Falling Savings Rates And Higher Taxes on Interest - Some Relief in An Alternative Currency?

Savings rates are falling and so too are CD rates. A lot of people are reaching out to BestCashCow to complain about falling interest rates, but unfortunately we just list these rates (some folks don’t understand that we don’t set them). It is disappointing and frustrating for savers.

This is the time of year when many also find their taxes to be frustrating. Unless you are a billionaire who lives in a state with no personal income tax (Florida, Texas, Washington, etc.), you are probably cutting checks for a whole lot of the interest that you earned last year as a result of Trump’s “tax cuts”.

These dual frustrations have contributed for more than a decade to asset price inflation and probably led many into the stock market who shouldn’t be there. We like to stay away from stock market prognostications on BestCashCow, but suffice it to say that I do not see the entire market advancing much from here. Under any circumstances, it seems like a bad time to allow yourself to be drawn so heavily into the market that your allocation to equities is well above your comfort level. It also seems like a bad time to be rushing hastily into bonds. Against the backdrop of tremendous uncertainties in 2020, holding cash in the form of savings accounts and CDs is critical.

I recently wrote about Bask Bank. A Bask Bank savings account is now offering 1 American Airlines AAdvantage® mile per dollar on deposit per year and offers bonuses for those depositors maintaining $25,000, $50,000 or $100,000 over time. It is unique in that it is the one savings offer in the market which can lessen the frustration caused by falling rates and higher taxes by enabling you to earn "interest" in an alternative currency in lieu of cash interest. By redeeming miles for international and/or business class travel, I have found that American Airlines AAdvantage® miles can be redeemed for well over 4 cents each. Hence, this is a currency that I will gladly take over cash interest when interest rates are low.

To boot, while these miles are going to be reported on a 1099 at the end of the year, they are going to be reported at only 42 basis points (or 42/100ths of a cent) per mile. With all the bonuses currently being offered, $250,000 deposited at Bask Bank will earn 296,000 AAdvantage® miles over the next twelve months and generate a tax liability of only $1,239.

$250,000 deposited in a savings account over the next year is going get you just over $4,250 in fully taxable interest over the next twelve months (assuming you are able to continue to get a 1.70% APY rate through the year). The low return and the high tax rates on the full amount could be very frustrating to you this time next year.

If you are at all inclined to travel, Bask Bank is definitely worth a look.

You will be less frustrated this time next year, and you could be planning a really neat spring or summer getaway.