How to choose a travel rewards credit card

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There has been an explosion in ways to earn airline, hotel and other rewards points in the last 10-15 years.  Airlines have partnered with banks to issue credit cards that earn frequent flyer miles, hotels have done the same for their own point programs, and some banks have even begun to offer their own distinctive rewards programs.

But there’s one very important piece of information you need to know about rewards credit cards: They are not all created equally.

As with all loyalty and rewards programs, the critical measure is how much value you can extract for each point.  This differs by program; some programs are variable, allowing members to receive five to ten cents in value per point (a good redemption value).  Other programs are fixed, limiting the value of points to one or two cents each (a poor redemption value).

Therefore some rewards credit cards earn points that are far more valuable than others.

So ignore the marketing hype about no blackout dates, and follow the advice in this special report to maximize the value you receive from rewards credit cards.  We will examine the different types of cards one at a time, detailing the pros and cons of each.

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Airline-Linked Credit Cards

Almost every major airline has partnered with a bank to offer a “co-branded” credit card that is linked directly to the airline’s mileage program.  These cards are relatively simple and have features including:

  • Large initial sign up bonuses when you open a new account
  • A minimum of one mile earned per dollar spent
  • Possibilities to earn bonus miles for certain types of purchases

Additional benefits may include:

  • Earning elite qualifying miles on your preferred airline
  • Day or annual passes to airline lounges
  • Free checked bags and other day-of-travel benefits

The benefit of airline-linked credit cards is tied to the airline’s program.  For example, the legacy airlines (such as American, Delta and United) have mileage programs where members can redeem miles for between five and ten cents each, if used correctly.  However some programs fix the value of points to a few cents each, such as the Southwest Airlines Rapid Rewards program.

While these cards usually have annual fees, they often waive the first year’s fee, and the initial signup bonuses (ranging from 20,000 to 100,000 miles) are so large that they offset several years of annual fees.

Takeaway: Cards that earn miles in traditional airline mileage programs provide the best value for your credit card spending.

Recommended airline credit cards:

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Hotel-Linked Credit Cards

Like airlines, hotels have established loyalty-based rewards programs.  Hotel points can be used to book rooms, but most programs also permit transfers to airline mileage programs.  The value of each hotel rewards program differs just like currencies in the real world: some are very valuable, while others are worth less.

  • The most valuable loyalty currency among hotels is Starpoints, issued by the Starwood Preferred Guest program.  These points transfer to many airlines on a 1:1 basis, with a bonus of 5,000 miles thrown in for transfers of 20,000 point batches.
  • Programs run by Hilton, Hyatt and Marriott have points that are less valuable.  It takes more of these points than Starpoints to equal an airline mile.
  • As points are usually earned on the basis of one point per dollar spent, the best strategy is to accumulate the most valuable currency, which in this case is Starpoints.

Recommended hotel credit card:

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Bank-run Rewards Programs

Rewards programs run by banks is where this field gets complicated.  Some programs offer decent rewards, while others fix the value of a point at one or two cents each.  In some cases, there are even differences in ways to redeem points within the same program, where one method can yield far more value than another.

For these types of programs, the rule of thumb is this: If the program allows transfers to an airline on a 1:1 (or equivalent) basis, it is a good value.

But if the program offers redemptions only through its own travel booking service, you won’t be getting very much value for your points.

Keep this in mind: Airline programs offer the most valuable redemption opportunities.  So if you can’t transfer your points to an airline, odds are you will not be getting the maximum possible value per point.

Following are details about popular bank-run rewards programs.

American Express Membership Rewards

Membership Rewards is generally a good program, as points can be transferred to a variety of domestic and international airlines.

Table

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Again, transferring to airlines is what allows the best possible redemption opportunities.

Membership Rewards also offers other types of redemption, specifically for consumer items and travel booking through American Express’ travel service.  Be aware that the value of these redemptions is fixed, whereas the value of airline miles is not.

To maximize the value of your Membership Rewards points, opt to redeem for airline miles by transferring to one of the programs above.  Remember that these transfer opportunities are not equal; some provide much better value than others. In general, look toward major airlines including Air Canada, Cathay Pacific, Hawaiian Airlines, Singapore Airlines and Virgin Atlantic.

Other Bank Programs

Many banks now offer rewards programs based on credit card spending, including Bank of America, Capital One, Chase, Wells Fargo and others.

The lesson from above holds here: If the points can be transferred to a traditional frequent flyer program, the value per point can be maximized.  Otherwise, points will be redeemed at a low fixed value of one or two cents each.

While it may seem satisfying to redeem 2,500 program points for a $25 gasoline gift card, this is a redemption value of one cent per point, which is far below what could be gained when redeeming airline miles.

Some programs claim features like “no blackout dates”.  However, in these programs you would be spending points at a fraction of their true value (see below).  Transferring to airlines will greatly enhance your redemption values on a per point basis.

As an example, here is a potential point yield comparison between Capital One’s program and the Starwood Preferred Guest program for $20,000 in spending:

Capital One:   20,000 points fixed at one cent per point = $200

Starwood:        20,000 points with variable value = $1,250 – $2,500

Recommended “other bank” credit cards with multiple transfer opportunities:

  • Chase Ultimate Rewards
  • Diners Club

When it comes to maximizing value, there are “right” and “wrong” ways to earn and redeem miles and points.  For the best results, focus your efforts on airline and hotel programs, and points that easily transfer to these programs on a 1:1 basis.

As the example above illustrates, receiving even the low-end value of five cents per Starpoint would yield an effective rebate of 6.25%.

Don’t settle for one or two cents per point – pick the best card for you and work to maximize the value of your spending with every hard earned dollar.

Which rewards credit cards do you use, and why?

About the Author

Ryan Lile's Profile Image

Ryan has been a travel expert for more than ten years. His journeys have taken him to all six inhabited continents, including living in the Middle East and backpacking across Australia, Asia and Europe.

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