Avoiding The BankDirect Monthly Account Service Fee

Travis is my first new contributor to the blog, who will be posting a couple of times per week. The idea behind adding guest contributors is to add different perspectives to the blog. Travis has a unique approach towards travel, given that he travels almost exclusively with his wife and young children, which is in stark contrast to my travels, which are usually alone.


Last month I analyzed the BankDirect Mileage Checking account and how it can be a lucrative way to earn American Advantage miles. To recap, you earn 100 American Advantage miles for every $1000 you keep in the account each month, up to $50,000. Then above $50,000, you earn 25 miles per $100. It also pays a negligible interest rate (0.01%). As long as you don’t mind being paid in miles, this is one of the higher yielding opportunities for a completely liquid FDIC-insured account.

BankDirect
BankDirect

The downside of the BankDirect Mileage Checking account is that it has a $12 monthly fee regardless of how much you keep in the account. This is particularly annoying because the $12 fee is almost certainly more than you’ll make in interest each month. For example, if you have $50,000 in the account, you’ll earn about $0.42 of interest each month — no joke, it really is negligible!

That means that you are paying $12 per month in service fees and earning only $0.42 for a net loss of $11.58. Yes, that’s right — your account balance actually goes down over time! Sure, your American account will go up, but it still stinks to see your hard earned cash dwindle away.

To put this in perspective, if you deposit $50,000 into your BankDirect account today, and then keep the it open for 360 years, your initial $50,000 deposit will have disintegrated into nothing due to the $12 monthly fee. Of course your heirs will inherit an American account with 10.8 million miles in it. (Please check my math.) By then I expect that will be enough for two trips to Europe in coach.

Well, mostly as a result of my laziness and passive approach to financial management, I discovered a way to avoid paying the $12 monthly fee while still earning the same miles each month.

Dormancy

The trick is that you need to let your account go dormant.

BankDirect defines dormant accounts as those that have no activity during the previous 6-months. That means no deposits, no withdrawals, and no website logins. Trust me, it’s pretty easy to accomplish — you won’t even realize it’s happened!

Once your account is in dormant status, you don’t get charged the $12 month service fee. I have no idea why that is so don’t ask. They continue to post miles to your American account each month, same as always. And they do continue to send monthly paper statements so you can more or less still keep tabs on your money. You just won’t be able to log into the website which frankly isn’t that great of an experience anyway.

Dormant BankDirect account.  No $12 fee!
Dormant BankDirect account. No $12 fee!

Reactivating Your Account

Obviously, I discovered all of this by accident, purely as a result of my laziness. I just noticed one day that I couldn’t log into my account and assumed that I had forgotten the password, or that BankDirect’s crappy IT had struck again. So I called BankDirect to sort it out. The agent took one look at my account and realized that it was dormant. To reactivate it, she instructed me to simply email them a scan of a signed statement requesting such. My account was reactivated within a couple of days.

And the $12 fee monthly fee has returned. (Note that nobody actually confirmed for me that the $12 fee disappears if your account is dormant, but that’s what the evidence suggests.)

BankDirect account returned to active status.  $12 fee has returned.
BankDirect account returned to active status. $12 fee has returned.

Downsides Of Dormancy

I asked the agent if there would be any problem if I left my account in dormancy — remember, I’m lazy like that. She advised that BankDirect’s policy is to turn accounts that have been dormant for three years over to the state, presumably to the unclaimed funds department. I can imagine that retrieving your money from the state of Texas wouldn’t be the most fun exercise ever, but is probably doable. And I’m sure Rick Perry will keep my money safe…

Is It Worth It?

Letting your account go dormant could save you $144 per year.  That’s an extra 0.3% on top of the 2.5% return that I previously estimated. And remember, that’s an extra 0.3% from doing absolutely nothing — in fact, that’s the whole point, you have to be the epitome of laziness for this to work.

Rate of Return vs. Average Account Balance assuming you pay the $12 monthly fee
Rate of Return vs. Average Account Balance assuming you pay the $12 monthly fee

I’m not sure that I’d deliberately let my account go dormant again. I mean, who am I kidding, it’ll probably just happen at some point, but at the moment, I’m not planning to be quite so lazy in the future. If I did let it go dormant, I think I’d set a Google Calendar alert for 2018 to remind myself to check on my balance. Of course, hopefully we’ll be in a better interest rate environment by then such that this is no longer a good play anyway.  (Then again, I think I said that 5 years ago!)


What do you think?  Would you let your account go dormant in order to save $144 per year?

Comments

  1. So you’re buying 5000 miles for $11.58 and need to remember to replenish the $11.58 you lost every month? That’s still not a bad buy miles price, though in this market parking $50k in a checking account to earn 60,000 miles per year (which you can do in 1 CC sign up) is probably a bad idea….

  2. I have done this, and yes, the monthly fee does seem to go away when it becomes inactive. I don’t think it’s something I recommend doing, but as in your case it seems reasonably likely that I’ll do it again.

  3. given how the stock market has been doing, parking $50k into this account is just about the most foolish thing you could do, and you certainly should avoid the risk of losing your investment because it gets turned over to the state.

  4. So my laziness and lack of attention is finally paying off. 🙂 Needless to say, I hadn’t even noticed.

    But for everyone’s peace of mind, when I neared that 3 year time frame previously, they mailed me a warning notice before anything happened. I’m guessing BD doesn’t want the State of Texas to take over your accounts either. Losing accounts that way is quite bad for their bottom line.

  5. Everyone should have an 8 month emergency fund. Parking this fund at BankDirect earning miles instead of .005% is very smart indeed.

  6. I haven’t logged in for quite some time….but I do connect/sync via Quicken which must count as activity.

    I will deactivate the Quicken link and set a reminder my my diary for 24 months from now!

  7. There’s an opportunity cost here that I think you may be missing. A regular savings account at my local Compass Bank branch pays 1% through year-end; the average dividend on the S&P these days is close to 2%. See where I’m going with this?

    That’s why I’ve never bitten on the Bank Direct thing.

    Too much cash earning 1% is a sin, too, by the way . . . .

  8. It might be safe to “go dormant,” but I wonder if the terms and conditions would allow you to be back-billed for those monthly fees. Personally, I would not risk it.

    BankDirect still seems like a good deal to me. I keep a $50K emergency fund there plus $150 to cover the $12/month * 12 fee for a year. It gives me 60,000 miles a year in an FDIC-insured account and keeps my money safe and liquid.

    An emergency fund is supposed to be just that: liquid in case you need it. The 60,000 miles are a huge bonus and worth far more to me than about $500 in interest I might make elsewhere. It basically means a Business Class ticket every other year for $288 [$12/month * 24 months].

    I will still apply for a credit card with a good signup bonus for a quick infusion of miles. But I like watching my AAdvantage miles grow “passively” each month with no hard pull on my credit. I do, however, miss the old days of no monthly fees, and I wish they would recognize customers who maintain higher balances with a lower [or no] monthly fee. And who never “go dormant”!

  9. Rick Perry is pretty awesome and would probably watch this for ya anyways, but isn’t the Gov of Texas anymore just FYI

  10. Interesting post. I agree I don’t know if I would actively let it going dormant but I do what post people do just leave 50K + enough to cover fees. Sometimes Ive stirred it up to pay bills etc. But I may just let it sleep for a year then and just Google Calendar a reminder. The pain of calling and reactivating it etc may be a huge downer in addition to the fact that you wont have access to your money quickly when u need it. For those that consider the $500-700 of lost interest if you just get getting interest for your money, consider this: it’s all taxable. So for me I get 60K miles/12mo for 144 in fees. In exchange for a potential 1% pretax interest = $600 which equates to $360-400 post tax. So I get 60K miles for about $360-400 (potential interest loss) +144 fees = 60Kmiles for around 500 bucks = < .01c per mile. I think that's a steal whether you travel domestically: 2RT's or internationally: one way to europe in biz.

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