“Sign up today and enjoy 50,000 bonus points on us!” “Earn 1% cash back on your everyday purchases and 5% back on dining!” “What’s in your wallet?” If you’ve turned on your television or received junk mail in the past ten years, you’ve likely heard or seen at least one of these catchphrases amid the bombardment of credit card advertisements vying for a coveted spot in your wallet or purse. It can be tough to make sense of it all, but strategically choosing the right cards can unlock thousands of dollars in value, especially when it comes to travel. So, let’s break down some of the biggest advantages of using travel rewards cards over the traditional cash back alternatives.
First things first, let’s talk about the bonus. Both cash back and travel cards often tout enticing bonus offers for new cardholders if they reach a certain spending minimum within a specific amount of time. For travel cards, the point value of these bonuses can be quite lucrative. Don’t believe the impact is meaningful? When JPMorgan Chase released its highest-tier Sapphire Reserve card in 2016, attaching to it a 100,000-point bonus for new users, the Company reported a reduction in profits of over $200 million as a result of cardholders taking advantage of that sign-up bonus and associated perks[1]. The dollar value of a “point” or a “mile” will differ depending on the card program but redeeming them for travel will typically allow you to extract maximum value out of these programs. Let’s dive a bit deeper.
Many cards offer points worth a fixed cash value – say, 1 cent per point – if redeemed for cash back. However, when redeemed for travel through the card’s rewards portal (think: Expedia, but the credit card company’s version), the value of those points could be worth an additional 25% or more. Even better, many travel cards allow you to transfer points directly to certain airline or hotel partners, often at a 1:1 ratio. Doing so can make points even more valuable depending on the program, particularly for international and first-class flights, where a point may be worth 4 cents each or sometimes much more. This makes travel rewards cards a powerful tool for stretching your bonus far beyond what a cash back card can offer.
So, what’s the catch? Many people who have never used a points-based card before can be scared away by the fees these cards bring. For entry-level travel cards, fees are typically modest at around $95 annually. To offset this, you’d need to earn enough points through regular spending to match or exceed the fee’s value when redeemed for travel. For example, if a card earns 1 point per dollar spent and points are worth 1.25 cents each for travel, you’d have to spend just $7,600/year to justify the fee. But what about those “premium” travel cards, which can carry an annual fee in excess of $500? While this might sound steep, there are a range of benefits that can easily offset this fee if taken advantage of, such as airport lounge access, yearly travel credits, upgraded hotel status, and a variety of credits for entertainment streaming, shopping, ridesharing, and more. While attractive, it can be tough to keep track of all these perks, so cardholders must be organized and ensure they’re taking advantage of them all to make the annual fee worthwhile for their wallet. If you’d prefer to keep things simple, there are lots of mid-tier cards that come with lower fees but still pack a punch when it comes to helping you travel for less.
For many people, travel is their largest budget category and often one of the most important. With countless options tied to airlines, hotels, or card issuers – each with varying fees and perks – it’s essential to compare cards to find one that aligns with your travel habits and financial goals. And while it’s clear there’s value to be unlocked, it’s crucial to always keep healthy spending habits in mind, such as paying off your balance in full (every month), maintaining a strong credit score, checking your credit report at least once a year, and never overspending just to reach a bonus or perk that you otherwise can’t afford. There’s a lot to check out, so next time you’re planning a big trip, it’s worth looking into how credit card points can help offset the cost of travel.
[1] https://www.investopedia.com/news/chase-sapphire-card-perks-costing-company-millions-jpm/#:~:text=News%20of%20the%20Chase%20Sapphire,million%2C%20or%20about%2040%25.
Modera Wealth Management, LLC (Modera) is an SEC-registered investment adviser. SEC registration does not imply any level of skill or training. For information pertaining to our registration status, the fees we charge including how we are compensated and by whom, additional costs that may be incurred, our conflicts of interest, any disclosed disciplinary events of the Firm or its personnel, and the types of services we offer, please contact us directly or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov) to obtain a copy of our disclosure statement, Form ADV Part 2A, and ADV Part 3/Form CRS. In addition, our Privacy Notice outlines how we handle your non-public personal information. Please read these documents carefully before you make a decision to hire Modera, invest or send money.
This material is limited to the dissemination of general information about Modera’s investment advisory and financial planning services that is not suitable for everyone. Nothing herein should be interpreted or construed as investment advice nor as legal, tax or accounting advice nor as personalized financial planning, tax planning or wealth management advice. For legal, tax and accounting-related matters, we recommend you seek the advice of a qualified attorney or accountant. This material is not a substitute for personalized investment or financial planning from Modera. There is no guarantee that the views and opinions expressed herein will come to pass, and the information herein should not be considered a solicitation to engage in a particular investment or financial planning strategy. The statements and opinions expressed in this material are relevant as of the date of publication and are subject to change without notice based on changes in the law and other conditions.
Investing in the markets involves gains and losses and may not be suitable for all investors. Information herein is subject to change without notice and should not be considered a solicitation to buy or sell any security or to engage in a particular investment or financial planning strategy. Individual client asset allocations and investment strategies differ based on varying degrees of diversification and other factors. Diversification does not guarantee a profit or guarantee against a loss.
Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, and CFP® (with plaque design) in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.
