Financially Fit: Credit Cards Rewards and Perks


Disclaimer: The advice provided in the Financially Fit series is general advice only. It has been prepared without taking into account your objectives, financial situation or needs.

Last week, Nick (CPA, MBA, CFA level 3 candidate and all-around finance guru) and I talked credit card basics. This week, we’re diving into how to make the most of your plastic with points and rewards.

Rewards programs and points can be very valuable when used right – but they can also entice us to spend more than we should. In fact, when rewards programs started hitting the spotlight, people who used them often increased their spending habits. But you won’t do that, right? Say it with me – less is more, less is more.*

*Note: this statement is true for most things, unless you are going to buy something like a boat. Then by all means, do. Invite me. I’m fun.

Q: What are the best credit cards for every day?

When looking for the right credit card, I like to think about where I spend most of my money and then find the best credit card for that particular purpose. This exercise will lead many people to both groceries and gas stations.

American Express Blue Cash Preferred Card

Rewards/Signup bonus

  • 6% cash back at grocery stores (up to $6,000)
  • 3% cash back at gas stations
  • 1% cash back everywhere else
  • Earn $150 cash back if you spend $1,000 in the first three months

Annual Fee

  • $75 (American Express often runs specials waving this fee for the first year)

This card is the end-all, be-all of grocery store cards. Nothing else offers anything close to the six percent savings provided by the Blue Cash Preferred. On top of this, the three percent offered at gas stations is also tops in the industry.

Since grocery stores are the real money-maker here, I want to give a few additional details/tips. What is or is not a grocery store is determined by how the company originally registered with the credit card company. This means you can sell groceries (Target or Costco) but not qualify as a grocery store for rewards purposes. This is important to note if you don’t do most of your food shopping at traditional grocery stores. At the same time, there is no restriction on what items you can purchase at your local grocery. Not only am I getting six percent off my normal groceries, but now I’m also saving six percent on adult beverages. Does your grocery store sell gift cards? If so, then now you’re getting six percent of your latte at Starbucks and panini at Panera too!

The $75 fee may make some of you nervous, but let’s look at the cost/benefit analysis. First off, if your fee is waived the first year and you receive the $150 signup bonus, you have successfully removed the annual fee for three full years. At six percent cash back, you will only need to spend $104 per month at your local grocery store to pay for your annual fee. You then get to enjoy earning rewards on all your remaining purchases at 2x the rate of the nearest competitor card.

Honorable mention: Citi Double Cash Card (2% cash back everywhere with no restrictions)

Q: What are the best credit cards for hotels?

When it comes to hotel or airline cards, things can get pretty complicated. If you’re not already committed to a certain hotel program or have some special connection to a particular chain, I think I have the card for you.

Starwood Preferred Guest American Express (Promise I don’t work for American Express, but I am happy to refer you and get extra bonuses for spreading the word) …

Rewards/Signup bonus

  • Receive 4 Starpoints per dollar spent at Starwood properties (up to 5 if you have certain status).
  • Receive one Starpoint per dollar spent everywhere else.
  • Receive credit for two stays and five nights towards qualifying for gold status
  • Earn 25,000 Starpoints if you spend $3,000 in the first three months

Annual Fee

  • $65 (waived for the first year)

Other considerations

  • 1:1 transfer to any frequent flyer program with a 25% bonus anytime you transfer over 20,000 points
  • Uber/Starwood partnership
  • Additional benefits coming in August 2015.

As I said, points programs can be confusing at times so I will try to simplify it into dollar terms. The Points Guy does a fantastic analysis to determine the actual dollar value of several airline and hotel points based on factors such as redemption value, redemption availability and transferability of points. He determines the average value of a Starwood point to be 2.4 cents, the highest of any program. Think of this as earnings 2.4% cash back on all of your purchases (and 9.6% cash back at Starwood hotels). This values the signup bonus at $600 (enough to cover nine years of annual fees). If you are patient and creative when cashing in your rewards, there are opportunities to earn even more. The sample test performed here found a hotel valuing the points at up to 7.0 cents. That values the signup bonus at $1,750 (enough to cover 26 years of annual fees).

On top of direct hotel rewards, the Starwood program allows you to easily transfer your points at 1:1 to any frequent flyer program (plus an extra 5,000 points for every 20,000 transferred). Now your hotel card has also become your airline card.

When enrolling in any rewards program, it is important to maximize your ability to earn points. Starwood recently announced a partnership with Uber allowing you to earn one Starpoint for every dollar spent on the car service. If you pay for your drive on your Starwood card, you’re now earning a 4.8% discount on all of you Uber rides.

Lastly, Amex has announced additional benefits coming to the card in August 2015. These mainly include: no foreign transaction fee, unlimited Boingo Wi-fi at over one million worldwide hotspots, and free high speed internet at all Starwood properties. These will add $30 to the annual fee, bring it to $95.

I know there’s a lot covered here, but if you spend smart and double-up your points where possible, you’ll be on your way to scuba lessons with Claude at your beach resort sooner than you think.

Q: What are the best credit cards for travel?

Now that Starwood will be removing their foreign transaction fee of 2.7 percent, my hotel card is now my travel card as well. Previously, I would have suggested the Southwest Rapid Reward Card for its easily understood rewards, no blackout dates and no foreign transaction fee.

Q: What are some tips and tricks for making the most out of cash back and other rewards perks?

It’s all about finding ways to enhance your returns or double your earnings through either additional programs or smart spending. Going back to my earlier example, there are no credit cards out there allowing me to earn six percent at Starbucks. But by buying gift cards at my local grocery store on my Blue Cash Preferred card, now I can. The Starwood and Uber program is a great example of doubling up on spending you were already doing. Maybe you spend a lot in very niche categories. If so, I bet there is a card out there for you to maximize your rewards.

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About Cass Gunderson

Cass hails from the southwest suburbs as a proud White Sox fan and a graduate of University of Illinois. By day, Cass is a full-time student at the University of Chicago's Booth Graduate Business School. Before deciding to throw away all her money to go back to school, Cass worked for a private equity firm that buys technology companies. Raised as the youngest in a family of older brothers, Cass grew up a tomboy and remains active in sports. To her mother’s satisfaction, Cass learned how to embrace her feminine side in college and has developed an interest for fitness activities that require spandex as opposed to knee-length basketball shorts. In her spare time, she runs a lot because it is cheaper than paying for real therapy. Cass has completed four marathons and one ultramarathon (she claims she'll never do this to herself again, but that's TBD). She can still be found on the basketball courts in Lincoln Park wearing knee-length basketball shorts.

3 thoughts on “Financially Fit: Credit Cards Rewards and Perks

  1. nick you are an evil genius for that starbucks gift card trick and i love you for it

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