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Mar
A reporter, James, asks me four questions about rewards credit cards. They’re fairly introductory, as you’d expect when the goal is mainstream publication, but I thought they’d still be useful to some readers to reproduce here… especially because odds-on my answers turn into one sentence out of a larger piece come publication. 
A good place to get started, at least, thinking about rewards credit cards although regular readers will likely be familiar with much of my thinking here.
I’ll list each question below, my answer (adding links where I think appropriate), and then some additional comments at the end of each answer.
(1.)What would be your shortlist of what airline credit cards should be at the top of consumers’ lists, in 2013.
- Probably the best all-around consumer card these days is the Chase Sapphire Preferred visa.
It earns double points on all travel and dining spend, has no foreign currency transaction fees, and earns a 7% annual bonus on all points earned from spending on the card.
And points transfer to your choice of airlines (United, British Airways, Korean Airlines — so it has all 3 major airline alliances covered — and Southwest), hotels (Hyatt, Marriott, Ritz-Carlton, Priority Club), train (Amtrak).
It’s strong on earning and the points are flexible so you can put the points where you need them, when you need them. (They also let you buy travel directly at 1.25 cents per point but that’s not the best way to use them)
Other top cards include Starwood Preferred Guest American Express (the most airline partners to transfer points to), American Express Premier Rewards Gold (triple points on airfare, double points on gas and groceries)
I should add there’s a pretty strong case to be made that the Chase Ink Bold and Chase Ink Plus are actually the best all-around cards.
They don’t earn the 7% annual bonus, and double points applies to hotels and gas (this last Sapphire Preferred does not bonus) but not to other travel or to dining.
But they offer 5 points per dollar on telecommunications (television, cell phone, internet) and office supply stores — this last being especially valuable because of the ability to buy gift cards at those stores and use the cards for purchases elsewhere, generating 5 points per dollar on other kinds of spending as well.
But that’s a bit too complicated an argument to make for a mainsteam media inquiry.
(2.) Any innovations or new ideas in the field?
- Increasingly cardholders are as important as frequent flyers and frequent guests. Airlines and hotels are offering elite status benefits to travelers who get their cards, not just fly or stay with them often. The Citi Hilton HHonors Reserve Card comes with Gold status in Hilton’s program as long as you have the card, and you can spend your way to top tier Diamond status in the program without ever setting foot in a hotel. Most airline cards will offer free checked bags and priority boarding.
Signup bonuses are as big as they’ve ever been. Ten years ago a really good bonus was 20,000 airline miles. Now it’s not uncommon to see 50,000 point and even 100,000 point bonuses for getting a new credit card.
(3.) What are some key tips about how to choose, use, and reap the promised rewards of frequent-flyer miles and amenities that come with these cards?
- Bank points that do not transfer to airline miles can be useful, they tout “any seat on any airline” but the value of the points isn’t very high, usually no more than one penny a point at best. Consumers are better off at that point just getting a cash back card like the Priceline Visa or Fidelity Investment Rewards American Express — both of which offer 2% on everything.
Some cards are great for big signup bonuses. That doesn’t make them good for ongoing spending. The Southwest Airlines Rapid Rewards Premier Card currently offers 50,000 points for signing up for instance, but you can do better on other cards for rewarding your spending once you’ve pocketed that signup bonus.
Some cards are great for the perks of being a cardholder — priority at the airport, lounge access, hotel status — but spending on those cards may not be the most rewarding. Examples here are the Citi Hilton Reserve card and the Mercendes-Benz American Express Platinum. (Note: in my reply to the reporter I mentioned the standard American Express Platinum, but the Mercedes-Benz version has the best current bonus.)
Different cards have different value propostions so understand why you want a given card and use it accordingly.
This is my standard distinction on the value propositions different cards offer. Understand why you’re getting a card, and use it for that purpose. If it’s just the bonus, pocket that and then consider cancelling the card before the next annual fee (or trade a cancellation for a new approval). If it’s for the benefits, you might just stick the card in a drawer. If it’s for everyday spend then that’s what you carry in your wallet.
(4.) Who should use these, ideally? Who might be better off skipping the lure?
- These cards are really only for people who pay off their bills in full each month. For those that carry balances, it’s much more important to find the lowest interest rates possible — and the interest rates on travel cards tend to be higher. Slate from Chase even offers 0% on balance transfers. Save money on interest!
The credit card game is not for everyone. If you’re planning a major purchase (like a home, including a refinance) in the coming year especially it’s worth taking a break. If having additional credit cards makes it likely you will spend more money, it’s better not to play the game. Self-discipline is key to get the best values here. And the point I made above is crucial – it’s only for folks who are paying off their cards in full each month, otherwise it’s a far better strategy to reduce borrowing costs than earn points and miles.
(Note that some of the cards listed above offer referral credit to me if you’re approved for them using the links in this post, though as always I provide links to the best available offers I’m aware of whether they’re my links or not.)
bluto said,
for the average person who has a cell phone and cable bill, and who eats out, I think the ink cash is the best all around card with 5x and 2x in those categories.
Jeremy said,
I generally agree with you about Sapphire Preferred being the best overall card for the mainstream, but as a newbie to AMEX and MR, I’d love to hear you elaborate on why the CSP is better than say Gold or Platinum card. My thinking is that the annual fee is lower, points transfer to enough partners on UR, and earning is better overall. Except the gold card offers 3x on some travel and 2x on gas and groceries. That last part makes me wonder if its the best. Thoughts?
tassojunior said,
Southwest points are worth at least 3.3 cents each if you have a companion pass. As with Sapphire, you earn 2 points per dollar on hotels and cars on the WN card.
Ric Garrido said,
I think the rest of the world would like to know why Americans can accrue so many travel loyalty points without travel by using credit cards and inflate the cost of awards for members in countries without the option to earn miles and points via this strategy.
Robert Hanson said,
@Ric Because despite Obama’s best efforts, we still have the most open, honest and free marketplace of any large nation. And Free Market Capitalism {NOT to be confused with Crony “capitalism” sic} is always the best provider for the largest numbers of people everytime and everywhere it is allowed to function freely.
That is the answer you were looking for, right?
Alan said,
Spot on, Ric – was expecting something a bit more global based on the article title!
Anon256 said,
Snark aside, I would also like to see some links/recommendations for what those outside the US can do to earn points and travel cheaply. Any blogs or forums with a non-US focus?
skizzy said,
Right On Robert Hanson – true American patriot!
I too will continue to fight Obama’s best efforts to thwart my ability to accrue more travel loyalty points without travel by using credit cards.
President Bush(how I miss him!)was a man who knew how to pull out the credit card and pay for wars and tax cuts that have made this country strong and allowing all the nation to be upgraded to first.
Gary said,
@Anon256 – AviancaTaca LifeMiles cheap mileage purchases and cash and points awards. US Airways mileage purchases. Head for Points is a UK-based points blog.
Robert Hanson said,
@skizzy LOL I remember how the left spent several years calling the Bush tax cuts a “gift to Bush’s fat cat friends”, and a destructive blow to the US economy. Right up to the day they were about to expire. Suddenly Obama had to make a huge fuss about how that expiration would be a major blow to the middle class, and a blow to the economy. See, when they were “Bush’s tax cuts”, they were a gift to the wealthy. But when they became “Obama’s tax cuts”, they were suddenly mainly a benefit for the middle class. Aiding the economy as a whole, instead of harming it. So at Obama’s request, 98% of the cuts were not just extended, they were made permanent.
Bush does something: tax cuts, leaving Guantanamo open, fighting terrorists overseas: bad. Obama does the exact same thing: wonderful. I think I read a book about this once. What was it called? Oh, yeah, Animal Farm
Anon256 said,
I would like to see a detailed analysis of why credit card rewards (and the points game generally) seem to be so much more lucrative in the US than in other developed countries. As I understand it interchange fees are set globally by Visa/MC/Amex. Do regulations on interest rates or collections differ enough to explain the discrepancy? Does any other country have comparably lucrative deals?
Any such discussion risks getting sidetracked into general political talking points (as this thread demonstrates) but credit card deals in the US have remained lucrative through good times and bad, times of increasing and decreasing regulation, and different political administrations, so general politics seems like a distraction here.
Robert Hanson said,
I don’t think it’s political talking points to mention that US based airlines and banks are privately owned, and open to competition. Whereas all European airlines until recently were government owned monopolies. In France, Air France was THE French airline. In the UK, that was BA. Scandanavia SAS, Germany LH. And the various governments set the fares and routes. You could fly BA into and out of LHR, but you could not fly BA from Paris to Rome. For that you had to take either Air France or Alitalia.
Over here, US Air is NOT US {Government monopoly} Air. They have to compete with AA, US, Delta, etc.
How hard is it to understand that when you have privately owned banks and airlines, competing with each other for our business, they have to give us more benefits to get that business? From reading some of the comments here, I guess it’s harder to understand than it seems to me.
Anon256 said,
This explanation would make sense 20 years ago, but today the European aviation market is extremely competitive. For short-haul flights, the flag carriers now must compete with Ryanair and easyJet as well as a large number of smaller carriers (and on some routes, high speed rail). For long-hauls, passengers in the UK can at minimum choose between BA and VS (in addition to connecting service by many other carriers, and direct service from a carrier based in their destination in most cases). German passengers have a similar choice between LH and AB. I also intended my question to apply to markets like Australia, where Qantas holds less than 20% of the long-haul market and competes with Virgin and Tiger domestically.
The banking market if anything seems more competitive in many other countries. For example all UK ATM cards can be used without fee at all UK ATMs due to a competitive race to the bottom. And the banks are certainly privately owned. I’m not familiar with every country’s banking regulations; what in particular would make US banks so much more generous with bonuses in both good times and bad?
Robert Hanson said,
@ Anon My point was about how the development of the original European airline system has lingering effects today. Yes, now there are Ryan Air and EasyJet, but their impact on Air France and LH is similar to the impact of Spirit and Southwest in the US on major US airlines ie. limited, since the fares and client bases are significantly different. AA and UA, with their First and Business class fares paid by corporate clients can afford to provide FF benefits that SW and Ryan could never afford.
I was also referring to actual competition. Your statement “all UK ATM cards can be used without fee at all UK ATMs” is not an example of competition at all, it is an example of government regulation preventing genuine competition. Nor have the moves to “privatize” the national airlines injected true American style competition. BA is not free to offer flights between Paris and Milan, nor Alitalia from LHR to Prague.
The benefits Americans get from the economic tug of war between Chase, Citibank, and to a certain extent B of A and Barclays, tag teaming with AA, UA, US and Delta, with their large corporate funded customer bases, simply does not exist in Europe. And I think not in Australia, either.
Because the US airline business grew the way it did, it was forced to set up the lucrative rewards system we have today in a battle for market share. Since the European and Asian airlines did not begin in this sort of economic environment they until recently have not been forced to offer these sorts of benefits to their customers.
The real change now slowly occurring is not from the low margin airlines like Ryan, but the fight for American customers as BA aligns with AA, LH with United, etc. The pressure of the American model is pushing the European airlines towards that model. But of course, it is the European banking and airline regulations that keep the US model from being fully embraced, as in your ATM example.
I have quite a number of airline and hotel branded credit cards, from various banks, and checking accounts and ATM cards from each of those banks. I move my purchases and deposits from bank to bank based on where I get the most value at that particular moment. I use my Citibank ATM card when in the EU, because Citi does not charge me a fee at any ATM, nor any extra currency conversion fees. I never use my Wells Fargo ATM card overseas, since WF would charge me $5 per use, no matter how small the withdrawal. But I use my Chase bank credit cards when traveling, and not my B of A or Citibank cards, because B of A and Citi charge me a 3% foreign transaction fee on every charge. Chase does not charge a transaction fee.
That’s what I mean when I say competition, not simply that various companies are in business, but different banks and airlines being allowed to do things as they think will benefit them. If they were all forced by regulation to do everything the same way, there would be no way for them to compete for my business, and thus no incentive to increase the benefits they give me.
Sadly, US banking regulations have begun to move in the direction of the EU regulation model, in a quest for “fairness”. As a result bank services are being cut back, and fees for those with smaller amounts on depost have risen dramatically. I have enough on deposit that the banks waive the fees for me. But for a lower working class person, those fees are starting to be a burden. The more that governments try to regulate business to help out the less fortunate, the worse off the less fortunate become.
Alan said,
I don’t think US-based airlines can be held up as some amazing model of open market efficiency given repeated Chapter 11 bankruptcy and major financial and labour issues many of them face!!
Anon256 said,
@Robert: A few things in your ATM fees in the UK are not regulated; they fell to zero only after a competitive race to the bottom. Under EU rules BA is free to offer flights between Paris and Milan or anywhere else in the EU, which is how Ryanair and easyJet are able to offer flights between many different pairs of countries.
Can you cite regulations in particular that you think prevent the EU (or Australian, or other countries’) aviation/banking market from being as competitive as the US one?
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