Does It Make Sense to Earn Miles for Your Checking Account Now That Interest Rates are Up?

I’ve been a BankDirect customer since 2003, earning American AAdvantage miles for my checking account. These miles are a good part of how I originally earned lifetime elite status with AAdvantage over a decade ago.

BankDirect offers a 21,000 mile signup bonus:

  • 1000 miles for account opening
  • 10,000 miles for direct deposit (six consecutive statement cycles, totaling a minimum of $2000 per month)
  • 5000 miles for online bill pay (at least three different payees totaling at least $500 a month for six consecutive statement cycles)
  • 5000 miles for debit card (at least twelve transactions totaling at least $500 per month for six consecutive statement cycles)

In addition you can get 1000 miles for being referred by an existing customer. They’ll receive 1000 miles too. I no longer have referrals to offer, several years ago they started capping referral bonuses at 10,000 miles total.

The account pays out 100 miles per month for every $1000 average balance, up to $50,000 total (the earning cap started in 2013). This is good for large balances, bad for small balances, because there’s a $12 per month account fee (which they instituted in 2011).

  • BankDirect no longer makes sense for those who keep low checking account balances. It takes an $8000 average balance to earn 800 miles per month, the number of miles I think is break-even considering the $12 a month fee for the account. In essence you’re buying miles at 1.5 cents apiece.

  • However it can be a good deal for people with large checking account balances. In fact when interest rates on liquid cash were near zero BankDirect offered a nice rate of return.

Here’s the math on your return:

  • $50,000 balance earns 5000 miles a month or 60,000 miles per year
  • At a cost of $144 ($12 per month account fee)
  • I value 60,000 miles at $900 (1.5 cents apiece)
  • Your net return ($900 – $144) is $756
  • That’s about 1.5% interest
  • And there’s been no tax reporting of the miles.

You may be able to earn 2% or more now on a savings account or money market fund. Whether those higher rates are better than the miles depends on your marginal tax rate. When you earn 2% interest you really only pocket 2% minus the taxes on that 2%.

My own view is that this is not a good investment return but it remains a good return on a checking account for those who keep large balances (for instance I’ve long done a lot of reimbursable charges, and cash sits in the account for a few weeks before it’s used to pay off credit cards).

By the way I don’t know whether this still works but three years ago One Mile at a Time wrote that if you let your account become dormant – no activity at all for 6 months – BankDirect stops assessing the monthly $12 account fee. You’d just want to make sure your account gets re-activated before escheat laws kick in and Texas Capital Bank turns your money over to the state and you have to claim the money back from their unclaimed property site.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

More articles by Gary Leff »

Comments

  1. Wow! Thanks for the warning. I was sort of wondering why and sort of happy that BankDirect had stopped taking the $12 monthly fee a couple of years ago. Now I better dig up my ATM card and do a transaction before the account gets turned over to the state of Texas. Yikes!

  2. The “Dormant Status” still works to avoid fees. Unfortunately, about 3 months ago, I wrote a check from my account and when it cleared, the $12/month fee started kicking in again. With slightly higher rates, time to start thinking about earning interest instead of miles. I do miss the good old days when I earned 25k miles a month, and it counted towards lifetime status. Now, miles earned through checking accounts doesn’t count to status, and for the same amount of money, I only get about 7k miles a month. If I value the 7k at 1.5 cents per mile, I’m getting about a 1% (tax-free) return on my roughly $98k after the $12/month checking acct fee. My money is split between money market and checking.

  3. Yeah, it looks like you can just move the money into a 1-year CD at BankDirect(Texas Capital) and get 2.25%. I think this AA miles deal is dead (unless you have some additional reason for $50K sitting in a checking account).

  4. Good article but remember the cost may not be $12/month. That assumes a zero fee on your best alternative, which may not be true.

  5. Not contesting anything else bit how the heck do AA miles become worth 1.5 cents/mile when AA has a ‘very limited to none’ premium award seat availability on many of the routes? Incredible reverence for a useless product!

  6. I have never found Bank Direct products worth it. Moving funds from my local bank to BD does not work for me. $12 monthly fee is over the top for an E- Product. Even Citizens bank charges only $10 for a fee and they are local with ATMs. BD does not have any ATM’s and thus a $2 fee would add to the cost. Also would have to look at the ability to transfer funds between BD and other bank accounts.

    I have looked at this for trusts with CD’s and savings and the rates are not as good as Discoverbank.com

  7. I have found Bank Direct useful as a parking place for an emergency fund. I’m not paying the $12 per month, so for the moment it still feels like a reasonably good deal. But as interest rates tick upward, I will reconsider. I would hope that BD would sweeten the pot by adding cash interest or additional miles.

Leave a Reply

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