Thoughts on Frequent Flyer Credit Cards
Tip It!A comment on my recent post on Emigrant Direct’s new and improved reward credit card got me to thinking about credit card rewards and frequent flyer miles. In general terms, I’ve always valued frequent flyer miles at around a penny apiece — I typically pay around $250 for a roundtrip domestic ticket (give or take), and they usually require 25k miles. Since most cards give you a mile for each dollar charged, that works out to a 1% reward, which is pretty standard stuff as far as credit card rewards go.
However, a number of mileage cards charge an annual fee, and you can’t always get the flights that you want (due to both blackouts and limited availability). Thus, mileage rewards really aren’t all they’re cracked up to be… As another commenter said, cash is king. That being said, I’ve recently had fleeting thoughts of switching to a mileage card, but for kind of a weird reason…
We live quite a distance (over 900 miles) from family and we pretty much always end up driving to visit them. The main reason for this is that we have four kids, and it just costs too much to fly. Sure, I could put the money we earn from our credit card rewards toward plane tickets, but even with ‘found’ money of this sort, I have a hard time bringing myself to part with such a large amount of cash when we could reasonably (albeit somewhat uncomfortably) drive. On the other hand, if we had airline miles instead of additional cash, I wouldn’t have a problem putting them toward free plane tickets — after all, that would be our only option. I know, I know… This doesn’t make all that much sense, but sometimes that’s how my head works.
Published on March 30th, 2006 - 11 Comments
Filed under: Credit Cards
About the author: Nickel is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!
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11 Responses to “Thoughts on Frequent Flyer Credit Cards”
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March 30th, 2006 at 2:32 pm
Nickel, this is like the bank that takes the remainder of the dollar and puts it into your savings account every time you charge something with your ATM card so that every purchase comes out to an even dollar amount. It is like enforced savings.
If that is what it takes, then of course go for it. I think it would be silly though; you’ll get more back from a cash rewards card, and you can create a subaccount in ING or something of that sort to track it.
Or, you could look into taking a train. 900 miles with four kids on a bus would be too rough, I think.
March 30th, 2006 at 2:58 pm
How about asking family to come visit you?
I find that mileage programs aren’t worth it. I’d have to charge $25,000.00 to get a free ticket. If I charge $1K each month, it would still take me 2 years to save enough miles for a ticket. So I’d rather just have a cash back reward card and buy a ticket when I need it.
Just think, airlines don’t pay interest on your banked miles. Plus they can change the number of miles it takes for a free ticket at anytime. So ‘inflation’ might not make it worthwhile.
Just start hosting holidays at your house instead!
March 30th, 2006 at 3:38 pm
I thought I was getting a great deal when I signed up for the AAdvantage card from Citi.
I travel fairly frequently, and figured I could use the miles accrued to take vacations.
The catch is that there are blackout dates on the miles, so you have to be fairly flexible if you intend to use them. The miles are almost worthless if you want to leave after 6pm on a Friday and have to be back by 9pm on Sunday.
The card has some pretty stiff annual fee’s too, so I’d stay away and look at a card that offers no blackout dates and no/low annual fees.
-Grant
http://www.TheCornerOfficeBlog.com
March 30th, 2006 at 10:14 pm
That’s assuming that you don’t have a card like the Chase Rewards Plus Visa. You can earn 5 points for each dollar that you spend on gas, groceries and things at the drug store. You can redeem your points for airplane tickets, or you can choose to get cash back. Either way, it’s still a better deal than a frequent flyer card. If, on the other hand, you’re like my mom, you could wait for Chase to send you a special offer on the United Visa and get 10,000 bonus miles just for opening a new account. I think she applied for 5 cards using her name and my dad’s name. It’ll hurt her credit score, but she thinks it’s worth it because it’ll give her enough miles to visit the grandkids.
March 31st, 2006 at 8:31 am
A great miles card is the American Express Starwood Preferred Card. Annual fee- $30, generally waived for the first year, and worth the money any year.
You can transfer starwood points into ‘real’ frequent flier miles on a 1 to 1 ratio into twenty-six airline frequent flier programs. You can start transferring at just 2,500 miles. Then, the offer really gets great…. For every 20,000 SPG points you turn into miles, you will receive a 5,000 mile bonus. So you are essentially earning 1.25 miles per $1.00.
Plus, it comes with:
* Buyers Assurance Extended Warranty
* Purchase Protection
* Return Protection
* Best Value Guarantee (BVG)
SOURCE: Fatwallet.com
March 31st, 2006 at 3:17 pm
As a rule of thumb I don’t use any rewards card with an annual fee, just doesn’t make sense to take on the risk of not getting your money back – there are just too many other no fee rewards cards out there.
I currently have 2 primary no fee rewards cards – a Chase cash back rewards card and an AmExp HHonors card that pays 3 Hilton points per dollar (or 5pts/$ on certain categories). I mix my use of the 2 depending on what I’m buying and what the reward is.
March 31st, 2006 at 3:25 pm
Well I’ll repost what I posted earlier and add a few more reasons to my dislike for Airline Miles cards:
1. Hidden inflation – each year, depending on the airlines, the number of miles needed seem to go up. Last year 20,000 this year 25,000 next year 30,000, etc
2. Dreaded blackouts – What’s the point of miles if you can’t use them during the holidays?
3. Bankruptcy – Most airlines are near bankruptcy – what’s going to happen to all those miles after bankruptcy?
4. Liquidity – Let’s face it, cash is king and that can buy ANYTHING – why stick to miles that can be used for only one thing on one airline?
5. Free isn’t free – Yup, you’ve earned a “free” flight from your hometown over to Disney world and you’ve got all those miles but guess what: it doesn’t cover the new “fuel surcharge fee” or “department of homeland security fee” or “taxes & other fees” so you still end up paying an extra $90+ on your “free” ticket.
6. Taxation – there’s been periodic talk on Capital Hill about charging taxes on Frequent Flyer miles as “income” – As the deficit gets bigger this will become a juicy target. Cash-back credit cards are treated as “rebates” and do not count as income.
7. Seat availability – At last report there were over 1 trillion frequent flyers miles out there waiting to be cashed – the more credit cards that offer this perk the more crowded the sky gets with people wanting those seat – you are competing against everyone else for limited seats but thanks to the federal reserve there is an unlimited supply of cash floating around now – get your piece.
Seriously folks, I’ve been doing the reward card thing for over 10 years and I’ve had them all – cash, air miles, merchandise, rebates, discounts and the best one so far has always been CASH.
March 31st, 2006 at 9:25 pm
I had a FF card for several years and was able to get a few free flights for family. About 4 years ago I switched to cash back. The offers on the cash back are much better as the previous commenters explained.
Perhaps the answer is something in the middle… Citi’s PremierPass gives you 1 point for every $1 charged and 1 point for every 3 miles flown on all tickets charged to the card (you still get the miles from the airline too!) Domestic tickets on any airline start at 25,000 points plus taxes or you can get statement credits (about 1/2 cent per point). While not perfect, I was (stupidly*) considering the card because I fly about 120,000 miles per year. The 1 point for 3 miles flown would get me 40K points. Tacking on charges of around $25K/year means enough for two domestic tickets. (*I say stupidly because I have more miles than I know what to do with. I guess I think of the mileage statements like my brokerage statement – I gain satisfaction from seeing an increasing balance.)
April 3rd, 2006 at 5:22 pm
I’d like to second the comment about the Starwood Preferred Guest card from American Express. I think this card is better than an airline card, and better than cash back.
The card gives you 1 Starpoint for every $1 you spend. There can be converted to airline miles on all major airlines at a ratio of 5 miles for 4 points.
But the real savings is when you use them on hotels. Hotel prices are skyrocketing right now. Take Hawaii. A room at the Westin Maui during the summer can cost upward of $500 per night (factoring in the 35% off you get just for being a Starwood Preferred Guest, which is free). But it’s only 10,000 points. So, to save $500, you need to spend $10,000. You’d need a 5% cash back (on everything) card to equal that. The points are good at Westin, Sheraton, W, St. Regis, Le Meridian, and Four Points hotels. You can use them pretty much wherever you are going. There are no blackout dates.
July 24th, 2006 at 3:00 pm
Frequent Flyer Credit Cards are great if you travel to expensive locations. I use the AAdvantage card from Citi and never had a problem. I only use free tickets for tickets over $500. I travel to the Carribbean every year and tickets can range up to $1000. A free ticket is 30k miles for the Carribbean.
Plus, there are other miles to collect free miles without charging or flying. Try doing surveys or other inventive ways to gain free miles. Tickets come faster than you think if you search the web for some promotions.