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 email@example.com if you’re interested.