When Using the Right Rewards Card is the Wrong Choice

Aug 6, 2015

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I always look for opportunities to boost my loyalty accounts, but sometimes other considerations take precedent. Today, TPG Senior Points & Miles Correspondent Nick Ewen explains why the card that maximizes your points and miles isn’t always the one you should use.

Using the right credit card for a purchase is an essential part of maximizing your points and miles. In fact, it’s so important that we developed tools like the TPG Maximizer and TPG To Go App to help you figure out which card to use and thereby boost the rewards you earn every day. However, there are times when the obvious choice for a given purchase isn’t necessarily the best one. In this post, I’ll share some examples that may seem counterintuitive, but nevertheless can help boost your return on a wide range of spending.

Before I dive into these scenarios, I want to acknowledge that everyone has a unique way of valuing different loyalty currencies. For this analysis, I used TPG’s most recent valuations to highlight when rewards from one card outperform those from another, but you should feel free to tweak the numbers based on your own preferences.

It may sound crazy, but Southwest’s co-branded credit cards probably aren’t the best ones to use for Southwest flights.

1. Use a general travel card instead of an airline-specific card for airfare.

Just about every airline co-branded card offers bonus points or miles when you buy an airline ticket with the corresponding airline. Some examples (with return amounts based on TPG’s valuations) include the following:

  • Citi AAdvantage cards like the Citi / AAdvantage Platinum Select World Elite Mastercard, which earns 2 AAdvantage miles per dollar spent (3.4%);
  • Delta American Express cards like the Gold Delta SkyMiles® Credit Card from American Express, which earns 2 SkyMiles per dollar spent (2.4%);
  • Chase United cards like the United MileagePlus Explorer Card, which earns 2 MileagePlus miles per dollar spent (3%).

The information for the Citi AAdvantage Platinum card has been collected independently by The Points Guy. The card details on this page have not been reviewed or provided by the card issuer.   

However, despite the dutiful in-flight hawking of these products by the respective carriers, there are several other options that provide higher rates of return on airfare. Here are some of my favorites:

  • American Express® Gold Card — 3x Membership Rewards points on airfare (6%);
  • Citi Premier® Card and Citi Prestige Card — 3x ThankYou points on travel purchases (4.8%);
  • Chase Sapphire Preferred Card — 2x Ultimate Rewards points on travel purchases (4.2%).

One of the main reasons these cards offer so much value is that the points they earn can be transferred to a variety of travel partners. Everyone should earn transferable points on at least one card, and there are a variety of ways to make the most of these points.

This doesn’t necessarily apply to every airline credit card out there. For example, the AAdvantage Aviator Silver card (one of the conversion options from the old US Airways MasterCard) offers 3 AAdvantage miles per dollar spent on American and US Airways purchases. This 5.1% return puts it ahead of both the Sapphire Preferred and the two Citi ThankYou cards, though it’s still not as lucrative as the bonus on the Amex Premier Rewards Gold card.

Buying third party gift cards at the correct store can save you money and earn bonus rewards.
Buying retail gift cards at the right store with the right card can be a lucrative proposition.

2. Use retailer gift cards instead of a solid everyday earning card.

Many popular retailers like Target and Amazon.com don’t have the correct merchant category codes that would allow you to earn a category bonus for your purchases there. In some cases, certain merchants may even be specifically excluded (as Target and Walmart were from the first quarter grocery bonus on Chase Freedom). (The Chase Freedom is no longer open to new applicants)

As a result, you may think that it’s best to use a card that gives you great everyday earning on non-bonus spending like the Starwood Preferred Guest® Credit Card from American Express (2.4%) or the Barclaycard Arrival Plus World Elite Mastercard (2.11%).

However, a better option for these merchants is to purchase retail gift cards at a store that does offer a category bonus. For example, you could buy gift cards at Staples or Office Depot using the Ink Plus Business Card to earn 5x Ultimate Rewards points (on up to $50,000 in spending per year), or use the Amex Everyday Preferred Credit Card at supermarkets to earn 3x Membership Rewards points (on up to $6,000 of spending per year). This raises your return to 10.5% or 6%, respectively!

For what it’s worth, I have even had success earning bonus points or miles twice by going through a shopping portal to purchase electronic gift cards at Staples (even though this shouldn’t be allowed) and then using the portal a second time when I redeem that gift card at the specific retailer. However, this strategy is not guaranteed to work.

Between office supply stores and supermarkets, I can often find gift cards for some of my favorite retailers, including Target, Amazon, Home Depot, Lowes, Nike and Petco.

Rental car Amex insurance
Having a card with primary car rental coverage means one less thing to worry about when traveling.

3. Use Sapphire Preferred instead of Citi ThankYou cards for car rentals.

Another very specific instance when it makes sense to use a less obvious card is when you rent a car. At first glance, the Citi Premier seems like the best option, since you earn 3x points on these purchases for a return of 4.8% (compared to 2x points for a return of 4.2% on the Chase Sapphire Preferred Card). However, one of the key benefits added to the Sapphire Preferred last year is primary rental car insurance. This covers the entirety of the rental in case of loss or damage, meaning you won’t have to pay a deductible or worry about alerting your insurance company and risking an increase in your premiums.

Other cards that offer primary coverage include the United MileagePlus Explorer Card, the Ritz-Carlton Rewards Credit Card and the Ink Plus Business Card. There are some important exceptions, so be sure to read carefully through the policy of whichever card you use.

The Business Platinum offers valuable benefits through the OPEN program.
American Express Business cards offer valuable benefits through the OPEN program, including discounts (or bonus points) on Hyatt stays.

4. Use an American Express Business card instead of the Hyatt Visa for Hyatt stays.

You might think that Hyatt stays should be charged to your Hyatt Credit Card, since you’ll earn 3 Gold Passport points per dollar spent on these purchases (a return of 5.4%). However, that isn’t the case if you also have an American Express small business card in your wallet. The American Express OPEN Savings program offers an automatic 5% discount (or 2 extra Membership Rewards points per dollar, if applicable) on Hyatt stays. This discount by itself almost matches the return on the Hyatt card; when you factor in your earning on the purchase, you’re easily better off using an Amex business card.

Here are some particularly lucrative options (assuming the 5% discount):

  • The Business Platinum Card® from American Express and The Business Gold Rewards Card from American Express OPEN earn 1 Membership Rewards point per dollar spent at hotels (total return = 7%);
  • The Starwood Preferred Guest® Business Credit Card from American Express earns 1 Starpoint per dollar spent at non-SPG hotels (total return = 7.4%);
  • The SimplyCash Business Card from American Express earns 3% cash back in one category of your choosing (including hotels), or 1% otherwise (total return = up to 8%).
If the price of an item you bought drops significantly after your purchase, some Citi cards may give you a refund through the Citi Price Rewind program.

5. Use a card with consumer protections instead of one that offers bonus points.

When shopping for pricey electronics (like computers or cameras), many award travelers are inclined to use the Ink Plus at an office supply store to earn 5x Ultimate Rewards points (a return of 10.5%). However, while you may earn more points this way, other cards offer protection that might be more valuable. One of my personal favorites is the Citi Price Rewind program.

Let’s say that you need to purchase a new computer this fall, and you find one you like at Staples for $1,000. This purchase would earn you 5,000 Ultimate Rewards points (worth $105) if you used the Ink Plus. If you paid for that same purchase with a card like the Citi Hilton HHonors Reserve Card, you would only earn 3,000 Hilton points (worth $15). However, if the price of the computer drops by more than $90 within 60 days (definitely a possibility with sales like Black Friday and Cyber Monday) and you register the purchase with Citi Price Rewind, you’ll wind up coming out ahead by using the Citi card.

It’s worth giving similar consideration to cards that offer purchase protection like coverage against loss or damage, extended warranty and more. While these cards might not offer the best return up front, they can save you money in the long run.

Credit Cards Featured
When you’re pursuing a sign-up bonus, you may want to use a sub-optimal card for certain purchases.

6. Use a card that offers you a welcome bonus over a card with a category bonus.

One final scenario where you should pay with a card that gives you less than an optimal return is when you’re trying to earn a sign-up bonus. It’s worth sacrificing some value on a given purchase if it will help you gain a lot of value from a bonus, especially if you would otherwise have trouble meeting the minimum spending requirement.

For example, the Citi Hilton HHonors Visa Signature Card is currently offering an increased sign-up bonus of 75,000 Hilton HHonors points after making $2,000 in purchases within the first three months. Suppose you’re dining out and trying to decide between using that card (which earns 2 Hilton points per dollar spent) or your Chase Sapphire Preferred (which earns 2 Ultimate Rewards points per dollar). Under normal circumstances, Sapphire Preferred is the obvious winner (with a 2.4% return compared to just 1% on the Citi Hilton Visa). However, factoring in the the sign-up bonus changes the equation.

In these situations, it may help to factor the points or miles from the sign-up bonus into your calculation. If you spread out the 75,000 points across the $2,000 spending requirement, you’re effectively earning an additional 37.5 Hilton HHonors points per dollar spent (on top of the “regular” 2 points per dollar). This brings your total return to 19.75%, making the decision to charge a restaurant bill to the Citi Hilton Visa much more reasonable!

The same principle applies if you’re aiming for a yearly bonus for hitting a certain spend threshold, like the 10,000 elite-qualifying miles you can earn on the Citi / AAdvantage Executive World Elite Mastercard after spending $40,000 within the year. While you might earn a better return with other cards, it can still make sense to use this one if those 10,000 EQMs make the difference in qualifying for Executive Platinum status.

Bottom Line

As I mentioned previously, everyone values points and miles differently, but whatever valuations you adhere to, in some cases it makes sense to use one card even when another card offers a higher return. As always, it’s important to analyze your wallet and spending behavior on a regular basis to make sure you have the right mix of cards and are using them in the most rewarding way possible.

When have you used a less-than-ideal credit card for a purchase?

Editorial Disclaimer: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airlines or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.

Disclaimer: The responses below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser’s responsibility to ensure all posts and/or questions are answered.