There have been many articles published recently questioning whether it’s worthwhile to carry a mile-earning card these days. Why not just switch to a cash-back card and earn between a one and five percent rebate on all your purchases?
For example, the American Express Blue Cash card offers five percent cash back on grocery store, drugstore and gas station purchases and 1.5 percent cash back on all other charges to the card after you spend a total of $6,500 on the card each year. For purchases made below the $6,500 threshold, you’ll earn one percent on groceries, gas and drugstore purchases and only 0.5 percent on everything else. Unlike mileage cards and other cash back cards that credit your account every month, you’ll only receive a rebate once per year with the Blue Cash card. After spending $10,000 on food, gas and drugstore items plus another $10,000 on everything else, you’ll have $487.50 to spend on travel, without having to contend with capacity-controlled award seating and the growing list of award ticketing fees.
Unless you are an elite flyer, however, you will still have to pay the new baggage and other fees and depending on how early you book your ticket, you may not be able to find the cheapest fares. If the cheapest award seats sell out, members are required to pay twice as many miles for an award. Likewise, once the cheapest seats on a flight are gone, passengers may have to pay twice as much money (or more) for a seat on a flight. Although airlines don’t say their revenue seats are subject to capacity controls, the cheapest seats on a flight are limited in number.
For some travelers, a cash-back card is the best option, but we think that the mileage and point earning credit cards have some advantages and deserve your attention. One frequent flyer we spoke to had this to say about miles/points cards: “In my research when choosing cards (and I’ve had quite a few different ones), miles/points cards offer greater benefit value than cash-back rewards. The reason is fairly straightforward–when a card issuer offers cash-back rewards, they have to pay a clear dollar amount back to the consumer, usually at least one percent of purchases. However, when offering miles/points, issuers are able to purchase those [miles or points] from the various programs in bulk at a rate that makes them more competitive–generally offering a greater value for cardholders. This only holds true, however, if the cardholder travels with sufficient frequency to actually make use of all of the points, as opposed to banking them. If the cardholder banks the points, cash-back rewards (if invested properly) would offer a greater financial return.”
It’s clear that as consumers continue to rack up miles and points with credit card spending, the common use of “miles” as a form of reward continues to spread. In fact the trade publication, The Nilson Report. cites that there are 45 million cobrand credit cards issuing “frequent flyer miles.” But truth be told, fewer than half of these cards are actually affiliated with an airline, the balance of the cards replicate the marketing pitch of banks like CapitalOne and their use of “miles” as a travel reward.
A few airlines have started a new credit card trend by creating programs that match the flexibility of cash back cards–United Airlines, Delta Air Lines and Continental Airlines all offer cards that function like travel cash-back cards and award a form of currency that can be used toward the cost of flights instead of award tickets.
With the hassle of finding award seats and the appealing offers from credit cards that promise to put cash back into your pocket, why are mileage cards worth the trouble? According to an online AirPoll we recently conducted, the most important credit card feature to those who responded is earning miles and points, so the miles credit card is not dead yet. Over 60 percent of respondents valued miles/points over low or no annual fee (21.6 percent), low APR (8.7 percent) and cash back (6.0 percent).
Seven Reasons Why a Mileage Card is Better than Cash Back:
# 1 Keep Miles from Expiring
As long as you make one purchase with your co-branded credit card every 18 months or so (depending on the airline’s mileage expiration policy), your miles and points will never expire. For members who have racked up a lot of miles with one program but have moved or switched programs for one reason or another, this feature alone may be worth the card’s annual fee. And for members of programs with short expiration policies and very few partners, such as JetBlue TrueBlue with its points that expire after one year, extending the life of points can be a valuable feature.
#2 Elite Status
Many hotel programs offer complimentary elite status to cardholders and some airline credit cards allow members to earn elite miles through credit card purchases. Hilton HHonors Visa Signature cardmembers automatically receive Silver VIP status and Platinum AMEX cardholders can buy their way to Gold VIP status for one year when spending $20,000 annually. IHG Priority Club Rewards offers Gold elite status to members who use either their Rewards Business Visa or Rewards Visa Signature Card. Marriott Rewards offers a 15 night credit toward elite status to cardholders of the Premier Visa and a 10 night credit to Visa Business Card and Visa Signature Card cardholders.
American AAdvantage members can earn lifetime elite status through credit card spending. Unlike most programs, American recognizes miles earned from non-flight earning, including credit card spending, and counts them towards million-mile status. American Airlines gives lifetime Gold to members who accrue one million miles and lifetime Platinum to members accruing two million miles.
Delta SkyMiles members can earn up to 30,000 MQMs per year–15,000 MQMS for each $30,000 spent on the Delta Reserve AMEX card in a calendar year. Platinum AMEX SkyMiles cardholders can earn up to 20,000 MQMs per year.
US Airways Dividend Miles members can earn 10,000 miles annually towards Preferred status when spending $25,000 per year on the Premier World MasterCard and beginning in 2009, Northwest WorldPerks members can earn 10,000 Elite Qualifying Miles (EQMs) for each $25,000 spent in a calendar year with the WorldPerks Visa Signature Card, up to a maximum of 20,000 EQMs. In 2008, only purchases posted between Sept. 1 and Dec. 31, 2008 will count towards 2009 elite status.”
Continental Airlines Presidential Plus cardmembers earn 2,000 Flex EQMs for every $25,000 spent, up to a total of 28,000 Flex EQMs annually. Flex EQMs do not expire and can be redeemed for elite status at any time, including in the future.
United Mileage Plus Platinum Visa cardmembers can earn up to 15,000 EQMs in your first year and up to 10,000 EQMs each subsequent year. Cardmembers earn 5,000 EQMs after first purchase, 5,000 EQMs when you spend $35,000 each year with your card and up to 5,000 EQMs for ticket purchases at united.com (one mile per $1) each year.
#3 Bonus Miles/points
for Select Purchases
Almost all co-branded credit cards offer double miles/points for purchasing airline tickets and hotel stays with the airline or hotel affiliated with the card. For travelers who frequently fly the same airline or stay in the same hotel group, bonus miles/points offers can double your credit card earning on travel expenses.
Some cards go a step further and offer bonuses for other, non-travel categories, such as Continental Airline’s World MasterCard that also offers double miles at popular merchants such as Bed Bath and Beyond and Macy’s. With Aeroplan’s CIBC Aerogold Visa, cardmembers will earn 50 percent more miles on gas, grocery and drugstore purchases.
#4 Sign-up Bonuses
According to our AirPoll, 41 percent of respondents have signed up for a credit card once or twice just to get the sign-up bonus miles/points and a surprising 10 percent admit to doing so five times or more. The airlines and hotels have steadily increased the sign-up bonuses on credit cards to attract new cardmembers. A few years ago, the sign-up offers for airline credit cards ranged between 5,000 miles and 15,000 miles. Today, customers are regularly offered 20,000 miles or even 25,000 miles for acquiring a new credit card–enough miles to fly anywhere in the U.S.
If you are signing up for a credit card primarily for the sign up bonus but don’t intend on canceling the card right away, take into consideration the card’s annual fee and interest rates. If you are going to carry a balance on the card for any considerable length of time, keep in mind that the interest rates on loyalty credit cards are often high–around 15 percent–and you could end up paying more in interest than you would have paid for the original airline ticket or hotel stay.
The practice of “churning” credit cards, signing up for a credit card only to cancel it after the bonus miles post and sign up again, is a lucrative way to earn miles, although not without risk. Many cards, including those issued by American Express and US Bank, only allow you to earn the sign up bonus once. Another point to consider is the impact of churning on your credit report. Each time you apply for a card, the issuer will make a hard inquiry on your credit report. Many inquiries over a short period of time could lower your credit score and make lenders think you are desperate for credit and a potential high-risk borrower–something that’s certainly not worthwhile for a few thousand miles.
#5 Access to Reduced Awards
As a benefit of owning a Citi AAdvantage card, cardmembers have access to reduced mileage awards. The destinations change quarterly and cardmembers can redeem for awards at a 5,000 or 7,500-mile discount, depending on the card they carry.
WorldPerks Visa cardmembers receive a 4,000-mile or 6,000-mile discount on two award tickets every year, which can be used on flights to select domestic destinations on Northwest Airlines and Northwest Airlink.
Singapore Airlines KrisFlyer American Express cardmembers can save up to 35,000 miles on flight awards. New cardmembers can receive a discount between 25 percent and 65 percent on two award flights or an upgrade award after receiving the card.
#6 Companion Tickets
Many credit cards offer free or reduced price companion tickets. Alaska Airlines offers an annual $50 roundtrip companion ticket to cardholders of its Bank of America Visa Platinum Plus and Signature cards ($99 companion certificate for Visa Business cardmembers). When you purchase a roundtrip published fare ticket (including first class and Web specials) on Alaska Airlines or Horizon Air, you can purchase a second ticket on the same itinerary for $50.
Delta offers a complimentary companion ticket with its Platinum AMEX and Delta Reserve card and Gold AMEX Platinum cardholders receive a $99 companion certificate each year. British Airways offers a companion ticket on all full-fare FIRST, Club World or World Traveller Plus flights purchased with the British Airways Visa Signature card. US Airways, American Express, United Airlines also offer companion tickets, among others.
#7 Special Travel Programs
United Mileage Plus was the first to introduce its Choices program in May 2006. Chase United Mileage Plus Visa cardmembers earn “Choices”, a form of currency that can be used towards the price of a ticket on United or other awards. Choices can be redeemed for a statement credit that will cover the entire or partial cost of a flight, car rental or hotel stay. For example, members can redeem 15,000 Choices for a $150 United ticket credit, 15,000 Choices for a $120 Visa statement credit for a hotel stay or 7,500 Choices for a $60 Visa credit for a car rental. Choices can also be redeemed for an annual Economy Plus subscription option or EQMs.
Continental OnePass introduced its TravelBank World MasterCard in November 2007. Cardmembers earn three percent in a TravelBank account for eligible cable, wireless or telecommunications purchases and one percent on all other purchases. Members receive a yearly $25 deposit into their account on their anniversary when spending $10,000 on the card. Each ticket purchased on continental.com will net an additional $5 TravelBank deposit. TravelBank funds can be applied to the cost of part or all of any Continental Airlines flight.
SkyMiles members who have a Gold, Platinum or Reserve Delta SkyMiles credit card from American Express can take advantage of a “Pay with Miles” program, which was introduced in February 2008. Cardholders can choose to pay for a ticket with the miles in their account or with a combination of miles and money. Each mile redeemed toward the cost of a ticket is worth $0.01. Members will not earn miles with tickets purchased with Pay with Miles.
All three programs allow members to use credit card earnings toward revenue flights, which means that award travel restrictions are bypassed. And Mileage Plus and OnePass members will earn miles on flights purchased with Choices and TravelBank funds.
The Right Card for You
With so many mileage and point-earning credit cards out there, which one is right for you? You should take into consideration the features that have the most value for you. A yearly companion flight certificate is great if you frequently travel with a partner, but if you primarily fly solo, this benefit may not be worth anything to you. We’ll take a closer look at some of the cards we recommend based on what you might value the most.
The Starwood AMEX has won the Freddie Award for best affinity credit card in the Americas for the past two years and when it comes to flexibility, this card is hard to beat. Even if you never set foot inside a Starwood hotel, this card can offer a great value because you can transfer the points earned with the card to over 30 frequent flyer programs at no charge. Most airlines offer a 1:1 transfer ratio and if you transfer 20,000 points, you’ll get 25,000 miles–a bonus of 5,000 miles. Be aware that the transfer rate from points into United Mileage Plus and Continental OnePass is 2:1, so this card isn’t nearly as valuable for members of those two programs. Starwood also just added a new award choice, SPG Flights, where members can redeem points for airline tickets with no blackout dates and fewer restrictions. The cost in points is related to the price of the airline ticket so you may not find the best deal this way, but if flexibility is important, SPG Flights makes Starwood points even more flexible. The annual fee on this card is $45 and you’ll earn double points for eligible charges at Starwood Hotels and Resorts, which includes room rate, in-room movies and food and beverage charges.
American Express and Diners Club both offer credit cards with points that can be transferred into numerous loyalty programs and redeemed for merchandise, travel and other awards. If you are choosing one of these programs over the other, be sure to look at their partnerships. American Express partners with 22 airlines, including Continental, while Diners Club partners with American Airlines and 19 other airlines. Both partner with Delta and Southwest whereas United, US Airways and Northwest do not participate in either program. One drawback to these two cards are their high annual fees. The Diners Club Professional card and the American Express Preferred Rewards Green Card both have a $95 annual fee. But in exchange for the fee, you can use earned points for virtually anything. Diners Club frequently offers transfer bonuses and members can receive up to 50 percent more miles for transferring points into miles with a partner promotion, such as the recurring British Airways offer with which Diners Club members receive an additional 50 percent miles when transferring points into Executive Club. One Membership Rewards member says he likes the “wide acceptance and the ability to transfer points to different programs, or use them for non-travel related items.”
Low or No Annual Fee
If you’re looking for an affinity credit card with a low or no annual fee, you’re best bets are either an airline debit card or a hotel-branded credit card. Most airlines offer a mileage-earning debit card for a low annual fee somewhere between $20 and $30. In exchange for the low fee, however, you’ll only earn half as many miles for your purchases. The basic debit cards offer one mile for every two dollars spent on the card and come with very few perks, but if you want to earn a few miles or keep your account active with a minimal investment of cash, debit cards can come in handy. You will, however, need to open an account with the issuing bank so you’ll want to research the terms and conditions of the bank’s checking account policies before deciding whether a debit card is your best option. Northwest WorldPerks Visa Check Card offers the lowest fee for a debit card at $20 a year.
If you’re looking for a few more perks but still want to keep your annual fee low, Hilton HHonors Visa has no annual fee and comes with Silver VIP status. You’ll earn six points per dollar spent at Hilton hotels, three points per dollar spent on supermarket, drug store and gas station purchases and two points per dollar spent everywhere else. One cardmember says, “I have enough airline miles so using a credit card that earns additional airline miles makes no sense. In my opinion, hotel points are much more valuable than airline miles. I’ve had the Hilton HHonors card since 1994 and although I do not charge all that much (less than $15,000 a year), I have earned well over 600,000 points using the card. I’ve earned points for a free week in Paris, three free weekends in New York, a three-day weekend in Reno and three free nights in Atlanta and Orlando. The value speaks for itself. In addition I get free Hilton HHonors VIP status, which provides added points and other benefits. You can do the math, but to me it’s a no brainer.”
Another low-fee card to consider is the Marriott Rewards Visa Signature card, which has a modest annual fee of $30 and comes with a 10-night elite status credit, three points per dollar spent at Marriott and one point per dollar spent on other purchases. One enthusiastic Marriott member with the Premier Visa ($65 annual fee) told us, “The Marriott card is fantastic. I use it for everything, pay the bill in full each month and get five points for everything at a Marriott hotel, two points for all restaurants and one point on everything else. I have used points frequently to stay at luxury hotels in Paris, etc. Also being a Marriott Gold member I can get multiplied benefits for using the card in addition to the points for the actual stay.” The IHG Rewards Visa Signature offers a competitive $29 annual fee, automatic upgrade to Gold, three points per dollar spent at IHG hotels and one point per dollar spent everywhere else. Some international programs waive the annual credit card fee for their highest-level elite members. Lufthansa Senator or HON Circle Status members can acquire a Miles & More Gold credit card for no annual fee. Frequent Travellers receive a reduced fee of 62 euros, compared to the normal price of 85 or 95 euros. The annual fee for the EuroBonus MasterCard and EuroBonus Diners Club card are waived for the highest tier Gold members, Silver members receive only the first year free.
Frequent flyers looking for a boost to elite status should consider one of the many credit cards mentioned in the above section that offer elite qualifying miles. The cards that offer EQMs tend to be at the higher end of the fee spectrum, around $100 to $150 per year or more, and you’ll need to spend at least $25,000 annually on the card to earn EQMs. But considering non-elite members are subject to many fees that are waived for elite members, the cost of an EQM-earning card could be worth it. Checking two bags roundtrip will cost you between $80 and $130 these days, about the same as the card’s annual fee.
Credit cards and the ability of members to earn EQMs with credit card spending have had an impact on the way in which members reach elite status. Instead of a mileage run at the end of the year, members can do all of their holiday shopping with an EQM-earning card and earn the last few miles to elite without having to get on a plane. These cards have also put elite status within reach of many flyers who would have never joined the ranks of elite. A frequent flyer who averages 16,000 miles per year can now earn an extra 9,000 miles with a credit card and enjoy the benefits of membership without any additional flying. Road warriors who earn elite status solely through flight miles, however, have raised some concern that the increase in elite members achieving status partly through credit card spending dilutes the benefits of membership for those reaching status with butt-in-seat miles.
A few airlines offer lounge access as a benefit of card membership, although the annual fee on these types of cards can be pricey. The American Express Platinum card offers access to major airlines’ airport lounges, including participating American Airlines Admirals Club, Continental Airlines Presidents Club, Delta Crown Room Club and Northwest Airlines WorldClubs lounges. The $450 annual card fee is steep, but it’s comparable to the yearly fees charged by the airlines for lounge membership. One benefit of the Continental Airlines Presidential Plus World MasterCard ($375 annual fee) is a Presidents Club membership for as long as you carry the card and the Delta Air Lines Reserve credit card ($450 annual fee) comes with Crown Room Club access for cardmember and two guests. TAP Victoria Visa Gold card comes with airport lounge access in Portugal, even when traveling in coach. Only members living in Portugal, however, can apply for the card. Jet Airways Citibank cardmembers receive complimentary lounge access, in addition to flight upgrades, depending on the type of card.
One Word: Plastic
Of course, we don’t know anyone who is just carrying around one credit card and most travelers we spoke to maximize the value of their credit cards and programs by carrying several cards. In our research, we found that only 30.9 percent carry only one miles/points credit card. The majority carry more than one and 23.3 percent say they have four or more affinity credit cards. One Alaska Airlines Visa Signature and Delta SkyMiles AMEX platinum cardmembers says, “I use different cards for different reasons to accumulate miles/points. When a card offers a special incentive such as Discover card’s five percent rebate for hotels and gas in September, I tend to use that card.”
To further help you decide which card best suits your needs, we’ve compiled a list of miles/points credit cards with information about each card’s APR, annual fee, earning ability and bonuses at http://insideflyerus.wpengine.com/link/?1240