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Credit Card Rewards: A Common Currency With Varying Value

By Brian Riley
October 30, 2018
in Analysts Coverage, Credit
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Earn Points Re-Igniting Credit Card Lending: Get Ready for Points and Credit LinesCredit Card Rewards Program Best Choice

Re-Igniting Credit Card Lending: Get Ready for Points and Credit Lines

This consumer article in US News & World Reports should start with the premise that if you use your credit card to earn rewards, never revolve, particularly in a market with escalating interest rates.  That is how you ensure true value.  Increase your spending and carry the balance for 1 month on a 24% credit card interest rate means you lost twice the value of 1% reward.  The dreams of Hawaii may spur undisciplined spending, but the payments can outlast the memories of a trip.

This article is worthy of coverage, though, because it talks about the value of a point.  Credit card points are not like dollars or euros with consistent value.  Some credit card reward points have direct cash value; others do not realize the 1:1 relationship of points per dollar.

  • Rewards credit cards advertise how many points you can earn from spending and sign-up bonuses, but it’s not always clear how much value you can get from those points. After all, a card with a high rewards earning value doesn’t necessarily have a good redemption value.
  • S. News’ 2018 travel rewards credit card survey found that 53 percent of respondents earned more than $300 in rewards value within the last year. About a fifth of respondents earned $1,501 or more.

I fall into the $1,501+ category and unless it is a planned purchase where I pay at least 5X the minimum due, I don’t do the purchase, or I dip into a savings account.

  • Some rewards cards offer a flat rate for earnings, such as the Barclaycard Arrival Plus World Elite Mastercard, which earns 2 miles per dollar on all purchases.
  • Others earn bonus rewards for certain spending categories, such as the Citi Premier Card, which earns three points per dollar on travel, two points per dollar on dining out and entertainment, and one point per dollar on all other purchases.

Statement credits work well though not every issue offers this feature. Here are some examples from the article’s exhibit.

  • If you use your Amex Platinum for a donation or travel, the value is about 1 cent per point; if it is on a particular entertainment offer, the value might only be worth 0.5 cents.
  • Similarly, on the Bank of America Travel Rewards Card, the redemption value is the standard 1 cent per point; but on a cash back offer, you might only receive 0.6 in value.
  • If you follow the rules on the Chase Sapphire, you can harvest 1.25 cents in value, yet if you use the Chase Pay app for merchandise, expect only 0.80 cents in value.

Rewards play an essential role in cards, and the long-term horizon is probably not very rosy for traditional programs that rely on interchange.  However, for now, there are still good options.  These only make sense if you consider them extras, and keep your eye on what matters: rates and fees.

Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group

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