Put Away That Airline Miles Credit Card!

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Citi Double Cash Card

JimT wrote in the comments,

Much of your discussion is focused on the credit card signup bonus. What if a travel rewards credit card presented a transparent value proposition with no signup bonus that was so compelling that customers would always keep it top of wallet with frequent use?

Would you please describe the spending circumstances required to exceed a 2% no annual fee cash back credit card return using a travel rewards credit card?

I generally find that really big signup bonuses mask mediocre long term value propositions for holding a card. Thank you for the insights.

The simple answer is: use a miles and points credit card, instead of a cash back card, if you:

  1. Want to redeem your miles for premium cabin international travel
  2. Are earning more than one point per dollar for the purchase

When you put unbonused spend on a mileage-earning credit card you are basically buying those points for two cents each — the opportunity cost of putting the spending on a 2% cash back card — and that’s likely a mistake since most people wouldn’t buy miles for 2 cents each.

Folks who only want to use their points for domestic coach tickets should probably choose cash back, and buy their tickets, rather than limiting themselves to award availability because most of the time you won’t do better than 2 cents a point for those redemptions. Although when you earn miles for credit card spend they’re added to the miles you earn from flying and all other sources so they can get you to redemptions more quickly. That does make the points more valuable.

Still if you put spending on a United, American or Delta co-brand you are effectively buying your United or American miles at 2 cents apiece. I like the signup bonuses on those cards. I like the pseudo-elite benefits they provide like free checked bags and priority boarding. But I don’t like putting unbonused spend on the cards because a single United mile or American mile is simply not worth 2 cents.

If you’re really close to an award it can make sense to spend on the card to top off your account. Miles at the margin that give you what you need to redeem are worth more. But in general and on average no individual airline’s currency is worth that much. You wouldn’t speculatively buy their miles at that price. I highlight offers when airlines are selling miles for less, but unless they’re selling for below 1.5 cents I’m pretty much not a buyer.

I publish a valuation of points. The only currency I value at more than 2 cents is Starwood Starpoints.

That’s why I believe otherwise-unbonused spend belongs on:

  1. Starwood Preferred Guest® Credit Card from American Express. I value Starwood points at 2.3 cents apiece.

  2. Citi Double Cash Card which gives you 1% back when you make a purchase and another 1% back when you pay for the purchase. This or similar no annual fee 2% rebate card is better for unbonused spend than an airline mileage card.

Some people prefer the Fidelity Visa because Visa products are good at Costco and you get the full 2% rebate up front, no wait until you pay your bill at the end of the month. On the other hand you have to open up a card account and you need a Fidelity account for the rebate to go into.

Regardless, if you are going to make purchases that earn only 1 point per dollar make sure you’re earning one of the most valuable currencies — which transfer one-to-one or better into a variety of different airline miles programs. That means for instance using a card like Chase Sapphire Preferred which earns transferrable Chase points.

Citi Double Cash Card

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. @Gary, I understand the logic of what you’re saying, and I have been trying to do just that — though, rather than using an AMEX Everyday Preferred Card and/or the Citi Double Cash card (neither of which I have in my wallet), I’m utilizing my Starwood AMEX and the Barclaycard arrival+ World Elite MasterCard. True, points on the latter are worth 1¢, but — as with the CapitalOne Venture card — you earn 2x points on every purchase. If/when I *do* use these points to purchase airfare, I also get a rebate of 5% (liked it better when it was 10%, of course, but . . . ).

    That said, is there a reason — other than possible sponsorship/compensation) — why either the Citi or AMEX cards is preferable to the Barclaycard? Do they outperform the Barclaycard in some way?

  2. If you value ultimate reward points at least at the minimum of MR points, which I think you do, I am mystified how the freedom unlimited doesn’t make this list, since it earns 1.5 URs with no catches or minimums (unless it’s an affiliate thing)

  3. It’s a business card, but the Amex Blue for Business is a fantastic option for unbonused spend if you open it now to take advantage of the current special offer (and as long as you have a real membership rewards card). Earning 2.3 membership rewards points on all spending for a year? That’s nuts. Seriously, imagine the atom bomb that would go off on Boarding Area if Chase suddenly introduced a card that earned 2.3 ultimate rewards points on all spending.

  4. Jay, I can’t speak on behalf of Gary but to get the most out of Freedom Unlimited, you still need CSP, CSR or Ink and this piece is talking about a single card and non category spending benefits. So, Freedom Unlimited’s 1.5x is only really worth without any of the three premium Chase cards.

  5. @Jay, not speaking for Gary, but for me, the grocery and gas bonuses make the Amex the better option and the small difference in value between MR and UR is not worth carrying different cards. I also get a load of UR through my 3 ink cards and new CSR, so the AMEX helps with diversification.

  6. Gary, why do you not take bonus MQM and SkyMiles, for example, into account earned at threshold spend? Isn’t it a recurring value-boost, akin to sign up bonus?

  7. One that is often overlooked is the BOA Travel Rewards Card. With Platinum Honors by keeping you IRA with merril edge, you earn 2 5/8 pts per dollar redeemable to airfare, hotel, car/uber, Disney tickets, and even wineries like Rochiolli. Unlimited 2 5/8 with no annual fee is pretty great, and points are redeemable at min of $25 plus you can transfer points between accounts.

  8. I am curious. Isn’t the redemption value of starpoints 2.x cpp (best estimate is 2.4 cpp) when redeemed for award stays, but just ~1.25cpp when transferred to miles for redeeming for free tickets?

  9. @DCS, the value of transferring Starpoints to airlines varies widely, depending upon whether you redeem the points directly, or transfer them to the specific airline (and how many points one transfers).

    Buying the ticket through Starwood using points alone gets you this redemption (including taxes and fees):

    /\/\/\/\/\/\/\/\/\/\/\/\/\/\/\
    Ticket Price* Starpoints
    up to $150 10,000
    $150-$215 15,000
    $215-$280 20,000
    $280-$345 25,000
    $345-$410 30,000
    $410-$475 35,000
    $475-$540 40,000
    $540-$605 45,000
    $605-$670 50,000
    $670-$735 55,000
    $735-$800 60,000
    $800-$865 65,000
    $865-$930 70,000
    $930-$995 75,000
    $995-$1060 80,000
    Higher prices (examples)
    $2,880-$3,140 235,000
    $4,960-$5,220 395,000
    $9,900-$10,160 775,000
    /\/\/\/\/\/\/\/\/\/\/\/\/\/\/\

    Remember that on almost all airlines, Starpoints transfer 1:1. In that case, each Starpoint is worth whatever each airline point is worth. For example, transfer the points to Virgin America (valued at between 1.5-2.3¢ each, depending on how/when they are redeemed) makes Starpoints worth 1.5-2.3¢ each. On the other hand, American is only worth 1.5¢; Delta, 1.2¢; and while United points are worth 1.5¢, United insists that it takes TWO Starpoints to equal one point on United — a horrible trade, even when taking into account that Starwood will throw in an extra 5,000 points whenever you transfer 20k or your own. (25,000 Starwood points will net you 12,500 United points.)

  10. @Jason Brandt — Thank you for confirming what I’d thought, which is in agreement with the principle that the redemption value of points is usually highest when redeemed for awards within the program that issues the points currency, and that it could be misleading to imply that starpoints maintain their high redemption value as a hotel points currency when they are transferred to miles.

    The reason starpoints transfer so poorly to UA miles is that UA is already in bed with Chase, whose UR points transfer 1:1 to UA miles and a few select but generally good programs like SQ KrisFlyer, which I joined after getting the Chase Sapphire Reserve card. The poor transfer ratio of starpoints is to discourages “interference” with the UA-Chase relationship.

  11. Apparently some missed Gary’s key point in the article about the best use of airline miles being int’l premium cabin redemptions, vs. spending 25K miles for a $250 ticket to Orlando. The same applies when transferring an uber-valuable currency like Starpoints to an airline.

    #readingcomprehension

  12. No one has mentioned avoiding the spend thresholds airlines have for elite status. Surely that has some (perhaps great) value when considering putting non bonused spend on an airline credit card. In other words, “it depends.”

  13. I’m a bit annoyed when miles / point cards are getting compared to 2% cards. Come on people, there are cards with 3% on travel (Costco, Sam’s Club, BoA AAA to name a few)! You can also get 4.5% on travel with CSR (3 points x 1.5 c/point @Chase travel portal)! Citi Dividend will have 5% on airfare 2017Q3!

  14. @Lrdx – ? Gary is talking about everyday spend. Not special bonus categories.

    A fantastic 2% business card is the Cap1 Spark. Super easy to use. $59AF waived first year, but with decent spend Cap1 will waive the AF. Also comes with juicy $500 bonus for $3K spend. Likely no affiliate commissions as it’s rarely pimped by the cc shills, er, travel experts.

  15. @Miles —> Yes it is, and that’s why I use Citi (or Chase) for most travel/car rental spend. But . . .
    /\/\/\/\/\
    REMEMBER EVERYONE, the original premise of the article was NON-BONUS spending. The point re: not putting everyday 1x spend on an airline co-branded card is, IMHO, a very important one.
    /\/\/\/\/\
    And I’d rather put my 1x spend on my Barclaycard than on, say, my Virgin Atlantic BofA credit card . . . .

  16. @Mser: The compared alternative is an airline card. That is, almost always 1 mile/$ for general spend, and 2 miles/$ for tickets/incidentals. The alternative is general spending 2% or 3%/4.5%/5% in travel category.

  17. @Lrdx, Just in the FWIW Dept., I have three airline co-branded cards.

    1) Alaska Airlines: 3x on tickets; 1x on everything else; only used for airfare, plus the free bags for me and 6 others.
    2) Virgin America: 3x on tickets; 1x on everything else; used only for airfare, plus free bags for me and (only) 1 other; also, miles won’t expire with any card activity at all.
    3) Virgin Atlantic: 3x on tickets; 1.5x on everything else. If I *have* to use an airline card for non-bonus spending, it’s this one.

    I’m presuming either 1) or 2) will disappear within 24 months . . .

  18. Jason Brandt Lewis says: “The point re: not putting everyday 1x spend on an airline co-branded card is, IMHO, a very important one.”

    Moot point for me since I retired all my airline co-brand cards, except for the Chase United Club card, which earns 1.5mi/$ on ALL non-UA spend and I paired it with the CSR to earn 3 UR points/$ on very broadly defined categories of dining and travel. As a result, I have no unbonused spend to speak of 😉

  19. @Jordan

    remember to USD50K spend for the additional bonus point, and don’t forget the additional small business bonus point till Dec 31st, that made it 3.3 points, nice

  20. I just got rid of my last airline card. There really is no reason to use them. I get more points using my Chase SR, Amex Plat, and Amex everyday.

  21. @Marshall, while I agree with Gary about using them for everyday spend, I do see value in holding on to one of the AA cards that gives you a 10% mileage rebate on award tickets. If you tend to redeem a fair number of miles in a given year, the rebate does more than cover the cost of the annual fee, and the card offers those other perks that are of varying value depending on the individual, but not worthless. In addition, many times if you call to cancel, they will offer retention incentives.

  22. What is this unbonused spend you speak of? I always have a signup bonus whose spend requirement needs to be met. That’s without AORs either, between my wide and I we open a new card every month.

  23. Seriously? Non-bonus spend = your basic rate. That is, if Card X gives you (e.g.) 3x points on airline tickets, 2x on restaurants, and 1x on EVERYTHING ELSE, that 1x is considered “non-bonus spend.”

    It has nothing to do with sign-up bonuses, where a particular “spend requirement needs to be met” (typically within the first 90 days).

  24. United Mileage Plus gives a 10K bonus at $25K spend, which lowers the price to 1.43c/pt.
    $25,000 * 0.02 / 35,000pt

  25. Brought up a few times, though critical is when the value to do NON-bonus spend is present. Let’s assume holding on the card and not using – you still get rebates (i.e. AA 10% back)…but several mentioned getting rid of those cards (cost or opportunity cost to that IF redeeming.). THEN…the value of thresholds – Delta MQMs/AA EQMs, US3 spend requirement waiver/partial waiver, etc.

    So after 25k, 50k or whatever, the 1% back is true, IF you value/need the other components, you are effectively getting more VALUE than the 1% back (although at a cost for sure, still…it could mean not spending several grand on airfare to still achieve a higher level you’d otherwise get as a frequent traveler, etc.)

    Before the criticism on my point … This only works if you want/need/value status. If you are a medium traveler or less, it probably is a loss, and the point remains to use a better return.

  26. Adding to the question re: the Chase Freedom Unlimited, I do have a Chase Sapphire Reserve card and it would appear that, given the Starwood card’s annual fee, that the net dollar (including annual fees) value of unbonused spend would be higher using the Freedom Unlimited because the FU haas no fee. This is using Gary’s Jan. 2016 values of 2.03 cents per Starwood point and 1.9 centers per Ultimate Reward point and assuming 1.25 Starwood points per dollar spent (because of the Starwood transfer bonus) and 1.5 points per dollar for the Chase card. So Gary, how does your analysis change, if at all, if one does have another Chase card that lets you convert your FU points to Ultimate Reward points?

  27. @jason brandt lewis – first off, the barclays ends up behind the citi and amex cards in the long run because it has an annual fee. if you already have the barclay’s and/or get value elsewhere to offset the annual fee, then it is certainly in the discussion.

    second, you completely miss the point of stannis’ comment. generally your best use of non-bonused spend is to use it to meet a sign-up bonus offer. if you are *always* able to open a new card, then you can always have a spending threshold to be met and get a better return than “just” what you get for the unbonused spend. on one hand, that’s ignoring the question a bit but he’s just pointing out that it’s still a time where most of us could be working toward a sign-up bonus at all times for that non bonus spend.

  28. Gary,

    Thank you very much for responding to my question. I have been pondering acquiring the Chase Sapphire Reserve card as a long term proposition (worth it for just the 100,000 point signup bonus) but even with the 3 points per dollar earning rate, the redemption rate for airline miles makes it a dicey proposition for me unless I become a road warrior or start flying international premium flights much more often than I currently do. The decision is based on a calculation of net rate of return after all annual fees accounting for bonus category earning and point redemption value without assigning a value to the card’s insurance or lounge benefits.

    Most of our annual spend is on the legacy AMEX Blue Cash 5% card and a Citibank Double Cash card (online automatic monthly charges only like cable, cell phone, Amazon, and water/power). Costco expenses are on a recently acquired Citibank Costco card. All other spend is on the AMEX Starwood Preferred Guest card due to the three to one transfer to Marriott. I may re-allocate some of the Double Cash card spend to the Starwood card if Marriott keeps the point value above 2 cents per point. If Marriott changes the point value to current Marriott point values, I will drop the card.

    I also have two credit cards that create their own bonus categories – a Chase Marriott Premier and the Southwest Premier cards. The Marriott card sees no un-bonused spend and spends most of its time in a drawer – real spending goes on the Starwood card. The Southwest card sees a little un-bonused spend but about 40-50 percent (using 72 points per dollar on base fare) of the spending will be allocated only to Southwest to achieve about a 2% net return after the annual fee. I got a targeted offer on the Southwest card for 50,000 points with the $99 annual fee charged but with a $100 credit on my first purchase I could not turn down. The 6000 point annual bonus makes it possible to keep the card with a low annual spend threshold.

    I would appreciate any improvements you might suggest to the above scenario. We are looking to cull the credit card herd and focus more spending on fewer cards. Have a nice day.

    JimT

  29. Folks,

    Please note in the comments above that a 2% earning rate is not a 2% net rate of return. Annual fees make the rate of return a function of annual spend.

    DCS, you used to use the Chase United Explorer card but using the Chase Sapphire Reserve with the Chase United Club card makes sense if you are a frequent traveller. You must value the lounge access not to have kept the Explorer card combined with the Chase Freedom Unlimited card. The simplicity of your arrangement is inviting but we don’t travel that frequently yet. And I concur with your opinion above – our Starwood card is only used for Starwood (and maybe Marriott) hotels.

    Lrdx, I understand your annoyance at 2% no annual fee cash back credit card comparisons. I am more annoyed by how often my cash back cards put more money in my pocket after all the annual fees and rate of return calculation hassle are accounted for compared to travel rewards credit cards. It is disappointing that loyalty does not drive a better return.

    Have a nice day all. This article and its responses provided an informative good read.

    JimT

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