raise the question — is there anywhere else you can leave money that’s totally liquid and pays a better interest rate? I know there are plenty of banks that will offer marginally better interest rates for the first $10,000 or so deposited, but what about larger balances?

And if anyone is interested in signing up for a Bank Direct mileage checking account, you can earn 2,000 AAdvantage miles just for opening the account if you let me refer you (without a referral you earn just 1,000 miles), and I get 1,000 AAdvantage miles for referring you. Email me at onemileatatime@hotmail.com if you’re interested.

Comments

  1. I agree. Still the best deal around for 50K+ balances unless you value miles less than 1 cent. It amazes me how quick some people were to jump ship, get a lesser rate, and pay Uncle Sam $144+ in taxes.

  2. If it paid Star Alliance miles, I’d consider it. I’ve got a ton of AA miles already which I tried to use over the holidays, but the availability just wasn’t there whereas I found various options with SA. Guess I’ll keep my cash in ING and blue chip dividend paying stocks.

  3. Suggest you stash your cash in an off-shore account in the Caymans….. then you can go visit your money and have an excuse to fly LYB-CYB!

  4. Would it be worth it to pay the monthly fee long enough to get the rest of the bonuses they offer?
    – Earn 10,000 miles for establishing full payroll direct deposit from your employer into a Mileage Checking Account.*
    – Earn 5,000 miles for using BankDirect’s bill pay service.*
    – Earn 5,000 miles for using your BankDirect Visa® CheckCard,*

    I know some of them you have to do for almost 12 months. So maybe just do the ones that makes sense on a cost basis?

  5. I have 4% and 3% APY checking account, fully FDIC insured! Although there are some requirements to meet(1 bill pay, 10-12 purchases a month, etc) there’s no monthly fees and unlimited ATM fee refund (including the fees charged by the ATM owners)

  6. I think you’re off by 2 decimal places. 😉 $14,400 x 0.01% = $1.44. 1.4 million would cover the $144 in fees, assuming fees are deducted from taxable interest.

  7. I like the way you justify keeping the account! Ive been debating what to do with BD for a few weeks now & don’t see much out there worth jumping to switch to…

    For now I guess I am suck with a monthly $12 fee…

  8. 1. there are many online banks offer 2% — 3.5% checking account. if you compare bankdirect with 3% interest checking, it may not worth it, unless for someone who use miles regularly. please correct me if i am wrong.

    2. …”And if anyone is interested in signing up for a Bank Direct mileage checking account, you can earn 2,000 AAdvantage miles just for opening the account if you let me refer you (without a referral you earn just 1,000 miles), and I get 1,000 AAdvantage miles for referring you.”…

    how come, with a referral, a new customer earns 2000 miles, while without referral, a new customer earns 1,000 mile only? i read the website and think a new customer always earns 1,000 miles regardless with or without referral. am i right?

Leave a Reply

Your email address will not be published. Required fields are marked *