BankDirect CDs for Free AAdvantage Miles

I am looking for somewhere to park some cash for a while, and so I searched for rates for Certificates of Deposit. It seems like there is not much difference in the interest rate for one- and two-year CD’s, and I don’t want to tie my money up with a five-year CD. Bankrate.com shows the following top rates for a twelve month CD:

bank rate top 3 1-year cds

I am not familiar with these banks. I would certainly check to see if deposits are insured before I parked money with any of them. Then I remembered that BankDirect awards American Airlines miles for checking accounts, so I looked to see if they offered CD’s as well. Here are the regular, or NON-mileage earning CD rates:

bank direct cd rates

I then pulled up the information about the Mileage Earning CD’s. Here is their chart giving the earning rates:

bank direct mileage cd's AA miles

Here you can see that on a one-year CD, you will earn 500 miles for every $1000 on deposit UP TO $50,000, then only 25 miles for every $1000 above $50,000. I called BankDirect to see if you can have more than one CD of $50,000, and they said “yes, you can purchase unlimited CD’s to earn the maximum mileage rate.” Your deposits are insured by the FDIC for $250,000 for each issuer, so you wouldn’t want to buy more that 5 $50,000 CD’s.

The mileage-earning CD’s also offer a miniscule interest rate that is probably comparable to what you are earning in your checking account:

bank direct mileage cd's APR

Are the mileage CD’s worth it? For comparison, let’s compare the cash you would get on regular 12 month CDs to what you would get on the 12 month mileage CDs.

1. Regular CD (1.21 APY)= $605 (taxable)
2. Mileage CD (0.10% APY)+ 500 miles/$1000 = $50 + 25,000 AA miles (only $50 taxable–miles not taxed!)

How much are AA miles worth? This value is constantly debated in internet forums, but I can easily calculate what they are worth to me. I can fly round trip in economy to Europe /Rome) on Saver awards for 40,000 miles, and approximately $80 in fees. I can buy an round trip economy ticket to FCO for about $1200. If I subtract out the fee, then the Saver award is worth $1120. Therefore, the value per mile for me is $1120/40,000 miles = $0.028.

By this valuation, the 25,000 AA miles are worth $700. This makes the mileage CD worth $750, of which only $50 is taxable.

I have found AA miles to be very obtainable via credit card sign-ups, but I may spring for some BankDirect CD’s to boost my balances.

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