Our pick
With 3 points per dollar on travel and dining and a $300 annual travel credit, you’ll break even spending just $280/month despite its high annual fee. Spending $2,000/month will yield at least 2 percent in rewards for most cardholders. Other perks include airport lounge access and the ability to transfer points to hotel and airline loyalty programs.
In addition to its great points earning and redemption potential, Sapphire Reserve offers an attractive perks package that includes a $300 credit redeemable on any travel expense, access to airport VIP lounges worldwide, and a statement credit for enrolling in TSA Pre-Check/Global Entry. The $450 annual fee is alarmingly high, but the perks and earning potential make it easy to break even at almost any spending level.
Budget pick
You’ll break even spending just $246/month on any type of expenses, and you’ll earn about 1.5 percent in travel rewards spending $1,000/month. It’s not the best deal, but earning Venture points is straightforward: 2 points per dollar. So is redemption: 100 points per dollar against any travel charge. And it has a low annual fee of $59.
Although the Reserve is still worth it for frequent travelers spending between $1,000 and $2,000 per month, the CapitalOne Venture will yield higher rewards with less complicated points redemption for folks who only fly a couple times a year. You simply earn 2 points for every dollar you spend and can redeem points at 100 to the dollar for a statement credit on any travel-related expense. If you spend less than $1,000 per month on a card, consider skipping travel rewards completely and signing up for a cashback card instead.
Table of contents
Why you should trust us
Before my spreadsheets were full of volts and amps for my research on USB batteries packs, solar power, and surge protectors, they were filled with dollars and cents when I served as the CFO for a small manufacturing startup and as a small business consultant. Just as I used to comb through tax forms and FDA rules, for this guide I examined the fine print of various credit card offers to find the important bits. With terms and conditions (and advice from established travel hackers like The Points Guy and Nerd Wallet) in hand, we were able to build our own spending and rewards models with normal people in mind.
Who this is(n’t) for
Credit card travel reward programs are a great way for heavy spenders and regular travelers to get perks and earn travel credits and a great way for everyone else to rack up fees and interest charges. We know most people won’t take advantage of every reward, benefit, and perk these types of cards offer because if we all did that, banks and credit card companies wouldn’t rake in huge profits every year. Since we’ve outlined which types of spenders will get the most from our picks, this section is really more about who shouldn’t get one of these cards.
Anyone who carries a balance should think twice about a rewards card.
First, if you have a lower than average credit score, you might find it hard to get approval for any rewards card. “Superprime” credit scores over 720 have a 85.5 percent chance of approval for a card, more than double the average approval rate of just 39.1 percent across all scores.1 If you get denied for the fanciest travel cards, you’ll want to focus on improving your credit report before trying again.
Even if you’re approved, anyone who carries a balance should think twice about a rewards card. With Annual Percentage Rates (APR) ranging from 11-25 percent, interest charges accrued on unpaid balances will quickly wipe out any rewards benefits that you might accrue.
Similarly, you’ll struggle to justify the annual fee if you spend less than $1,000 a month. While it’s not hard to break even, you might end up with a rewards rate of less than 2 percent. At that point, you may be better off with a cashback rewards program instead—many offer at least 1.5 percent back and you don’t have to wait for travel to redeem the benefits.
Lastly, this guide isn’t going to be of much help to anyone who makes a hobby out of travel hacking. Whole sites have been expertly crafted to help you beat the system, bounce between cards, and sign up for all the best loyalty programs. But that hobby really requires time to manage programs, points, and deals. Anyone willing to invest the time into that will probably find our approach—geared toward the 25 million Americans who will keep a primary card for 10 years or longer—to be too conservative.
For higher spenders or frequent flyers
| The math (simplified) | |||
| Spend $280/mo on travel and dining for rewards to break even against fees | |||
| Spend $2,050/mo for to get 2% back in rewards after fees ($759 on dining and travel and $1,292 on everything else) |
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| The card for you if you’re… | |||
| Spending more than $2,000 per month regardless of travel frequency and expense type —OR— Traveling multiple times a year AND spending enough to break even against fees —OR— Transferring all your points to a branded miles program (e.g. United Mileage Plus, Southwest Rapid Rewards) |
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What sets it apart:
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What we don’t like:
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Our pick
With 3 points per dollar on travel and dining and a $300 annual travel credit, you’ll break even spending just $280/month despite its high annual fee. Spending $2,000/month will yield at least 2 percent in rewards for most cardholders. Other perks include airport lounge access and the ability to transfer points to hotel and airline loyalty programs.
The Chase Sapphire Reserve card that debuted in the third quarter of 2016 made a big splash for good reason. Travel hackers like the 100,000 point sign-up bonus and will likely cancel the card after earning it. Frequent fliers like the access to over 900 airport lounges and the ability to transfer points to more lucrative airline and hotel loyalty programs. But you don’t need to make a hobby out of mileage programs for this card to provide real value. High spenders—or anyone with above average spending on 3-point-per-dollar dining and travel expenses, or average spenders who travel a few times a year or take advantage of airline or hotel loyalty programs—will earn plenty of points to offset the hefty $450 annual fee. Besides, the $300 travel credit effectively reduces the fee to $150 so long as you use it all up—easily doable on just a single round trip airfare.
| Some purchases on a Chase card earn more points than others | |||
| 3 points per dollar on travel and dining | 1 point per dollar on everything else | ||
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If you’re new to points programs, you’ll need a quick primer on the basics. Earning points is simple:
- Every time you swipe your card for a travel or dining expense, you’ll earn 3 points per dollar spent.
- Any other spending category earns 1 point per dollar.
- And if you spend $4,000 in the first three months, you get a 100,000-point bonus. (It’s a good idea to time your card application such that you can pay off your annual car insurance premiums or other lump sum payments to take a hefty chunk out of this spending requirement.)
Redeeming points is easy and jumping through a few simple hoops can give you a lot more value. You can redeem your points in three ways:
- If you book your travel through the Chase Ultimate Rewards portal (with similar options to Kayak.com or any other travel site) and you’ll get a 50 percent value bonus. This is the easiest choice for most people that still provides great value and total flexibility in your choice of airlines and travel dates. This 50 percent bonus was included in our overall rewards rate calculations.
- You can also transfer the points 1:1 to select hotel or airline loyalty programs (like United Mileage Plus or Southwest Rapid Rewards) to get considerably more value, but often with more restrictions depending on the airline.2 You can see a full list of participating programs here.
- Finally, you can request a statement credit on any travel expense at 100 points to the dollar. But you shouldn’t do this because it’s not any more difficult to just book through Ultimate Rewards and get the 50 percent redemption bonus.
The Chase Sapphire Reserve also carries a number of other perks beyond points earning and redemption. These include an annual $300 travel credit that can be used on any travel expense (flights, hotels, or even Uber rides) plus posh benefits like access to over 900 airline lounges through Priority Pass Select and perks at some luxury hotels. You’ll also be eligible for an additional $100 credit to offset the application fee for TSA Precheck or the DHS Global Entry Program. If that sounds too good to be true, keep in mind that you’ll need to deduct the $450 per year annual fee from your rewards value, plus $75 per year for an additional authorized user.
You don’t need to make a hobby out of mileage programs for the Sapphire Reserve card to provide real value.
You’ll need to make sure you hit certain spending minimums to balance out that hefty annual fee, especially once that sign-up bonus has come and gone. But breaking even on the fee is actually pretty easy since you just need 10,080 points per year. You could earn that much spending just $280 per month on dining and travel expenses (which earn 3 points per dollar, so $280 x 3 points x 12 months = 10,080 points), or $840/month on anything else (which earn 1 point per dollar, so that $840 x 1 point x 12 months = 10,080 points), or some mix of the two. Those 10,080 earned points turn into 15,120 points (totalling roughly $151 in value) if you book your travel with the bonus on the Ultimate Rewards portal. $151 in points plus the annual $300 statement travel credit already puts you $1 ahead of the $450 annual fee.
Of course, breaking even isn’t the goal with these kinds of cards. Since cash back cards promise unrestricted rewards of 1.5 percent on every purchase, we think a travel card should at least match that so that their additional perks and benefits make the travel rewards worthwhile. Spending a little more than average every month—$2,000 total with $750 coming from travel and dining expenses and $1,250 coming from everything else—will yield rewards right in the 1.5 percent range. Higher spending than that will yield higher rewards, and higher spending on travel and dining will yield higher return rates. Factoring in the sign-up bonus sweetens the deal; over a three-year period, the rewards rate would hits 4 percent in the same scenario. And if you tack on the free use of otherwise expensive airport lounges or transfer your points to more lucrative hotel and airline loyalty programs, the annual fee feels even less burdensome.
You’ll notice that we didn’t include the sign-up bonus in any of that math. That’s because we wanted to make our recommendation based on the long-term rewards. One survey in 2016 showed that 25 million Americans keep their primary card for at least 10 years. If you’ll open the card, earn the bonus, and cancel it before second annual fee kicks in, the math will be very different. But if you’re likely to do that and game the system, you’ll probably be looking for other tips for mileage hacking at sites like thepointsguy.com, millionmilesecrets.com, and even the broader credit card advice site nerdwallet.com. If that’s you, send a mimosa from first class back to us in the cattle car, would you?
Though American Express Platinum cards have long been lauded for their premium benefits, like status at certain hotel chains and airlines, more robust airport lounge access, and concierge booking services, it’s much harder to take advantage of those perks than the quantitative benefits of the Reserve card. Shortly after the Sapphire Reserve card launched, American Express announced that Platinum cardholders would receive five points per dollar on airfare purchases. It’s a nice bump, but dollar for dollar, the Amex just doesn’t offer as many tangible benefits as the Reserve. As long as travel and dining earn three points per dollar and the Ultimate Rewards portal offers 50 percent bonus value, the Chase Sapphire Reserve and its 100,000-point sign-up bonus is a great deal for anyone with at least average spending and more-frequent-than-average travel habits.
For low spenders (or set it and forget it)
| The math (simplified) | |||
| Spend $246/mo for rewards to break even on fees | |||
| Spend $1,000/mo to get 1.5% back in rewards after fees | |||
| The card for you if you’re… | |||
| Spending between $1,000 and $2,000/mo AND don’t travel very often —OR— Spending between $250 and $1,000/mo AND prefer travel rewards to cash back |
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What sets it apart:
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What we don’t like:
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Budget pick
You’ll break even spending just $246/month on any type of expenses, and you’ll earn about 1.5 percent in travel rewards spending $1,000/month. It’s not the best deal, but earning Venture points is straightforward: 2 points per dollar. So is redemption: 100 points per dollar against any travel charge. And it has a low annual fee of $59.
If you spend $1,000 or less per month on a credit card, or following the rules of our top pick or other cards seems like too much trouble, then get the CapitalOne Venture card. The Venture card is about as easy as it gets. You’ll get a 40,000-point bonus worth $400 in travel expenses if you spend $3,000 within three months, you’ll earn two points for every dollar you spend, and after the first year, there’s a low $59 annual fee. To use your points, just book your travel wherever you like at the best rate you can find, and you can request a statement credit from Capital One at 100 points to the dollar. With $1,000 a month in spending, you’ll earn about $181 every year or just over 1.5 percent back, but if you include the sign-up bonus, you’ll have almost $1,000 in available rewards after the first three years, which bumps the cumulative rewards rate to 2.78 percent.
It’s not a great program. But it’s not bad, and it is simple. There’s no booking bonus, rebate, or option to transfer to mileage programs. If you know you’ll travel a bit but don’t spend very much month to month, it’s a pretty good option to save a few hundred dollars on your vacation.
When to forget about travel rewards
If you’ve done the math on our recommendations and won’t be able to earn at least 1.5 percent back in travel rewards, then you shouldn’t even bother unless other perks, such as lounge access or points transfers, are really worth it for you. We found that spenders charging much less than $1,000 per month will have a hard time clearing that 1.5-percent hurdle even on a low-fee card like CapitalOne Venture. If that’s you, don’t get hypnotised by the allure of travel rewards. Instead, consider one of the many cash back cards available without any tricky program rules to learn and follow. Chase Freedom Unlimited, Citi Double Cash, CapitalOne Quicksilver Rewards, and the Barclaycard CashForward World MasterCard all offer at least 1.5 percent cash back on all purchases, with few restrictions and little to no annual fee. That means you can redeem your rewards anytime without waiting for a trip to come up, having to log into special booking sites, or gaming the system to book around blackout dates.
How we picked and tested
How much you spend and how much you travel are the two main variables to consider when deciding on a travel rewards credit card. In order to sort out the options, we created a spending model based on government statistics about consumer spending. From that data, we pulled out the monthly expenses an average person would be likely to pay for with a credit card—a total of $1,723 per month. Of that, roughly $320 would qualify as travel and dining expenses according to most rewards programs. That’s important, because those two categories are often rewarded at different rates than other types of spending.
We used those figures—$320 on travel and dining plus $1,400 on everything else—to come up with our profile for the average spender. We also created models of four other spenders so we could look at a range of possibilities.
Different spending profiles yield different rewards
| Spending profile | Total monthly spending | Amount spent on dining & travel | How we chose it |
| Low | $325 | $125 | Arbitrarily low |
| Low-Average | $1,290 | $240 | 25% lower than average overall, with the same proportion spent on dining and travel |
| Average | $1,720 | $320 | Based on real world statistics |
| High-Average | $2,150 | $400 | 25% higher than average overall, with the same proportion spent on dining and travel |
| High | $2,580 | $955 | 50% higher than average overall, with double the proportion spent on dining and travel |
We combed through promotional materials and terms and conditions to weed out any cards that wouldn’t have a broad appeal. Branded cards tied directly to a mileage program like United Mileage Plus or Southwest Rapid Rewards can have status perks for loyal customers but tie leisure travelers to a single carrier. But because branded loyalty programs can offer better but more restrictive deals, we also wanted our top cards to allow points transfers into those programs.
How much you spend and how much you travel are the two main variables to consider when deciding on a travel rewards credit card.
If all of that isn’t exciting enough, we then created a massive spreadsheet to see how the most promising cards performed over the course of three years under each spending profile. Because points are often redeemed at 100 points to the dollar as statement credit, we used that in our exchange rate to determine rewards values. For example, a 50,000-point bonus at sign-up is worth $500 (50,000 ÷ 100). Similarly, a $95 annual fee would be a 9,500 point deduction ($95 x 100). At the end of the column, we had the net rewards after the sum of spending, signup bonuses, redemption bonuses, and quantitative perks, less the annual fees. To calculate a rewards rate, we divided the net rewards value by the total spending over the time period so that $492 in annual rewards accrued on $24,600 in annual spending would be a rewards rate of 2 percent ($492 ÷ $24,600=0.02).
Because you’re likely to keep a card long after the signup bonus is spent and forgotten, we looked at this net rewards rate both with and without the signup bonus factored in. Those bonuses are great for anyone that will churn through cards in a year or two, but they cover up the true long term cost of a card for everyone else and make it seem like even a pauper should be swiping an Amex Platinum.
Annual Rewards Rate after all annual perks and fees (not including sign-up bonus)
| Spending profile | Chase Sapphire Reserve | Chase Sapphire Preferred | CapitalOne Venture |
| Low | -1.192% | -0.705% | 0.487% |
| Low-Average | 1.089% | 0.869% | 1.619% |
| Average | 1.331% | 1.022% | 1.714% |
| High-Average | 1.477% | 1.114% | 1.771% |
| High | 2.126% | 1.406% | 1.809% |
Whether you incorporate sign-up bonuses into your decision or not, the rewards rate is a handy way to gauge the value of a card, and it’s a tidy number for us to sort our results. But it’s not the only thing to base a decision on. The more you travel, the more you’ll value the qualitative perks that don’t have a clean standardized value to them. For instance, if you’re a High-Average spender on our chart, the CapitalOne Venture card offers the highest rewards rate. But the Chase Sapphire Reserve card will grant you access to 900 airport lounges—a posh lifesaver when your connecting flight gets delayed a few hours—and also allow you to transfer your points to major branded loyalty programs. In some cases, explains travel hacker The Points Guy, this can make your points much more valuable. So when the numbers are close, we looked at these harder-to-define values to make our decisions.
The rewards rate is a handy way to gauge the value of a card.
Since they’re travel-focused, all of the rewards cards we looked at also offer car rental insurance coverage, travel insurance options, and forgo any foreign transaction fees which sometimes run 1-3 percent with a standard credit or debit card.
The competition
Chase Sapphire Preferred
The longtime precursor to the newer Reserve card, the Chase Sapphire Preferred card is structured similarly, but with very different fees and rewards that aren’t the best deal for most spenders or travelers. The Preferred earns two points per dollar on travel and dining expenses instead of the three points awarded to Reserve cards. Booking on the Ultimate Rewards portal will net an extra 25 percent value bonus instead of the Reserve’s 50 percent, but the annual fee is just $95 (waived the first year) compared to the $450 fee for Reserve cards.
We compared it to our picks at a handful of different spending levels and it never really made the most sense. From our average spending profile up through our high spending profile, the Preferred card earned from .31 percentage points to .72 percentage points less than the Reserve—and that’s taking into account the annual fees but not including the sign-up bonus. When considering the Preferred card offers just 50,000 points compared to the 100,000 points of the Reserve, the card’s purpose becomes even less clear.
There is one small sliver of a population that could benefit from this card. If you travel a lot (especially on your employer’s dime) but don’t actually spend very much (under $1,000/mo), the Preferred card could work out for you. The lower annual fee won’t eat away your points, and you can combine your points into a brand loyalty program. But average-and-above spenders could tally up bigger benefits on the Reserve card, and average-and-below spenders could do about as well on a simpler card like the Venture.
Barclaycard Arrival Plus World Elite Mastercard
No, we didn’t take off points for the incredibly long name. We recommended the Arrival Plus in the past but were forced to take another look when applications closed for a while during 2016. It’s not a bad card, and as sign-up bonuses and other perks fluctuate, it could edge out the Venture card on occasion. But even though it’s substantially similar to CapitalOne’s offering— you’ll earn 2 points per dollar and redeem them at 100 points to the dollar for statement credit on travel expenses—the annual fee is $30 higher. That’s 3,000 points ($30 x 100) to make up, and the 5 percent redemption bonus that sets it apart from the Venture card would only cover that if spending and redeeming $30,000 (60,000) points every year (60,000 x 5% = 3,000). If you’re spending that much on a travel credit card, you should be looking at the Reserve card. If you aren’t spending that much, the Venture card will most likely get you a higher rewards rate.
American Express Platinum
Before Chase introduced the Reserve card, the Amex Platinum was the royalty when it came to high rewards, high service, and high fees. Like the Reserve, the Platinum card with cost you $450 per year, but it only earns points at the rate of one point per dollar and has a booking bonus of less than half the Reserve’s 100,000 points. Amex recently announced that all airfare purchases on the card would earn five points per dollar—the highest rate we’ve seen—but because it’s such a small category of spending overall, we don’t think it will make up the deficit for most people. When we looked at the Amex Platinum in our five spending profiles, it often earned less than 1 percent back in rewards. Though the card offers some premium features—a TSA Precheck credit, airport lounge access, Hilton HHonors Gold Status—few people will be able to get enough benefits to outweigh the hefty fee.
(Top photo by Kyle Fitzgerald.)
Footnotes:
1. http://ift.tt/2f5ppZQ Jump back.
2. For example, as of this writing, United only allows you to book certain flights using MileagePlus miles, whereas Southwest has no restrictions on which flights can be booked with Rapid Rewards points. Jump back.
from The Wirecutter http://ift.tt/2dGLHv0
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