Bask Bank, American Airlines AAdvantage Miles, Silliness?
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Bask Bank, American Airlines AAdvantage Miles, Silliness?

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Several years ago, when interest rates were below 1%, many people choose opted to earn American Airlines AAdvantage miles instead of interest through a program offered by BankDirect, a subsidiary of Texas Capital Bank.   I was surprised to hear from several readers this week who were upset (even angry) over a letter that they received from BankDirect informing them that their American Airlines mileage accounts would be sending 1099-INT forms from 2020 onwards to the IRS to report on imputed value of the miles awarded to them.   You can read more about this at One Mile At A Time.   I had recommended that people close their American Advantage miles – earning accounts at BankDirect when BankDirect substantially reduced the value of the program in 2013.  Whereas the program had been somewhat compelling prior to that date when savings rates were below 1%, those holding accounts since then are overvaluing American Airlines AAdvantage miles, undervaluing cash, unaware of savings rates and CD rates, not in control of their finances, or just being silly.

I was, however, prompted by the contact to go to BankDirect's website to see if I could learn a little more about why they are now finally sending 1099-INT forms (it is my view that the value of the miles should always have been reported as taxable income under IRS rules).   While there, I learned that Texas Capital Bank, BankDirect’s parent bank, seems to now be spinning off the Advantage program into a Bask Bank, a new subsidiary, and the new program there is somewhat akin to the pre-2013 program offered by BankDirect.

I am always a little skeptical when I see a bank creating a new brand after doing damage to an old one.   Additionally, in the case of Bask Bank, the Terms and Conditions are terribly laid out.   It appears to me that $250,000 will earn 250,000 American AAdvantage points if left on deposit for a full year.   Under the pre-2013 BankDirect program, 240,000 AAdvantage miles could have been earned for depositing only $200,000.   Bank Direct charges (and charged) a $12 monthly fee that it appears will not be charged by Bask Bank.

While it is questionable whether the Bask Bank program is as good as the old pre-2013 program, the more important question is whether the new Bask Bank program makes any sense?   Now that it is a 1-for-1 mileage earning opportunity, it should be a fairly easy calculation for anyone.   Rates are declining but BestCashCow shows one-year online CDs are still available at 2.25% and many 1-year CDs offers by local banks and local credit unions in some markets are above that level.  Since we value AAdvantage miles below 2 cents each, most will generally be better off with those short-term CD products.   

However, there are at least three circumstances where the new Bask Bank program could make sense:

  1. 1-year CD rates fall below 2%.
  2. Bask Bank or Bank Direct underreports the value of the miles (and early indications according to One Mile at a Time are that they will report them at 0.42 cents per mile).
  3. You are planning to redeem your American Airlines miles for an expensive long haul business class ticket on either American, British Airways, Finnair, Qantas, Qatar, Iberia, Cathay Pacific (or one of American's other partners) for which you will receive well over 2 cents per mile in redemption value, and are willing to take the risk that American will offer availability and will not dramatically devalue their miles in the interim.

The Bask Bank offering really isn’t something to get too excited by, and unless at least one of these three things holds true, we’d recommend avoiding it.

Ari Socolow
Ari Socolow: Ari Socolow is the Chief Economist and Editor-in-Chief at BestCashCow. He is particularly interested in issues relating to financial literacy and bank transparency. 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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Comments

  • Liberty1

    January 11, 2020

    I want to expand on what Timmy Mc says above. He correctly says that $100,000 is the sweet spot here, and there are declining economics above that and below that. $100,000 gets you 146,000 AAdavantage miles if you don't touch it for 12 months. If you do, you lose the bonus. Therefore, the proper comp is a twelve-month CD, and I see a 2.25% rate on BestCashCow so let's use that, although maybe someone can find something higher. So, $100,000 gets you $2,250 there. I am willing to assume that the tax consequences are a wash here and that Bask is going to send me a 1040 for $2,250, although I don't think that will be the case. So, basically it is $2,250 versus 146,000 miles, or I am buying miles at 1.541 cents. I know most will want to take the cash, after all cash compounds and the miles certainly don't appreciate. But, it depends on your own personal situation. I just turned 65 and my wife and I need to fly internationally in business class quite frequently. These tickets cost us a fortune. The miles exceed the 1.541 cent value to us.

  • Timmy Mc

    January 10, 2020

    Your article is good, but it is incomplete because you missed the fact - poorly disclosed on Bask's website - that $100,000 deposited and not touched for one year gets a 40,000 point bonus. Therefore, this could be a better than 1-for-1 opportunity and beats your 2.25% 1-year CD if you value the miles at anything over about 1.65 cents each (only if you deposit $100,000 and not much more). But, there is also fine print on this 40,000 point bonus that says that they could pull the offer before it is completed and screw you. Ordinarily this wouldn't concern me, but Texas Capital Bank has a history of doing that already!

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