BankDirect: With Rates So Low, Should You Opt for American Airlines Airmiles?

BankDirect: With Rates So Low, Should You Opt for American Airlines Airmiles?

BankDirect's Mileage Checking with Interest program is especially interesting in the current low rate environment, but will not work for everyone.

BankDirect, a subsidiary of Texas Capital Bank, has offered a Mileage Checking with Interest program for many years.  The program is structured so that it pays you interest in miles instead of cash (there is a virtually meaningless cash interest component of 0.01% APY).   For each $1,000 on deposit each month, you receive 100 American Airlines miles, up to $200,000 on deposit.  Hence, a $200,000 deposit will generate 20,000 American miles each month and 240,000 each year.   When interest rates were higher, the program made little sense although it often drew the attention of commentators in the financial space, including Ron Lieber of the New York Times.

With interest rates very low, the program is very interesting, particularly to those who can extract real value from frequent flier miles.  In the past, I’ve been able to use frequent flier miles at a value over 8 cents per mile (mainly by redeeming them for business class seats on transcontinental flights), giving the 240,000 miles that I could earn on $200,000 deposited at BankDirect over a year an imputed value of $19,200.  With the best savings rates at 1%, the miles can create more value than the $2,000 (probably closer to $1000 depending on your tax bracket) that your $200,000 will generate in a savings account over the next 24 months.  To boot, the $19,200 mileage value is tax free (BankDirect takes the position that frequent flier miles are the property of the airline as stated in the terms and conditions and does not report their issuance to the IRS).

However, there are some good reasons not to get too excited about the BankDirect program.  These include the following:

1)   American Airlines is in bankruptcy.  Your frequent flier miles are not only the property of the airline (they are not “yours”) and they are a credit of the airline.  While United and Delta went through bankruptcies and their mileage programs were not adversely affected, there is no certainty that American Airlines will remain a going concern, and it is entirely possible that, whatever the outcome, its miles will have no value or a lesser value than they have today.   

2)   American Airlines has already followed Delta’s lead in dramatically decreasing the value of their frequent flier program.  Round-trip domestic tickets can already rarely be had for fewer than 50,000 miles.  If you are planning to use your miles to redeem tickets for the family to go to Disney World in low season, you may in fact be better off getting interest in a high yielding online savings account.

3)   Whereas previously miles earned through BankDirect went towards meeting American's annual status qualification and to its Million Miler status qualification, that policy changed in December 2011.  If you are an airline status hog like me, this program is no longer a shortcut to getting status.

4)   BankDirect implemented a $12 monthly service fee on all mileage accounts.  This charge can rapidly deplete accounts with smaller balances and offset the value of the miles you receive.   

In short, if you can extract a lot of value out of American Airlines miles and have a lot of cash on hand, you might want to consider putting as much as $200,000 in a BankDirect account.  You should take the risks of American’s bankruptcy into account, and you should check the best online savings rates and local savings rates first.

Ari Socolow
Ari Socolow: Ari Socolow is the Chief Economist and Editor-in-Chief at BestCashCow. He is particularly interested in issues relating to bank transparency and the climate crisis. Since co-founding this website in 2005, Ari has been frequently cited in the media as an expert on local and national savings accounts, CD products, mortgage and loan products and credit card rewards products.

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  • Robert Neilsen

    May 06, 2012

    By way of clarification, $200,000 deposited generates only 238,800 miles a year because the $12 monthly fee that hits you immediately will reduce the number of miles by 100 each month. I suppose that you could deposit about $200,130 in order to get the full 240,000 for the year.

    The interest that you receive will slightly offset the $12 monthly fee. Your total fees for the year will be about $105 on the $200,000.

    I redeem my miles to fly Business between JFK and LAX. These seats are 25,000 miles one way and 50,000 round trip, compared to $2,000 or $4,000. Each year, I am getting over 9 o/w or 4 1/2 r/t tickets. The program is saving me $18,000 a year.

  • Torsten Jacobi

    November 28, 2013

    While it can be easy to earn 20,000 miles given the current promotions and credit card sign up offers - what can you use the (limited) amount for? We have outlined a number of ideas for 20,000 AAdvantage miles here.

  • Ari Socolow

    June 23, 2017

    Please note that the terms offered by Bank Direct became substantially worse in 2013 when BankDirect slashed this program, leaving miles dramatically less valuable than they had been previously. BestCashCow wrote an article about this at that time which is here:

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