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)
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.)