BankDirect is a bank that has historically allowed you to earn American AAdvantage miles for the balance you keep in your checking account.
How BankDirect Has Become Less Valuable
Over the years the opportunities to earn American miles with BankDirect have become less lucrative, though. Originally BankDirect had no fees, and you earned 1,200 American miles per year per $1,000 deposited for your entire balance, no matter how much money you had in your account.
Then they made some changes:
- In late 2011, BankDirect added a $12 monthly service fee to accounts, regardless of the balance you keep with them
- In mid 2013, BankDirect reduced the number of miles you earn with their checking accounts; you now only earn 1,200 miles per $1,000 deposited annually for the first $50,000, and then you earn 300 miles per $1,000
One positive thing is that no 1099s have been issued up until now for BankDirect rewards, which has at least helped the value proposition of keeping $50,000 with them. Well, it looks like that’s changing.
BankDirect Will Issue 1099s For American Miles
Yesterday I received a letter from BankDirect informing me that they’ll start issuing 1099s for American miles starting in 2020:
Dear Valued Customer,
We truly appreciate your business and thank you for banking with BankDirect. We wish to inform you that under current tax law, we are now required to report to you and the IRS the value of miles you receive from BankDirect. If you receive miles from BankDirect on or after January 1, 2020, we will issue the appropriate Form 1099 to you and the IRS in January 2021. Since American Airline AAdvantage® miles do not have a defined cash equivalent and the value they represent is subject to various factors specific to each American Airline AAdvantage® member, the amount reported will be based on our good faith estimate of the market value. The estimated market value can be impacted by numerous factors and may materially change prior to the issuance of Form 1099 each year.
BankDirect is not an accounting firm or a law firm and does not provide tax or legal advice. Please consult with your tax advisor regarding the tax implications of this information.
We appreciate your trust and continued support.
How Much Does BankDirect Value American Miles?
The good news here at least is that BankDirect is very conservatively valuing American miles. While it remains subject to change, currently BankDirect estimates that American miles are valued at 0.42 cents, the equivalent of a 0.42% annual yield.
That’s good news, at least.
Crunching The Numbers
If you were to put $50,000 in a Bank Direct account (which is the most you should put in there), then over a year:
- You’d earn 60,000 AAdvantage miles (I value those at 1.4 cents each, so they’re worth $840)
- You’d pay $144 in fees
- You’d be issued a 1099 for a value of $252 (at the highest marginal tax rate, that would cost you ~$93)
In the end you’d earn $840 in rewards and you’d be paying $237 between the service fee and taxes, meaning you’re really earning $603 in rewards. That’s about a 1.2% rate of return, which isn’t exactly great.
I definitely think BankDirect isn’t worth keeping an account with under the current system, though Bask Bank is also emerging, which is affiliated with BankDirect, and offers a better opportunity to earn American miles.
Do you plan on keeping your BankDirect account now that they’re issuing 1099s?