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.
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.
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.
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.)
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.
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?