IdeaWorks has a new study comparing the value of different credit cards. As with all of their studies this one attempts to take an analytical, quantitative approach to difficult questions in travel.
And I do think this was one of their better efforts, and even one of the better attempts to compare the value earned through credit card spending, even if I think it places its emphases and assumptions in the wrong places and implies the wrong cards are best for many consumers.
Like their study of airline award availability, the methodology has flaws and leads to some really strange results like that on the accrual side the Barclaycard ‘Arrival’ is better than the United or US Airways cards, and that the Delta card is equivalent value to United Explorer, and at the same time on the redemption side that the US Airways card is tops among airline cards.
Still, clear conclusions are notably absent in the study, other than section headers suggesting that cardholder behavior determines value, and that bank travel cards are often better.
The study is also filled with mistakes and analytical rabbit holes.
The study notes that American Express will not let you transfer its points to American, Southwest, United, or US Airways. But it never mentions that if you want a United flight, you can transfer points to Air Canada’s Aeroplan for instance (points transfer instantly) in order to redeem for it. Airlines have significant partner relationships that expand the reach of their frequent flyer programs and provide much greater redemption options. Failing to acknowledge partner redemptions was one of the big flaws in their award availability study, too (and why they could say that United and US Airways — both Star Alliance members — offered wildly differing award availability).
This is important because this study on the value of credit card points assumes that the usefulness of airline miles tracks what their earlier redemption study found, leading itself even farther astray.
The study focuses on domestic coach redemptions, which is the area where the fixed-value bank cards perform the best. It talks about having to accrue 20,000 or 25,000 miles before being able to redeem for an award, while the bank cards will let you redeem for (very cheap) flights with fewer points. And at some points study ignores that some of the airline cards offer a similar feature, allowing you to spend points as fixed-value towards tickets instead of using an award chart even as it separately acknowledges this feature while calling Delta’s co-brand offering “something of a chameleon” for offering it..
The focus on bottom-end mileage awards makes sense for a general public that the study assumes will spend $1500 per month on the credit card, and doesn’t meaningfully factor signup bonuses. At those spend levels, and assuming mileage isn’t also being accrued via other sources, high priced awards are out of reach. But a study comparing value across programs is likely to be of greatest interest to people willing to compare value across programs and take steps to earn the most points possible. Ironically any consumer who might actually benefit from the study is also not the consumer being modeled by the study.
Oddly, the study gets its facts wrong on several credit card features. It says that American Express doesn’t offer no foreign currency transaction fee cards (the The Platinum Card® from American Express comes with no foreign currency fees) and that Southwest’s co-branded card is the only airline offering without such a fee (United and American both have no foreign currency fee products — the Club card and the Executive card, respectively).
We can do better.
Basic Principles for Evaluating Credit Card Rewards:
- Airline mileage-earning credit cards are great when you earn miles in a variety of ways. With bank points you earn all of your points with your credit card. With airline miles you have flying, rental cars, online shopping (some credit card portals offer these as well), home mortgages, cell phones, energy service, virtually anything you can think of including sending flowers and buying home security services. That means earning the points you need for tickets faster.
- There are big differences between bank programs — the ones that just buy you a ticket, usually with a fixed (or ‘not to exceed’) value per point and those where you can transfer the points into ‘real’ airline miles or hotel points. It’s a mistake to evaluate Chase Sapphire Preferred® as a fixed-value travel card where each point is worth 1.25 cents. You evaluate Chase Sapphire Preferred for the ability to transfer points to United, British Airways, Korean Airlines, Hyatt, Marriott, Ritz-Carlton, Priority Club, Southwest and Amtrak. So a Chase point is worth at a minimum what the most valuable of those points are worth, plus a premium for the flexibility to put the points where you ultimately need them when you need them.
- Airline miles (and flexible bank points that can transfer to miles) are the best, most leveraged way to get premium cabin international awards. An $8000 business class ticket would cost 800,000 Capital One points, if two people are traveling that’s 1.6 million points. In contrast an airline program — admittedly with significant capacity restrictions — might get you those two seats roundtrip for about 200,000 points. It’s the very last page of the study before this aspect of frequent flyer programs are acknowledged.
- If you want to fly domestic coach, don’t get a points card at all. Get a cash back card. You won’t do better than a penny a point with most bank programs, but you can get 2% real cash with the Fidelity Investment Rewards American Express or the Priceline Visa — cash you can spend for whatever travel you want or anything non-travel too.
- Different cards play different roles, and you may want to get them for different reasons. Some are great because the signup bonuses are really valuable, but once you pocket that you’re done — it doesn’t make sense to spend money on the card. Others are great for the benefits of being a cardmember (like Gold elite status via the Citi® Hilton HHonors™ Reserve Card from Citibank or lounge access from the The Platinum Card® from American Express) though it may not make sense to spend money on the card most of the time. (And crucially, noting the Hilton card, the IdeaWorks study ignores hotel rewards cards entirely.) And then there are cards that are best for actual spending like the Chase Sapphire Preferred® and the Starwood Preferred Guest® Credit Card from American Express.
These principles, applied to your situation, can help cut through the clutter. If you want premium cabin international redemptions, don’t get a fixed-value bank card. Cards with trasnferrable points to miles are the best for that. If you want domestic coach, get a 2% cash back card. And focus your spend where you’ll earn the biggest bonuses.
Note that some of the cards in this post, like Chase Sapphire Preferred®, offer referral credit to me if you successfully apply using my link. While others like Fidelity Investment Rewards American Express do not.
(HT: Hack My Trip).