A New Deck of Cards
If you are one of those who has grown frustrated with frequent flyer program changes, it may make more sense to change the credit card you use, not the airline you fly, to help remedy your frustration. Keep this in mind when choosing between a mileage card and a cash back card. Some say that cash will earn you interest, but the miles will always depreciate. But our comparison finds that a one percent cash back bonus isn’t much of a perk when you’re paying 18 percent or more in annual interest.
When the new Delta SkyMiles program is finally completely merged with Northwest WorldPerks, it will take off with a different type of plastic in nearly half of its members’ wallets. Thus is a scene in the latest installment of “credit card wars,” which has sprung up against a backdrop of credit woes, lowered spending limits and a possible Presidential intervention on a credit card bill of rights. All this, and to think that all the millions of members of frequent flyer programs really want from their credit card is a free flight to somewhere.
We’ll take a look at the U.S. Bank/American Express credit card choices for WorldPerks members, lay out some basic rules for any reader who may be deciding if they need a new credit card and will continue next month by taking a look at the cards other travel experts seem to prefer and much more.
When U.S. Bank and American Express faced off to determine the future credit card partners for the merger bound Delta SkyMiles program, we wrote that it was likely that American Express would win this variation of the “cola wars.” Fact is, American Express seldom blinks, and while we have grown fond of the newly “reinvented, rejuvenated” WorldPerks Visa and thought they might have had a chance in the debit and mortgage financial services area for SkyMiles, we were pretty sure what the outcome would be. And it’s likely that U.S. Bank cringed at the possibility of signing over their TARP funds check to SkyMiles–and decided to let American Express do that. This scenario sets up a “pause and compare” for the nearly one million WorldPerks Visa cardholders who are now struggling with the idea of either a new name in their wallet–FlexPerks–or an American Express card emblazoned with the SkyMiles logo. It’s been a long time (1994 to be exact) since WorldPerks members had a credit card choice to make and this one shows all the signs of a classic turf war.
Current WorldPerks U.S. Bank cardholders are being asked to earn points toward free flights on over 150 airlines with no blackout dates or award ticket redemption fees with the new U.S. Bank FlexPerks Travel Rewards Visa cards. New FlexPerks cards are now arriving and have the same credit card number, so no application is required and automatic bill payments should continue uninterrupted. While similar to other bank-issued travel rewards credit cards like Capital One and Citi Premier Pass, FlexPerks Travel Rewards cardholders will earn one FlexPoint for each dollar spent on their new card and automatically earn double FlexPoints for what they spend on gas, groceries or airline purchases–whichever is highest for the customer during the month. In addition, double points are earned on most cell phone related charges. Awards start at 20,000 FlexPoints for airline tickets on more than 150 airlines, including Northwest AND Delta Air Lines. A small but delightful surprise comes with each redeemed award ticket and that is a credit allowance of up to $20 for possible baggage fees or in-flight food or beverages. Cardholders also have the choice to redeem their FlexPoints for gift cards, merchandise, travel certificates or even statement credit. Current U.S. Bank debit card products will transition to FlexPerks this summer allowing cardholders to combine their FlexPoint earnings from both credit and debit card purchases.
In the war to own WorldPerks members’ wallet share for credit cards, there has been some trash talking. American Express was very aggressive in referring to the FlexPerks product as a “generic travel card,” which “will have no relationship with Delta or Northwest and will not provide you with the benefits you have come to expect.” We wouldn’t be surprised if there are “generic travel card” t-shirts being proudly worn around the headquarters of U.S. Bank as Delta Air Lines further raised the bar by suing U.S. Bank saying that the move violated long-held agreements and that the name FlexPerks was too similar to WorldPerks. While we can’t say we disagree (though we do love the wink at American Express) it has been resolved in a highly unusual manner. Originally WorldPerks Visa cardholders were going to be able to continue earning WorldPerks/SkyMiles miles from their credit card purchases through Aug. 22, 2009. That is being shortened by two months with cardholders earning both FlexPerks points and WorldPerks miles for their charges with either card for one month only, likely this month. After that the WorldPerks Visa becomes invalid and those choosing to remain with the U.S. Bank product will enjoy a head start with FlexPerks.
But those members choosing to move to the Delta SkyMiles American Express card are enjoying competition at its best with new offers almost daily (35,000 bonus miles being somewhat standard). The question WorldPerks members face is whether to be loyal to U.S. Bank or loyal to the frequent flyer program.
A short comparison
Both cards can earn free travel, merchandise options, hotel stays, car rentals and gift cards, depending on the member level you have with Northwest WorldPerks or Delta SkyMiles, and of course, which options you decide to use with each card.
The “generic” credit card FlexPerks pros:
You have more airlines to choose from than the current and future Delta SkyMiles program, which means more choices for free tickets.
The $20 airline allowance when redeeming an award.
Double FlexPoints on preferred spending (select cards)–important.
There is no reason to change cards, worry about spending limit reductions or card acceptance by moving to American Express with SkyMiles.
Ability to earn free travel is based upon how much you spend with this credit card.
No cash-back options.
No ability to combine these “points” with actual airline miles for elite-level and other types of bonus opportunities.
FlexPoints will expire five years from the end of the calendar quarter in which they were earned (no extensions).
Credit card points cannot be used for upgrades.
The “affinity” SkyMiles pros:
Credit card miles can help earn elite-level status that is good for upgrades and even special security lines at the airport.
Credit card miles can be combined with other types of miles earned in the program toward reward redemptions of all types.
You get miles with the world’s largest airline through the merger with Northwest Airlines, featuring domestic partnerships with Alaska Airlines, Continental Airlines, Hawaiian Airlines and Midwest Airlines. As well, they have 12 continuing foreign airline relationships in the SkyTeam Alliance.
With Pay With Miles, there are opportunities to redeem at lower levels than other credit card programs. This feature allows Gold, Platinum and Reserve cardholders to book Delta/NWA flights with no blackout dates or inventory restrictions on delta.com. Cardholders can use miles like cash to pay for any seat, anytime. The feature also allows cardholders to use miles to pay for all or part of their trip, with redemptions starting at 10,000 miles for $100 off the cost of a flight–essentially every mile you have is worth one cent.
Miles expiration can be extended with activity to the account on a regular basis.
Credit card miles can be used for “flight upgrades.”
Fewer airlines from which to choose award travel.
There are capacity controls and other restrictions on some awards.
There are program adjustments on what seems like an annual basis.
Some cards have caps on the number of miles cardholders can earn from spending.
So, without getting too technical, this is a basic comparison between the two types of cards. Whether with FlexPerks from U.S. Bank or other types of cards from Capital One or Citibank, the comparisons are always similar with the more “generic” cards having greater flexibility with airline choices, and to some degree, better value at some award levels. But, they fall short when compared to actual frequent flyer miles for elite level and other upgrade benefits, such as preferred security lines at the airport, and of course, their more strict expiration policies.
For the general traveler, we see greater value for them to continue their card relationship with U.S. Bank (we’re sure they have more features coming to that card). But for the high flyer, we think the SkyMiles credit card is the better choice. For example, a first class ticket to Asia might well cost $8,500 in normal travel times. If you purchase the ticket with miles, that would require you to spend nearly $500,000 with U.S. Bank. With Delta SkyMiles, that award, if only using credit card miles for the purchase, would be available after spending approximately anywhere from $120,000 to $370,000. And far less than this when combining with other miles from your account.
The bottom line for any decision is based upon what is best for you. Both options are better than not getting any rewards at all for your spending habits.
The Choice is not Always Clear
And while you might have experienced or at the least heard of stories of frequent flyers having their credit card limits reduced, and thus causing a major impact on annual mileage accumulation, you might want to start checking your mailbox twice a day. Because things are returning to normal, and chances are, your mail box is overflowing with credit card offers. But how do you know what’s right for you? If you are like others and are confused by the dozens of credit card choices available to you, then we suggest you disregard all you read in advertisements–these are too general and not targeted to your specific mileage or points needs. Your choice must be specifically tailored to what’s best for you.
Choosing a credit card can be daunting. Advertisements gush about “earning free travel” and “20,000 mile bonuses.” If you were to believe everything you hear and read, you would probably be convinced that there are dozens of credit cards, all touting great, yet similar, rewards. Upon closer inspection, however, you would find that not all credit cards are created equal. Most will satisfy your basic desire to earn bonus miles and points with each purchase, but it is a very, very rare credit card indeed that meets all of your demands when it comes to flexibility, acceptance, benefits and fees.
The changes to the credit card landscape have been sweeping, such as the ability to actually earn elite status from credit card purchases (Delta Air Lines Reserve credit card) and the role they play when airlines merge (Delta/Northwest, America West/US Airways) and we do believe more airlines will merge by year’s end. In days gone by, the viewpoint was to open up your wallet and put the scissors to any card that had the name of an airline on it–they were most apt to feature high interest rates and annual fees. However, as we said, the landscape is changing and more often than not nearly all of the most rewarding credit cards have annual fees of none to $50 annually–a far cry from the standard of $75-125 just a few short years ago. Consequently, there’s never been a better time to audit your wallet and make sure you have the best plastic.
One of the most basic decisions every mileage-earning credit card owner must make is whether or not to choose an airline specific card vs. a hotel specific card vs. a “banked” credit card vs. a non-affinity card and all that is before we get to determining whether it’s smart to go “credit” vs. “debit.” Or, as much of the world seems to be leaning these days and if we were to follow the advice of other travel experts (you have to know where we stand on this!), a cash back card. The arguments for and against various cards generally take the following form: Cash back cards will earn you interest–and mileage cards, if you can ever find an award seat, keep depreciating. As for debit cards? Who would ever want to pay a debt without playing the float?
When you are buried in debt, choosing a credit card is typically a question of finding the one with the lowest interest rate–not one that has a rewards program. After all, a one percent cash back bonus isn’t much of a perk when you’re paying 21 percent or more in annual interest. Which is why changes to these mileage-earning cards are so welcome. Most can be leveraged for no annual fee with a little “card talk.” And as for rewards, when properly managed, nothing comes close to leveraging the value of a reward to its highest level of value.
The biggest mistake? Using the wrong card and not clearly understanding all of its conditions, which can cost you more than the card gives. Reward cards have all kinds of pitfalls and here’s seven things to consider when auditing your wallet:
Limits: Various cash back and mileage cards have annual ceilings on how much you get back or earn. Make sure you don’t find yourself spending for nothing.
Annual fees: Make sure annual fees won’t exceed your rewards.
No room at the inn: Frustrated with award redemption? Don’t feed the program that provides that frustration. Yes, some programs are far better at making airline seats available than others.
Thresholds: If you believe that a cash back or other type of rebate card is best for you, make sure you know how much you will be required to spend before your rewards begin.
Complicated: Some of the high value rewards cards can be complicated to master (redemption in precise increments), so make sure you have the time and patience to “manage” whatever program you choose.
Narrow bonus categories: Sure, double miles/points for gas and groceries may sound great, but do you really know if you spend a significant amount of money for those items on an annual or monthly basis?
Fees: Okay, you’ve earned a ton of miles or points and now comes redemption day. Make sure you understand what a “free” award will cost you before that day comes. Maybe there’s better value with another card.
Let’s look at some options available to you.
“Banked” credit cards
The staple of business travelers, the American Express card, was actually a latecomer to the world of miles and points. When frequent flyer programs were born in the ’80s, the venerable AMEX struggled as card holders said goodbye to their old standby and jumped to Visa and MasterCard for their 1-to-1 miles to dollars programs.
Enter Membership Rewards. Originally called Membership Miles, the program we now know as Membership Rewards was launched in 1991. By 1995, the credit card magnate had joined forces with Hilton to offer a card, and the following year it branded itself with Sheraton. The original Sheraton card is now the Starwood Preferred card. The first Delta SkyMiles AMEX card was introduced in 1996, and later that year American Express introduced a Gold card. By 1999, it brought on the Platinum.
To help draw new cardholders and to keep others from jumping ship in this highly competitive arena, American Express can rightly claim the most comprehensive program in the marketplace with a benefit or option for just about everyone. And they recently reinstated one of their most popular features by offering to double the “bank” on everyday purchases at most grocery stores (not the big box club stores) and gasoline stations until March 15, 2010. This time, registration is required to earn the double Membership Rewards points.
Diners Club, the happy result of a misplaced wallet at a business meal in 1949, was the first relationship-marketing program in which members were both recognized and rewarded for their loyalty and its Club Rewards program, started in 1984, features a relationship with MasterCard and continues to allow members to convert points into miles with all frequent flyer and hotel loyalty programs, often featuring double redemption rates with select airlines.
While Club Rewards invented the idea of a credit card ‘bank,’ allowing members to choose which frequent flyer program to convert their spending rewards into, both Club Rewards and American Express Membership Rewards get plenty of competition these days from hotel credit cards that allow a similar banking choice. Prominent among these are the Starwood Preferred Guest American Express card which has become the ‘hip’ choice among frequent flyer insiders (a three-time Freddie Awards winner) providing flexibility at a low (how’s free for the first year?) annual fee.
A “banked” credit card is one that allows multiple transfers of earned miles or points to other travel loyalty programs.
Here’s our advice in a nutshell: Be careful. The value of miles earned on non-affinity cards is limited to the rewards offered by the credit card company itself–in other words, they are not transferable to any airline or hotel program, and as a result, cannot be pooled with miles earned by flying and generally cannot be used for upgrades. Familiar among these type of cards are those issued by Capital One, Wells Fargo, Bank of America, Citibank and U.S. Bank. The major drawback to these types of cards is that most of these programs place a cap on what they’re willing to spend on free tickets. If the cost of a ticket exceeds their $500 cap, you may have to pick up the difference. Of course, many of these cards have no annual fee, which seems attractive on the surface. But again, the difference between their cap and the cost of the ticket may easily be larger than the annual fee for a true affinity card. And you thought frequent flyer programs were the worst when it comes to changing the rules? Ask any long term cardholder of Capital One or Citibank Premier Pass to find out what’s left in their wallet.
Bottom line: If you, like most hardcore frequent flyers, prefer upgrades and the perks associated with elite-status, you’re simply better off with a true frequent flyer or hotel rewards affinity card.
Debit cards are a sound alternative for the consumer who either cannot qualify for a credit card or chooses to avoid using a credit card. The debit card bears a Visa or MasterCard logo and offers its holder the convenience of a credit card. Of course, the debit card subtracts money from your checking account and, therefore, allows you to spend only what you already have (actually a really good idea).
Why debit cards? Actually, Visa recently announced that spending on Visa debit cards in the U.S. has surpassed credit for the first time in the company’s history. Consumers are increasingly turning to debit cards for non-discretionary purchases, or everyday spending. As of March 2009, approximately 52 percent of debit volume was for non-discretionary items like food and clothing in the U.S. The top categories for Visa debit usage include bill payment, gas, groceries and quick service restaurants. Visa research shows consumers have a growing preference for using debit in new merchant categories like dry cleaners, gas/service stations, movie theaters and convenience stores. Now do you understand why many credit cards are offering double miles and points for these same categories?
Continental partnered with Chase in 1999 to offer the first co-branded affinity debit card. Since then, the offers have come fast and furious, and today there are at least 10 from which to choose. Alaska Airlines, American, Continental, United and US Airways each offer at least one version.
Before jumping on the affinity debit card bandwagon, you must have an account with the issuing bank. You’ll want to know if that bank is appropriate for your needs. Are its terms and conditions acceptable? Are there local branches? And is it worth jumping through the appropriate hoops to start yet another checking account?
The most tangible drawback in terms of earning ability is that debit cards generally earn about half the miles of a credit card. Unless you’re willing to pay extra fees for a “premium” classification, you can expect to earn one mile for every two dollars spent. The Premium Citibank AA Debit card and the Chase Debit Preferred and Business cards all offer a full mile per dollar spent, but they’ll also set you back $65 a year in fees, not unlike a normal credit card.
Consider: If you spend $5,000 a year on your debit card and the base level of a flight award is 25,000 miles, it will take you 10 years to earn a free ticket (at earning half the miles per dollar spent). By that time, you’ll have paid $25 to $30 a year and that “free” ticket will have quietly cost you $250 to $300 dollars. However, most people using a debit card see it as the equivalent of writing a check and if you can earn miles for writing a check, you’re way ahead of the game.
Obviously, by itself, this hardly seems to be a good deal. But if you’re earning miles by flying or other activities, the debit card may be just the thing to pad your mileage account.
Larger sign up bonuses: In years past, the Chase Visa card from United Mileage Plus offered the typical 15,000-20,000 bonus miles for sign ups. But they and many others are getting very aggressive and now offer 35,000-45,000 bonus miles for acquiring a new credit card. With credit choices being altered by the current economy, banks are willing to bet on the brighter days ahead and are giving those who are frustrated with credit choices a new start. And it doesn’t hurt that the Delta/Northwest merger has put a fire under the customer capture game for current WorldPerks members, even those who may not even have the current U.S. Bank Visa card.
Anniversary bonuses: It used to be that this very nice compliment was only offered by the Alaska Mileage Plan credit card, but now you’ll find thousands of extra bonus miles come your way each and every year you continue with a card.
Free companion tickets: First introduced years ago by the American AAdvantage credit card, this feature has become a standard. Many savvy frequent flyers bank on this one benefit to save them money, since it no longer requires that you purchase a full-fare ticket to take along someone for free. The newer offers include most discount fare classes and even include international destinations. But, if you are like most members, keeping track of these companion tickets is money being lost. Truthfully, do you know how many you are eligible for and if you actually used them all? We know we haven’t.
Elite benefits: That’s right, choose the right card and earn basic elite level benefits. While you’re not likely going to be at the Platinum level, just knowing you have an elite membership will often make award redemption easier for you. While somewhat pioneered by hotel rewards cards, this is now becoming a feature with some airline credit cards. And we are not talking about spending your way to elite with this trend, merely being elite by choosing the right credit card.
Spending bonus: There’s nothing more competitive today than an offer of bonus miles and points with a select set of merchants. And that battle ground is more often these days the Internet. Continental currently features ShopOnePass. When members use their Continental Airlines Chase credit or debit card, they earn twice the miles when linking from continental.com to their online mall of merchants.
Partner bonuses: American AAdvantage Citibank card awarded cardholders a special 7,500-mile bonus for spending with a variety of AAdvantage partners.
Special benefits: There’s no better example of this than the American AAdvantage Citibank card. They have established a special award chart for cardholders entitling them to awards for only 20,000 miles. Granted only select cities apply and those cities change each quarter, but we have found this benefit to be one of the most valuable benefits of any card. Most recently U.S. Bank offered a similar award discount for WorldPerks members which will disappear with the change to SkyMiles.
Elite status: A growing number of programs offer members using specific credit cards miles earned from purchases counting toward re-qualification for elite. While these often have a high annual fee, when you consider that you won’t have to make any late-year mileage runs to Singapore to re-qualify for elite, it’s really cheap.
What’s Right For You?
Your own habits will determine the type of card that works for you. To assist your decision, let’s draw some generalizations–four profiles, if you will, which more or less cover the gamut.
The high-spending, high mileage type: Bill Gates meets Gulliver. These folks spend a great deal every year on travel. Whether it’s on their own dime or a generous company expense account, they rack up the bills. A high annual fee is usually not a problem here, largely because the mileage earned inevitably makes up for any outlay. For this type of traveler, earning caps are out–they’re ridiculous anyway. And since this traveler spends a lot of time and money on planes, it only makes sense to go with a program that gives you double miles on purchases made with the airline.
Most folks in this category have become obsessively good about paying off their balances in full every month, so interest rates are less of an issue. Almost any Platinum-level American Express card will fit the bill. United may currently have the best enrollment incentive, offering a 45,000-mile bonus.
The frugal traveler: These are folks who, by necessity, find themselves in the air often, but are watching every penny. The vast majority of this flyer’s mileage will be earned by traveling–a credit card will simply serve to pad the account.
This flyer needs maximum earning potential on travel purchases, and no earning cap. High annual fees are a concern here, as are high interest rates. When cash flow is limited, paying off the balance every month isn’t always possible, so many of these consumers are going to carry some revolving debt. Translation: watch the interest rates.
If interest rates are your sole criteria, there are many in the non-Platinum categories. Because of competition and market conditions, many have no annual fee for this card and new cardholders get introductory 0 percent APR on both purchase and balance transfers for 12 billing cycles.
The high-spending earth-dweller: Either through good fortune or good business, this flyer deals with hefty credit card bills every month, but just doesn’t get off the ground that often. A free trip to Bermuda would be nice, but travel isn’t necessarily a priority.
Like most big spenders, these folks usually pay off their balances every month, so either charge or credit cards are feasible. And if you’re spending big, you don’t necessarily want to be limited in your earnings, so once again, caps are out. You’re also going to be on the lookout for programs that have multiple partners to increase your spending options. The American Express Membership Rewards or Diners Club Rewards programs are great for this, but then, so are the so-called business cards that many of the airline and hotel programs now offer. Airline, retail and other partners are all vying for your points.
Joe six-pack: Earthbound in more ways than one. Expense report is not necessarily a part of your vocabulary. Still, you’ve got your eye on a trip to Ireland and wouldn’t mind doing it for free. You don’t foresee charging a new Maserati to a card, but you do buy gas and groceries now and then.
You want a low interest rate, a low annual fee and you feel no real need to earn double points on airline purchases because, frankly, you won’t be making many. Earning caps are not a problem and a high enrollment bonus would be nice.
Tip: Visa or MasterCard will likely be more accepted at the places you visit and from time to time pass the plastic.
Of course, not everyone follows a set pattern. Is there a solid, all-purpose card out there? Well, coming next month in Part Two: A New Deck of Cards, a card-by-card comparison of each North American affinity and banked credit card as well as comparing our choices against what three other travel experts seem to prefer and recommend. Those cards: American Express Blue Cash, Fidelity Investment Rewards Visa and the Chase Freedom credit card.