Editor's Note: This article was originally written in December 2019 when Bask Bank had a soft launch of its new American AAdvantage product. In January 2020 after Bask Bank released the full details of the product, the author realized that the Bask product is extremely compelling and updated this article to reflect that.
Several years ago, when interest rates were below 1%, many people opted to earn American Airlines AAdvantage miles instead of interest through a savings account program offered by BankDirect, a subsidiary of Texas Capital Bank. I had recommended that people close their American Advantage miles – earning savings accounts at BankDirect when BankDirect substantially reduced the value of the program in 2013.
In November 2019, several readers wrote to BestCashCow, perhaps aware that we had recommended the BankDirect program in 2013 and years prior. These readers were upset by 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. I honestly believed that these readers were being silly to think that they could expect to get anything of value without a 1099-INT. I learned that BankDirect and Texas Capital Bank will be reporting AAdvantage miles at a 42 basis point value or 42/100s of a cent.
While investigating the 1099 matter, I also learned that Texas Capital Bank, BankDirect’s parent bank, was intending to offer a new AAdvantage program at Bask Bank, a new subsidiary, which would be akin to the pre-2013 program offered by BankDirect that we had once recommended.
The new Bask Bank savings account is instantly recognizable as being similar to the earlier BankDirect savings offer. Bask’s offer is geared to deliver 1 AAdvantage mile for every dollar held on deposit over the course of a year. If your account has an average balance of $100,000, you will earn 100,000 AAdvantage miles over the course of the year in the form of 8,333 miles a month. Unlike the earlier BankDirect program, Bask Bank has no account service fees.
When the details of the new Bask Bank offer were finally revealed in January 2020, it became clear that bonuses offered by Bask make it substantially more attractive. In addition to offering 1,000 AAdvantage miles for funding an account, Bask is offering an additional 5,000 miles for maintaining a $1,000 balance for one month. But, it is the additional offers that allow things to really add up. $25,000 held on deposit for one year earns a 10,000 mile bonus, $50,000 earns a 20,000 mile bonus and $100,000 earns a 40,000 mile bonus. As a result of the bonuses, the same $100,000 maintained at Bask Bank will earn 146,000 AAdvantage miles over the course of a year ($50,000 will earn 76,000 miles). You will need to maintain your balance above these levels.
BestCashCow shows that 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. Savings rates are now much lower than 2%.
For purposes of this example, let’s take a look at the value of the 146,000 AAdvantage miles that $100,000 will earn. In BestCashCow's travel rewards credit card section, we routinely see that it is easy to find redemption values for American Airlines miles that have a value well over 1.80 cents per mile. Therefore, as a base case, we believe that you are getting at least $2,628 in value in the 146,000 miles. That is above the value you will get from depositing the same $100,000 in a savings or CD account over the next year. (And, by the way, the reported tax liability of these 146,000 miles will only be $613.20).
There are circumstances where these AAdvantage miles will have much more value. For example, I have redeemed American Airlines miles for expensive long haul business class tickets on American to Hawaii or to Europe on British Airways, Iberia or Finnair where I see values well over 4 cents per mile. (Qantas, Qatar, Cathay Pacific are also American Airlines partners where valuable redemptions can be found). Even if you don’t choose to redeem American Airlines miles for lavish trips abroad, the miles make sense to hold as an “alternative” currency as they can also be redeemed last-minute (and otherwise very expensive) tickets for work or family needs.
There are some risks to the Bask Bank account. The first one is that interest rates go to zero and Bask Bank cannot maintain the current payout rate, but you will bear the risk of falling rates in a savings account. The second risk is that AAdvantage miles become devalued, and I believe that is a risk worth taking as American Airlines has a track record of decades of protecting the value of their loyalty program since it has real value to them as a going concern.
Ordinarily, I’ll always recommend taking interest in the form of cash over some other instrument. But, in this case, I think it is silliness to be dismissive of the Bask Bank offer without looking at it carefully and how it might work for you. In fact, I already opened an account, even though I already have over 1 million American AAdvantage miles.
Comments
Liberty1
January 11, 2020
$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.
Is this review helpful? Yes:4 / No: 5
BombayMike
January 29, 2020
Why would you say "I am willing to assume that the tax consequences are a wash", when it is not likely that is the case? They say in their T&C that they will value the miles at FMV, currently at 0.42 cents/mile. So in your example, you will pay taxes on $613.20 (as Ari stated in his article as well), instead of paying taxes on $2250. This is an added incentive, I think. Of course, the FMV is subject to change, but as it stands now, you are effectively buying it at even better than a 1.541 cent cost.
Is this review helpful? Yes:4 / No: 6
My Take
February 04, 2020
Here is my take. Liberty1's calculation is right right one but I am full up on CDs and I am not going to lock in for one-year with some unknown bank to get 2.25% even if the comments on this site say the bank is fine. So I am pricing the alternative at 1.80% or $1800 on $100,000. $1800/146,000 miles = around 1.232 cents per AA mile. By contrast, for years, I've been paying my taxes online using pay1040. When I pay $100,000 at 1.89% commission with a Freedom Unlimited card that gives me 1.5x, I am buying United points around 1.247 cents. So this is a better deal on a better point to me (I value AA higher than United). And, then I agree with BombayMike and this deal is still quantifiably better (the $1800 that I am paying for the AA points through Bask is fully taxable and I no longer get a tax deduction for paying my taxes with a third party service - thanks to Trump).
Is this review helpful? Yes:5 / No: 2
My Take2
February 04, 2020
I don't want to be obnoxious, but my only question is why I cannot get the same rate of return above $100,000? It is a good enough deal to me that I would go in higher.
Is this review helpful? Yes:1 / No: 2
Jennifer the Babe Accountant
February 04, 2020
If you read Bask's T&C, you cannot withdraw your cash below the bonus levels even for a day and still get the bonuses. So, I'd run this versus a 2.25% one year CD and I will use the $2250 number on $100,000 that all of you want to use, but I am also going to assume a federal and state tax rate of 42% - 43% so you are talking about a $688 to $703 tax savings at those rate. Using the 42% tax rate, you are passing up a tax effective yield of $1,562, and therefore your effective cost of the miles is 1.08356 per mile. By the way, it is even lower if you only deposit $50,000 (since you still get the 1,000 and the 5,000 bonuses), but it is less attractive in the $55,000 to $99,999 range and then becomes less and less attractive for each dollar you go over $100,000.
Is this review helpful? Yes:5 / No: 2
Jebby08
February 12, 2020
You need to really believe in American and have faith that the endless cycle of frequent flier devaluations is ending. I don't.
Is this review helpful? Yes:0 / No: 0
MoMC92
February 13, 2020
If I don't have $100,000 to put into the account are you saying it isn't worth it? If I'm a frequent American flyer but only have $10,000 to put in the account is this not a good deal? Am I not better off earning miles than the .09% interest I get on $10,000 in a savings account. I don't fully understand the tax aspect, I guess?
Is this review helpful? Yes:1 / No: 0
LarryD
February 13, 2020
@MoMC92 I would definitely open an account with $10,000. If you leave it there for 12 months, you'll get the 10,000 American points plus 6,000 in bonus points provided you lock into the bonuses while they are still offered. The 16,000 points won't get you an international business class ticket, but they have real value. I wouldn't sweet the tax aspect, but you should just know that you get 1099s for $67.20 if you hold for exactly one year (and it will be spread across 2020 and 2021). Even with the tax, it is definitely better than 0.09% IMHO!
Is this review helpful? Yes:1 / No: 0
Rebecca
February 18, 2020
I appreciate the comments above - especially Jennifer the Babe's. The important thing is that Bask makes sense with savings and cd rates where they are if you get in ahead of the bonuses. I was reading tpg and can we cut the fiction that the savings rate is .09%?
Is this review helpful? Yes:0 / No: 0
The Original Jersey Jerry
March 10, 2020
The 5,000 bonus miles now require a $5k deposit for one month (was changed from $1k). Each person needs to make their own judgement about the value of the miles and other choices available to them. With the bonus system and my hope to one day travel freely again, I felt very comfortable putting $50k in and have been happy so far. I would move more in as the savings rates in other banks come down....I just don't have cash lying around and I don't want to do it unless I can get to the $100k bonus.
Is this review helpful? Yes:0 / No: 0
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