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Understanding How Credit Card Travel Rewards Work

by on May 23, 2011 · 18 comments

in American Express, Beginners Series, Capital One, Chase, Credit Cards, Points Guy Pointers

Update: The offer mentioned below for the Platinum Card from American Express has expired. View the current offer here

This is the first post of a new series designed to help beginners understand the points and miles world. I’ve created a new category “Beginners Series”, with that hopes that if someone stumbles upon this site, they’ll be able to read through post on fundamentals so everything else makes a bit more sense. If you have any suggestions on a topic, please feel free to comment below or email me.

When it comes to earning travel-related points and miles from credit cards, there are generally three options: 1) Fixed value points- where you will always know how much your point will get you in value. For example, Capital One- each point is worth one cent towards any flight/hotel. 2) Transferable points= where you can earn in a central pool and then transfer to the participating airline/hotel transfer partner. For example, the American Express Membership Rewards program, which gives you the option to transfer to 15 different airline programs. Once the miles are transferred, you then abide by the rules of that program. 3) Co-branded cards which deposit to an airline/hotel program directly. For example the Citi AAdvantage Visa- every dollar you spend gets you 1 AA mile.

I’m going to try to make this post as clear as possible, but it may get confusing, especially if you are new to miles and points. The key advantage to each type of card are the following:

1) Fixed value- you always know what you are going to get. No surprises when it comes time to use the points. Additionally, you earn miles on all flights booked, which helps maintain elite status.
2) Transferable- allows you the flexibility to get awards on different partners and alliances. Airline awards (except Southwest, Virgin America and JetBlue) are generally not pegged to the value of the ticket, so you can get really expensive tickets for a relatively low amount of miles if you know how to take advantage of the system.
3) Co-branded. While you lose the flexibility of being able to transfer to different partners, co-branded cards usually get you perks on the airline/hotel, such as elite qualifying miles, lounge access, free checked bags and other perks like British Airways Visa 2 for 1 ticket when you spend $30,000 in a calendar year.

For this post, I’ll dig a little deeper on fixed value vs transferable cards. While fixed value points seem like the most logical- no surprises, the ability to book any flight and you earn miles, you’ll never redeem for any truly amazing rewards because the redemption values are fixed, usually at about 1 cent per point. So 10,000 points equals $100 towards flights/hotels/gift cards. Most experienced points aficionados know that the true value lies in transfers of points to airline and hotel loyalty programs . For example you can get a $4,000 business class JFK to London award for as low as 63,000 American Express Membership Rewards points (Transferring to ANA’s frequent flyer program and then redeeming on Virgin Atlantic), whereas 63,000 “fixed” points will get you $630 towards airfare- which probably won’t even get you a seat in steerage.

If you’ve accrued a ton of Chase or Amex points that are “fixed” at 1 cent per point, don’t fret. Both companies will allow you to transfer any points you’ve earned if you open up a card that belongs to either the American Express Membership Rewards or Chase Ultimate Rewards Sapphire Preferred program. So, if you currently have an American Express Blue card, you cans open up a Membership Rewards card (like the Platinum, Premier Rewards Gold, Gold and Green) and instantly you will be able to transfer those points to a number of different airline and hotel programs. The great thing is that American Express is also waiving the annual fee for the first year on the Premier Rewards Gold card and offering a 15,000 point sign-up bonus (possibly more if you call after you get the card and ask for more points, as outlined in this post). To learn more about Anerican Express and the Membership Rewards program, check out my series on Maximizing Amex: Post 1: Understanding the Card Offering Post 2: Understanding Membership Rewards Post 3: Understanding Transfer Bonuses. Post 4: Platinum Card Review. Post 5: SkyTeam Transfer Partners Post 6: Oneworld Transfer Partners. Post 7: Star Alliance Transfer Partners. Post 8: Understanding Emergency Travel Assistance and Travel Accident Insurance, Post 9: Purchase and Return Protection and Extended Warranty.

Chase will also let you do the same. So if you have a Freedom card and decide to get a Sapphire Preferred (no fee for the first year and a 40,000 bonus points after $3,000 spend within 3 months), all of those points will become part of your Preferred account. That means you can transfer them 1:1 to Continental, British Airways, Hyatt, Marriott, Amtrak and Priority Club. I like the Sapphire Preferred program because of the ability to transfer to British Airways (which means you can redeem Oneworld carriers like American Airlines, Cathay Pacific and Qantas), Continental (which gives access to Star Alliance awards on carriers like Singapore, Lufthansa, Thai and Swiss) as well as the 1:1 ratio to Hyatt. The most expensive Park Hyatt properties are only 22,000 points a night, so the 40,000 point sign-up bonus alone would get you very close to two free nights at the Park Hyatt Maldives- a room that normally goes for $1,000 a night.

While transferable cards can provide huge value, the big difference between using fixed rate points and transferable points is that you earn miles and elite status when you redeem fixed redemption points, but not transferable points. Basically the credit card company purchases the flight for you, so the airline sees it as a regular ticket purchased by a travel agent. Whereas transferable points are transferred into the airlines own frequent flyer program, so you are at the mercy of their award availability. However, if you educate yourself on the tips and tricks of the program and you are flexible, you should be able to redeem for “low” awards. That being said, if you redeem your points for coach class travel, going with a fixed rate card like a Capital One Venture, may make the most sense. Capital One gives you 2 points per dollar spent and points are then redeemed at 1 cent each. So in essence, you are getting 2% back on all of your spend. Most credit card companies that offer transferable points only give 1 point per dollar, so $25,000 in spend = 25,000 points. That same amount of spend with a Capital One card, would net you 50,000 points, or $500 towards flights. At the end of the day, its probably much more convenient to accrue Capital One points and redeem for coach awards since most are $500 or under, instead of trying to transfer to an airline frequent flyer program and hope to get a low level award. Additionally, Capital One does not charge foreign transaction fees- if you don’t know what that means, I highly suggest you read my post on the subject.

So to sum up, the main value of transferable programs is with first and business class awards since those seats often sell for 10 times or more the price of the lowest coach ticket. For example, a coach ticket New York to Tokyo may only be $800, but a first class ticket can easily surpass $8,000. However, when using an airline frequent flyer program like Continental, you’d need 65,000 points for a coach roundtrip award, but only 140,000 for first class (and 120,000 for business). If you wanted to use Capital One points to buy the $8,000 first class fare, you’d need 800,000 points. Good luck with that.

Overall, you should have a card that offers you value and flexibility. While fixed redemption points offer the simplicity of, “any flight, any time,”they lack the value to get you into premium cabins. From my perspective, why use the same amount of points for a coach award when you could be riding in business or first?

Disclaimer: This content is not provided or commissioned by the credit card issuer. Opinions expressed here are author.s alone, not those of the credit card issuer, and have not been reviewed, approved or otherwise endorsed by the credit card issuer. This site may be compensated through the credit card issuer Affiliate Program.

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  • Matt

    HI TPG,

    Regarding the points transfers of other CC Chase rewards/points – I have a Chase Amazon.com CC which used to allow transfer of points to British Airways miles. They recently removed this option, but do you know if I get a Sapphire Preferred card if they would let me transfer the Amazon.com CC points to it?

  • Jessica

    Hi TPG,

    Is the transfer a one time only thing? I have Chase Freedom, which I only use for the 5% cash back categories. I have been eyeing the Chase Sapphire deal. Can I keep my Chase Freedom, accrue points in the 5% back categories and then move those points to Sapphire? Or is it only good for when you first open the Sapphire card?

    Thanks!

  • Ed

    There are a couple of things worth mentioning with Venture points:
    * you must have enough points in the account before you redeem (no partial pay back).
    * these points are good for hotels too
    * there used to be special hotel vouchers you could buy for even more payback…but these might be gone now

    Finally, as you wrote, these are really more useful for coach travel. Probably a good way to buy Southwest tickets?

  • Larry Lustig

    As per your request for suggested topics, I’d very much appreciate a detailed description of how to assemble and maintain a portfolio of credit cards for mileage accumulation. I recently got the BA 100K card and have sufficient credit and income to support a number of cards. But I’m not clear on questions like:

    - Should I wait for better bonuses or apply now, especially for cards (like the AMEX Platinum) that have a history of higher bonuses.

    - How many cards can I reasonably expect to have from each bank, and what “banks” there are besides Chase, Citi, and AMEX.

    - How long after bonus qualification should I hold cards for before cancelling them and looking for a replacement?

  • KL

    Dear TPG,
    From your description it sounds like cards that fit into category #2 (transferable) can get you the best bang for your buck over the long term. What are the best credit cards out there right now that give these kinds of points?

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  • Rachel

    Really glad you are doing this… will give feedback as it goes along. For me, MQMs have been really confusing.

  • The Points Guy

    @Matt- not sure how that will work- I know they allow Freedom points to transfer. My gut says they wouldn’t allow Amazon, but let me know if thats not the case

    @Jessica- If you close your Freedom they should let you shift your points to Sapphire Pref

    @Ed- good point. You can buy Southwest tix and get reimbursed w your Cap One

    @Larry- good ideas. Some quick answers- 1) the theme lately is that Amex and Chase have been “bumping” bonuses- so even if you sign up for 25k for Plat, many people have gotten 100k just by asking (Same for Sapphire Pref).
    2) Its different by bank, but its not out of the question to have 5 chase, 5 amex, 5 citi and a couple barclays. I know it sounds crazy, but if managed correctly, it wont kill your credit
    3) If you don’t like a card, I’d wait 10-11 months after opening it to close it. Anything before 6 months is asking the card company to claw back signup bonus

    @KL- Amex Platinum and Chase Sapphire Preferred. Both have 100k offers that many people have been able to ask for.

    @Rachel- LMK if you have any specific questions about MQMs or elite status in general

  • David

    I think it’s all about your specific situation, including where you currently live, how often you travel, how many people will be going, how much credit card spend do you have, etc.

    For most people, the aspirational int. F trips are not a reality due to availability and the number of miles required…it’s really hard to get > 2 F seats on a flight, and to have 600K BA points to book if available, for example. Also, positioning flights and extra segments can be a nightmare for those with children.

    This is from a person who has tried to convince his siblings to get in on the action…but the value prop still isn’t there when children are involved. Fixed value works better…but the Chase Sapphire Preferred is very interesting for it’s versatility.

  • Rita

    Please note that when there is no foreign transaction fee you also need to note that the exchange rate is very often quite different and you are actually losing money.

  • Marlene

    How do the points translate? For instance, if I accrue 5,000 points thru amex corp card and transfer them to AA, do they convert into miles of same point value? i.e. 5,000 points = 5,000 miles?

  • Anonymous

    Amex to Airlines is usually 1:1, with some bonuses being run from time to time. FYI Amex does not transfer to AA- Only Continental/Delta/Airtran/Jetblue/Frontier and a bunch of foreign carriers

  • renny

    I’m about yo apply for Chase Saphire Preffered because of 50K bonus. The site says the points could be transferred to Continental – is that mean I can use SIA to fly to Singapore since continental and SIA are both Star Alliance?

  • Anonymous

    Yes- whatever Singapore makes available to star alliance can be booked with continental miles

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  • Rscprofessionalsecurity

    Any suggestions how to get the most out of my points for owning a MBNA mastercard?

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