In January 2020, savers got a new option. Instead of earning cash interest from depositing money in the bank, Bask Bank offered savers the option to earn AAdvantage miles.
At the time of the launch, high-interest savings accounts offered a high enough rate to make it a tough decision between earning cash interest or miles. Since then, cash interest savings rates have plummeted, but Bask Bank has held its mileage savings rate steady at 1 mile per dollar per year. As a result, earning miles from your savings has never been more competitive.
Still, is earning American Airlines miles a good option for your savings? Let’s show you how the Bask Bank savings account works and how it stacks up to earning cash interest.
How a Bask Bank Savings Account Works
The Bask Bank savings account currently offers savers 1 American Airlines AAdvantage mile per dollar saved annually. Bask Bank doesn’t charge any fees and doesn’t require any minimums. That makes it a great option no matter how much or little you have to save.
Savers should be pretty familiar with the details of how you earn cash interest. Earning miles instead requires a different paradigm. Let’s dig into the details to show you how it works.
Bask Bank Savings Rate
A Bask Bank savings account earns miles at a rate of 1 AAdvantage mile per dollar earned per year. If you save $10,000 in a Bask Bank savings account for a full year, you’ll earn 10,000 AAdvantage miles. However, you don’t have to wait a full year to earn interest.
Monthly Mileage Deposits
Bask Bank deposits miles into your AAdvantage account at the beginning of every month. In the terms and conditions, Bask pledges that “miles earned for maintaining funds in your Account will be Awarded monthly on or before the fifth Business Day of the following month.”
However, I’ve found from personal experience that Bask rarely cuts this close. The miles earned from my Bask Bank account are typically deposited on the second business day of the month.
How Bask Bank Mileage Earnings are Calculated
Your monthly mileage earnings will vary based on the number of days in the month. Bask Bank calculates your mileage earnings for a month by multiplying the number of days in the month by the amount saved in your account and dividing by 365.
Say you keep $10,000 in a Bask Bank account for the full month of July. Since there are 31 days in July, you’ll earn 849 AAdvantage miles for the month (10,000 x 31 ÷ 365). However, you’ll only earn 767 AAdvantage miles in February since you only have 28 days to earn.
Savings are FDIC Insured
Although you’re earning miles instead of cash interest, your savings are still protected like a normal savings account. Bask Bank is a division of Texas Capital Bank, N.A., and Texas Capital Bank is a member of the Federal Deposit Insurance Corporation (FDIC). That means your savings are insured up to $250,000 per depositor.
Although you may not have heard of Texas Capital Bank before, it’s an established Dallas-based bank with $38 billion in assets as of December 31, 2020. That’s large enough to make it one of the top 100 FDIC banks in the U.S. by asset size.
Tax Implications of Earning Miles
Whenever you earn something of value from a checking or savings account, you have to include that income on your tax return. That’s true whether a bank rewards you for opening a new account by giving you a $300 cash reward or a blender. And it’s also true when you earn miles from your savings.
Each year, Bask Bank “calculates the value of the miles you are awarded each year based on a good faith estimate of value.” And Bask Bank will report this amount as taxable interest on Form 1099-INT.
Bask Bank currently values AAdvantage miles at 0.42 cents per mile for tax purposes. That value may seem quite low to anyone who knows how to utilize AAdvantage miles. However, this rate was the approximate value that you could get for cashing out your AAdvantage miles for gift cards through Points.com—before that program was “temporarily suspended”.
If you earned 10,000 AAdvantage miles in a year, you’ll need to pay taxes on $42 of interest income on your tax return. Depending on your federal and state income tax rates, you may have to pay between $10 and $20 in combined taxes on this income.
Just keep in mind that when you earn cash interest, you can use some of that cash to pay your tax bill. However, when you earn AAdvantage miles from your savings, you’re going to have to pony up some cash to pay taxes on the miles you earn.
Comparing Earning Cash Interest vs. AAdvantage Miles
Whether you should switch your savings from a cash-earning savings account to Bask Bank is going to be a personal decision. But, let’s take a look at some aspects to consider.
Low Interest Rates
At the time of writing, cash interest rates are historically low. Established banks such as Ally Bank, Citi and Marcus by Goldman Sachs are all offering 0.5% APY interest on high-interest savings accounts.Even if you lock up your savings in a Certificate of Deposit for 2 years, you’re not going to get more than 0.7% APY.
Opting to earn AAdvantage miles during times of low interest rates will be much more appealing than when banks are paying higher cash interest rates.
Value of AAdvantage Miles
Meanwhile, AAdvantage miles are easily worth at least 1 cent per mile. That’s the redemption rate that you’ll get when redeeming miles to reserve seats or purchase at-home Covid-19 testing kits. However, you can get a much higher value when redeeming AAdvantage miles for award flights.
With a little planning, most award travelers should be able to get around 1.5 cents per mile from economy award flights on American Airlines. Let’s take a flight from Atlanta (ATL) to Los Angeles (LAX). American Airlines is charging $115 one-way for a Main Cabin fare on some travel dates at time of writing.
Or, by redeeming miles, you can pay just 7,500 miles plus $5.60 in taxes and fees. That’s a redemption rate of 1.46 cents per mile.
The value that you can get from AAdvantage miles can be even higher when redeeming miles for business and first class flights. In the example above, you can redeem just 17,500 miles for a $533 one-way flight. That’s a redemption rate of over 3 cents per mile.
Or, you can currently redeem 75,000 AAdvantage miles plus $11.20 in taxes and fees for a round-trip first class award from New York JFK to Honolulu (HNL).
If you were to book the same flight with cash, you’d have to pay over $2,200 round-trip. That’s a redemption rate of more than 3 cents per mile.
Comparing After-Tax Earnings
Say that you have $10,000 in savings and you’re considering whether to earn cash interest or miles. With cash interest rates topping out at 0.6% APY, your potential annual earnings are either $60 cash interest or 10,000 AAdvantage miles.
Even if you assume a value of just 1 cent per AAdvantage mile, those 10,000 AAdvantage miles are worth $100. That’s already better than earning $60 in cash interest, using the most conservative value for AAdvantage miles.
However, you come out even further ahead when you factor in the after-tax earnings. That’s because you have to include all $60 of cash interest in your taxable income. However, you’ll only have to pay taxes on $42 of income on the mileage earnings.
If you assume a 25% tax rate and a value of just 1 cent per mile, the after-tax earnings are:
- Cash interest: $60 interest less $15 of taxes = $45 net cash
- Miles interest: 10,000 miles, $10.50 of taxes = ~$90 of net value
Since interest rates are at such a low point, let’s consider another example: a theoretical 1.8% APY cash interest. Saving $10,000 at these rates gives you the option of either $180 in cash interest or 10,000 AAdvantage miles. Even at a more realistic value of 1.5 cents per AAdvantage mile, the 10,000 miles are worth $150. So, it seems that cash interest would be the better option.
However, it’s not as clear-cut when you factor in the after-tax earnings. Assuming a 25% tax rate, your earnings are either:
- Cash interest: $180 interest less $45 of taxes = $135 net cash
- Miles interest: 10,000 miles, $10.50 of taxes = ~$140 of net value
The advantage grows the higher your tax rate is and the higher value you can get from your AAdvantage miles.
How to Sign Up for a Bask Bank Savings Account
Getting started with Bask Bank is easy. Bask Bank says the sign-up process takes just 5 minutes to open a new account. However, it will take a bit longer than that if you read all of the disclosures, agreements, terms and notices that you need to agree to, which you should always do.
Next, you’ll need to provide:
- First Name
- Last Name
- Social Security Number
- Birth Date
- Physical Street Address
Next, you’ll need to provide your primary source of income and certify that you have provided accurate taxpayer information:
After verifying your identity, you’ll be prompted to create your username and password. Then, you can begin the process of transferring funds to Bask Bank.
If you have savings and get high value from your AAdvantage miles, you should consider saving with Bask Bank. The after-tax value that you’ll get from your savings can greatly exceed the cash interest that you can earn—especially during times of low cash interest rates.
To generate enough miles for redemptions, you’re going to need a decent savings balance. However, even if you have a little bit of savings, Bask Bank can be a good option. Although the miles won’t rack up quickly, you’ll generate activity on your AAdvantage account and keep your miles from expiring.