Points vs. Cashback (What level of spend justifies premium card with an AF?)

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MagneticStripes
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Points vs. Cashback (What level of spend justifies premium card with an AF?)

Postby MagneticStripes » Fri Aug 17, 2012 5:31 pm

Currently, I'm using a combination of cashback cards (Amex BCE, Discover More) and one rewards card (Amex Hilton, no fee version). I'd like to maximize my rewards as much as possible, and would be open to a card with a fee if the rewards can outweigh the annual fee. I'm mainly looking at the Chase Sapphire Preferred. From another site, I've found that it looks like the annual level of spend required to cancel out the $95 fee is $7,102, based on a point value of 1.25 cents per point (redeeming for travel on Chase website). I've estimated my current level of cc spend is $5,800 per year; value of current yearly rewards with my cc lineup is around $130. Although other sites do have some of this information, I'm hoping to get some real world information from others here. So my questions are:

  1. In hopes of obtaining a better value than 1.25 cents/point, what is the max value per point that can be reasonably obtained from the CSP, when converting points over to miles with partner airlines?
  2. Does anyone with as low a level of annual spend as mine (~$6,000/year or less) find greater value in CSP or another rewards card vs. cashback, despite annual fees on the cards with greater rewards?
  3. Any other suggestions for a better cc lineup that may yield better rewards?
Essentially, I'm wondering what is the minimum level of yearly spend that would justify a premium rewards card such as the CSP that carries an annual fee.


DavidNY
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Postby DavidNY » Fri Aug 17, 2012 6:20 pm

I'd suggest going for a no annual fee 2% cash back card.

If you want to go for the CSP or other cards just for the sign-up bonuses, that could be worthwhile as long as you cancel or switch to a no annual fee card before the annual fee is due.

murakami
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Postby murakami » Fri Aug 17, 2012 9:00 pm

If you were to only use the CSP for eating out and travel (which are both 2% categories), I calculate the break-even on the AF to be a touch over 3,500 in annual spend between those two (3,500 * 2 points = 7,000 * 1.07 (annual point dividend) = 7,490 * 0.0125 (redemption rate) = 94$).

But then that would only be breaking even and your net reward would be zero; you would really need to spend about 14,000$ a year (in 2% categories) to earn 95$ more than a no fee 2% card. [at this amount, CSP would earn 375$ in rewards, generic 2% would be 280$]

So if the sign on bonus is too good to pass up (and you can spend half your yearly budget in 3 months to qualify), the card might be worth holding on to for the first year then downgrading, but I personally do not see it as being a long term card at 6k in annual spending.

MagneticStripes
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Postby MagneticStripes » Fri Aug 17, 2012 10:17 pm

Thank you for the feedback. I have considered the Fidelity Amex for 2%, but calculated it would only generate about $20 more in annual cashback if added to my current cc lineup, so doesn't seem worth it. I figured the CSP wouldn't really be worthwhile at a very low level of annual spend, but wanted to be sure I wasn't missing a large effective reward rate when utilizing the transfers to airline reward programs.

khad
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Postby khad » Sat Aug 18, 2012 10:16 pm

Dining and travel are my two highest spend categories, so the CSP make sense for me. I never redeem them UR points for less that 1.67 cents since that's what they're worth when transferred to Southwest. They can be worth even more when used with other transfer partners. So at a minimum:

=((travel+dining)*0.02+(other)*0.01)*12*1.67*1.07-95

You can plug that into your spreadsheet pretty easily. Just replace the words with your actual monthly spend. The card becomes even more valuable if you combine it with the Chase Freedom's rotating categories. You can transfer the 5% rewards earnings from Freedom to CSP and then from CSP to travel partners.

Everyone's threshold will be different for cards with an annual fee because they all have different rewards in different categories and no two people spend exactly the same in each category. There's no shortcut other than crunching the numbers for yourself. I have a spreadsheet with formulas for about a dozen or so cards, and I update my spend every month of so to see if switching to a different card makes sense for me. As long as you factor in the annual fees in the formulas, the annual fee doesn't really matter. Just look at the total annual rewards.

With my spending habits, Citi Forward (a no annual fee card) is very close since it's dining rewards (5%) almost make up for its lack of travel rewards, lower redemption options, and lack of annual points bonus. CSP still wins by a nose, plus a get massively better customer service with my CSP card. Direct line. No phone tree. I didn't think I'd care that much about this feature, but it really does make me so much more satisfied with the card.

You're best bet is to search for Ultimate Rewards redemption options which may give you an idea if you should plug a number higher than 1.67 into that formula. Like I said, its the minimum you should be redeeming UR points for. Skip the 1.25 travel redemption they offer. It's better than cash back, but not nearly the best option.

Hope that helps you or anyone else coming across this thread. Cheers!

murakami
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Postby murakami » Sun Aug 19, 2012 12:47 am

I ran some quick scenarios on a flight from San Francisco to New York and one to Tokyo. On the surface, transferring CSP points to miles gives you a better effective rewards rate (the value of which can vary depending on cost of flight, I ranged from 1.3 to 2 cents), it gets a little murky when you consider that redeeming a reward flight with miles will not earn you additional MilagePlus points whereas redeeming CSP points would.

I also happened to pick dates far enough in the future that had Saver Award flights available, meaning that the NY flight would cost 25k miles and Tokyo would be 65k miles - non Saver Award flights are twice the MilagePlus miles.

It is looking like the real value in the transfer of miles would be to top-off your frequent flyer miles to hit the free flight level that you can used for a Saver Award. In my case, transferring 7k points could get me a flight, which at 450$ original cost would be a reward rate of 6.5 cents.

jeffysdad
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Postby jeffysdad » Sun Aug 19, 2012 9:42 am

My annual credit card spending ranges $21,000-28,000/year. Groceries, restaurants, utilities/telecom, pets are my biggest categories (in that order). Gasoline spending is immaterial, and travel varies but is usually modest compared to many people, I think.

The lineup in my signature below was reconstituted within the last six weeks or so and is working well for me so far. The only AF card is the Amex BCP. I resisted paying an annual fee for a long time. However, this card will more than pay me back, and as it happens, I've already made back the $75 annual fee by virtue of a kind forum member who pinged me for a referral, which generated a bonus. While PriorityClub has a fee, the first year is waived, and I plan to cancel before then. However, the sign-up bonus is going to come in handy soon.

A rough estimate of my nominal cash back (excluding P Club rewards) is 4.42% using the card assortment below and assuming my spending estimates don't vary widely.

Perhaps that helps.

If I were you, I would avoid AF cards as your spending is fairly modest (that's a good thing, btw). However, if you use a particular hotel chain or airline exclusively and frequently, an affiliated card might be worth considering. I myself am still skeptical of the value of Chase Sapphire Preferred (even though I'm a happy Chase customer) as I don't want to be tied down to booking travel through Chase to make the most of rewards.
American Express: Blue Cash Preferred (groceries, 6%; gas, department store, 3%); Gold Delta SkyMiles (Delta Air Lines, 2 miles/dollar, free checked bag).
US Bank: Cash+ (utilities, phone, internet, restaurant, 5%; drugstores, 2%).
FIA Card Services: Fidelity Amex (everything, 2%); Fidelity Visa (everything, 1.5%).
Chase: Freedom (rotating, 5%); Amazon (Amazon.com, 3%); PriorityClub (IHG hotels, 5 points/dollar); Sapphire (not in use).

*All cards are registered with PriorityClub IDine program for 8 points/dollar at participating restaurants.

MagneticStripes
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Postby MagneticStripes » Sun Aug 19, 2012 11:59 am

jeffysdad, I think the method of maximizing 5% categories is probably the best strategy. I had always thought that cards that let you transfer to miles would, in theory, always be better, but from what I can tell, it looks like the maximum value for the CSP is around 3 cents per point when transferring to British Airways, which would be an effective reward rate of 6% (and that is only if all spending were done in travel/dining, and assuming you could get the flight you wanted at that redemption rate). It also looks like a lot of people who roll with the CSP, Amex Gold, etc., still carry 5% cards, so the best strategy seems to be simply maximizing one's portfolio of 5% category cards. The real value of the more elite cards over cashback appears to be primarily for business class travel, lounge access, etc., which I have no need for.

DavidNY
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Postby DavidNY » Sun Aug 19, 2012 1:14 pm

2% cards are good. 5% cards are great.

jeffysdad
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Postby jeffysdad » Sun Aug 19, 2012 1:49 pm

I'm inclined to agree, M Stripes.
American Express: Blue Cash Preferred (groceries, 6%; gas, department store, 3%); Gold Delta SkyMiles (Delta Air Lines, 2 miles/dollar, free checked bag).
US Bank: Cash+ (utilities, phone, internet, restaurant, 5%; drugstores, 2%).
FIA Card Services: Fidelity Amex (everything, 2%); Fidelity Visa (everything, 1.5%).
Chase: Freedom (rotating, 5%); Amazon (Amazon.com, 3%); PriorityClub (IHG hotels, 5 points/dollar); Sapphire (not in use).

*All cards are registered with PriorityClub IDine program for 8 points/dollar at participating restaurants.



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