Miles for Large Bank Balances
May 18, 2010 | 11:42 am
#76
FlyerTalk Evangelist
Join Date: Jul 2006
Location: Upper Sternistan
Posts: 10,690
https://www.bankdirect.com/products/...ngmileage.aspx
See:
Earn 100 miles per month for every $1000.00 of the collected balance in your Mileage Checking Account
May 19, 2010 | 5:39 pm
#78
Join Date: Jul 2004
Programs: CO, UA, AA, WN, DL Gold
Posts: 2,981
May 22, 2010 | 12:59 am
#80
Join Date: Dec 2009
Location: SNA
Posts: 109
It can be much higher than that. The basic formula for the taxable equivalent yield would be (int rate paid by BD) + (your personal value for AA miles) * 1.2 / (1 - (marginal tax rate)). So, under the current situation of BD paying 0.05% and if you valued AA miles at $0.03 each and your tax rate was 25%, then the BD acct is paying a taxable equivalent yield of 0.0005 + (.03) * 1.2 / (1-0.25) or 4.85%. You'd have to have an option that pays 4.85% taxable yield with no risk in order for it to make sense to switch.
Consider a situation where you valued miles at $0.05 and your tax rate was 35%, which is not at all unreasonable. Under that circumstance, the taxable equivalent yield is 9.28%. There probably hasn't been a zero-risk investment that paid that amount in the past 25 years, and I suspect it's going to be awhile before there is again. If the top bracket goes back up to 39.6%, then the equivalent yield hits 9.98%.
Consider a situation where you valued miles at $0.05 and your tax rate was 35%, which is not at all unreasonable. Under that circumstance, the taxable equivalent yield is 9.28%. There probably hasn't been a zero-risk investment that paid that amount in the past 25 years, and I suspect it's going to be awhile before there is again. If the top bracket goes back up to 39.6%, then the equivalent yield hits 9.98%.
and
http://www.flyertalk.com/forum/13024796-post18.html
Summary:
RoR: (value of miles)(0.1)(12)+(TaxRate-1)(Missed savings rate - BD savings rate)
cpm: (Missed savings rate - BD savings rate) / (0.1)(12)
(including taxes would decrease the cpm)
See the original post for term definitions.
Hope this helps someone.
May 25, 2010 | 8:03 pm
#81
Join Date: Jan 2009
Location: WAS
Programs: AA EXP2M, DL 1MM DM ext, UA PP <=> HH G/Marr PE/Hyatt G/IHG P FT RA ( Recovering Addict)
Posts: 4,903
To simplify, at a conservative 1 cpm value, 45% tax rate and 2% 2 yr CD savings rate and 0%BD
RoR= 1c x 1.2 + -0.55x2 = 1.2c-1.1c= 0.1c/yr/$ invested
But this is incremental RoR compared to simple cash RoR, I think.
cpm here is wrong; as it fails to take aftertax costs into account
It should be (2%-0)x(1-45% tax) = 1.1c /1.2miles = 0.92 cpm / $ invested = a very good value!
May 28, 2010 | 7:02 pm
#85
Join Date: Feb 2010
Location: Disney World
Programs: Fairmont Lifetime Platinum, Hyatt Globalist, AA Lifetime Gold
Posts: 321
missing factor
Man and I thought I was bad!
To simplify, at a conservative 1 cpm value, 45% tax rate and 2% 2 yr CD savings rate and 0%BD
RoR= 1c x 1.2 + -0.55x2 = 1.2c-1.1c= 0.1c/yr/$ invested
But this is incremental RoR compared to simple cash RoR, I think.
cpm here is wrong; as it fails to take aftertax costs into account
It should be (2%-0)x(1-45% tax) = 1.1c /1.2miles = 0.92 cpm / $ invested = a very good value!
To simplify, at a conservative 1 cpm value, 45% tax rate and 2% 2 yr CD savings rate and 0%BD
RoR= 1c x 1.2 + -0.55x2 = 1.2c-1.1c= 0.1c/yr/$ invested
But this is incremental RoR compared to simple cash RoR, I think.
cpm here is wrong; as it fails to take aftertax costs into account
It should be (2%-0)x(1-45% tax) = 1.1c /1.2miles = 0.92 cpm / $ invested = a very good value!
With that said, I have put a large amount of cash in BankDirect AA accounts. Obviously, I am willing to gamble on AA's creditworthiness to get a slightly better return on my cash. However, it's not a trade that is necessarily suitable for everyone, and it's a closer comparison than it appears at first glance, particularly if you are talking about accumulating a ton of miles that you might not use for years. This definitely applies to everyone using BD to accumulate 1mm or 2mm miles for lifetime status.
If the miles do not get used for a few years then there is always a chance for a miles devaluation of 50% or more. Even worse, AA is a terrible credit (I recently looked at their financials and I used to be a credit analyst). It would not surprise me at all if AA had to file for bankruptcy in a few years. Many carriers have preserved their customer mileage accounts through bankruptcy, so we may be ok, but there are never guarantees in bankruptcy. If the carrier liquidates because the operations are so unprofitable that it is not even worth operating, then your effective miles devaluation is 100%! I don't think that would happen to AA but the airline industry is terrible competitive, and if major routes become unprofitable (because of $200/bbl oil prices or whatever) then that is definitely in the realm of possibility.
May 28, 2010 | 7:50 pm
#86
Join Date: Nov 2008
Programs: MTA NYCTA Super Plutonium Elite
Posts: 107
No, the equation doesn't have anything to do with that. Moving money from the highest-yielding checking account I know of with no problematic minimum balance, maximum balance, debit card usage requirement or membership hurdle is equivalent to buying miles at $.0125 before tax, or, depending on your rates, something around $.008 after tax (assuming that, contrary to the Correct View, the miles are tax-free). The risk that your miles will become worthless is something you need to take into account in deciding how much you're willing to pay, or how many you choose to buy; but that factor weighs equally on all possible ways of buying miles. If you're willing to buy lots of miles at that price, then you definitely want to move whatever you would keep in another checking account to BankDirect, no matter what your view is of American's prospects.
May 29, 2010 | 8:51 am
#89
Join Date: May 2000
Location: HH Gold, Marriott Gold, PC Plat, Emirates Silver
Posts: 2,729
From thier websire it looks like you have 2 ways to fund the account 1) Check or 2) or wire transfer.
Does anyone know if you can do ACH transactions? I have this with Fidelity and it works great.
Does anyone know if you can do ACH transactions? I have this with Fidelity and it works great.
May 29, 2010 | 9:55 am
#90
FlyerTalk Evangelist
Join Date: Jul 2006
Location: Upper Sternistan
Posts: 10,690
I have done ACH transfers to BankDirect - you have to push the money from the other account. BankDirect doesn't offer ACH options. I just got the routing number from a check, entered it into Vanguard, verified, and it works fine.