Buying points, unwittingly


When you earn miles & points from credit cards, shopping portals, and the like, the points seem to be free, but they’re not.  In most cases, you could have chosen to earn or save cash instead.  By choosing points instead of cash, you are essentially buying points for the amount of cash not earned or saved.  Let’s look at some examples…

Credit card sign up bonuses

I recently signed up for a US Airways card from Barclaycard that offered 35000 bonus miles.  I could have chosen, instead, Barclaycard’s NFL card which currently offers the equivalent of $400 cash back.  If we ignore for the moment that the latter card has a heftier spend requirement, you can argue that by forgoing cash in favor of miles, I bought those US Airways miles for $400/35000 = 1.14 cents each.  I’d argue that 1.14 cents is a great price for US Airways miles, but its far from free.

Credit card spend

For day to day spend, you could use a credit card that rewards you with points or miles, or you can use a credit card that rewards you with cash back.  There are several good 2% cash back cards out there (the best of which, I think, is Barclaycard’s Arrival World MasterCard which actually earns better than 2% if you cash in for travel) so I like to use 2% as the cash-back benchmark.  Anytime you use a credit card that pays one mile per dollar, you are forgoing 2 cents per dollar.  So, you are essentially buying miles for 2 cents each.  Many cards offer bonus points that increase their earnings above 1 mile per dollar, though.  Here are some examples:

Example credit card (and bonus considerations)

Points earned per dollar

Cost of points earned (by giving up 2 cents per dollar)

Basic airline card (US Airways, Delta, AA, etc.) 1 2 cents
Chase Freedom (with 10% checking bonus) 1.1 1.82
SPG transfer to miles w/ 25% bonus 1.25 1.6
Delta Platinum (10K bonus after $25K spend) 1.4 1.43
United Club Card 1.5 1.33
Basic airline card, airline spend 2 1
Sapphire Preferred travel/dining and 7% annual dividend 2.14 .93
Chase Ink (cable, internet, telecom, office supply) 5 .4
Chase Freedom rotating 5X category (with 10% annual checking bonus) 5.5 .36


Portal shopping

An easy way to earn extra points is to start all of your online shopping at a shopping portal that awards points.  Keep in mind, though, that there are many great cash-back portals as well.  If a point-earning portal offers 5 points per dollar, and the best cash back portal offers 5% cash back, then when you choose points you are essentially buying those points for 1 cent each.  Usually the cost is higher, though.  It’s common for cash back portals to offer as much as 10% back where the best point earning options are no more than 5X.  In those cases you are buying points for 2 cents each by choosing points over cash.

Buying gift cards

Occasionally there are good opportunities to get lots of points for buying gift cards.  There are also often great opportunities to buy gift cards at a discount (see “Save money almost anywhere“).  The calculations here are the same as with portal shopping.  If you choose to earn 5X points rather than save 5%, then your cost per point is 1 cent.  If you choose to earn 5X points rather than save 10%, then your cost per point is 2 cents.

Cash & Points awards

Many hotels and some airlines offer award stays (or flights) for fewer points if you kick in some cash.  For example, a Starwood category 4 hotel room can be booked for 10,000 SPG points per night.  Alternatively, when available, you can choose the Cash & Points option: 5000 points plus $75.  By choosing the second option, you save 5000 points in exchange for $75.  In other words, this choice is equivalent to buying SPG points for $75 / 5000 = 1.5 cents each.

So What?

Buying points & miles intentionally or inadvertently is not a bad thing.  Depending on how you use those points & miles, you may end up with far more value than the cash you gave up.  I do think, though, that its important to understand the choices you’re making everyday so that you can decide for yourself whether the points are worth the price.

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[…] miles when they use a miles-earning card (see Nick’s recent post on this topic here, and a really old post of mine here).  When you use a card that earns 1.5 miles per dollar, it’s like buying miles for 1.33 […]

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[…] Buying points, unwittingly […]

Frequent Miler

Paul: Wow, I didn’t know that. Thanks for the tip!


FM – the Barclay NFL card is really a $600 cash back offer, as you typically get an additional $200 cb offer (20,000 pts) a few months after having the card. It’s usually spend $500 a month for 3 consecutive months and then get the second cb bonus. It’s one of the most attractive offers out there.


Brent: I really don’t know the answer to that.
Pat: yes, if you can find a place that will let you pay with a credit card for vanilla reload cards, you can do that.


@ FrequentMiler

I haven’t followed FT on cashback cards. I know some that have been grandfathered in from other cashback cards or maybe some sort of travelocity card that earns 4% are hitting the Bigcrumbs > Amex GC’s for the 1.4% cashback pretty hard.

My question is.. if you have a cashback card and are doing manufactured spending to get the 2% cashback, how often are they shutting people’s cards down? If I do $3k in AZ payments and then do $10k in Amex GC’s (liquidate through VRs). How likely am I to get shut down compared to a miles/points earning card? It seems that AZ payment spending and VR spending have not lead to a high % of shut downs from reading the FT threads.. but the data points for cashback cards and shutdowns I’m not familiar with.


Pat: I’m not sure I understand. How would you get 30,000 points from $2000 worth of cards? 15 points per dollar?


By using the cards to hit your minimum spend requirements for 30,000 point bonuses. Rent + Car will get me to the minimum spend for my two Chase Ink cards. I was going to spend the money anyway.
Transaction frees on buying $6,000 worth of cash cards is $210 or so? Then you get 66,000 points. Cash gets put on your Blue Bird.
That’s what I was getting out. Sorry for not being more clear. Is what I’m saying making sense now or am I still off?


Pat: Yes, that makes sense. Are you able to pay rent + car with credit cards?


Rent + Car. Was hoping to use miles card to buy cash cards. Then load cash cards on AMEX Bluebird. Then use Bluebird to cut checks for rent and car.
Will that work?


So, Visa or Vanilla is still an awesome way to shift your rent and car payment to cards and hit your min-spending for bonuses- no? $2,000 of cards and 30,000 points means two tenths of a a cent per point- doesn’t it?


Great post and did serve as a reminder of the cost of this. Its a reminder that after meeting minimum spends to get large bonuses, I’ll have to more carefully consider where my spending goes. I’d think it’d first go to earning high spend bonuses (BA companion pass, bonus points, free nights, etc) absent 5X options. Absent those I will have to seriously consider getting a Fidelity Amex card and the PenFed card.

As you and a few others have mentioned in the comments, a key thing to remember though is that while cash back is fine and dandy for domestic travel in economy and getting cash back to buy “any good hotel at the cheapest price”, earning points/miles allows us to take nicer vacations, especially international ones and teh ability to stay in nicer hotels.

Even though I (and most people) would never pay the $8K cost of a business class flight because they couldn’t, and therefore aren’t really getting 8 cents per mile in “value”, at least I get to have that flight for a lot less in points cost. Additionally, 100K points needed for a typical J flight to Europe that was earned via a 1X card (thus on $100k in spend) could have been $2,000 on a 2% cash back card. However if you would be flying to Europe in even coach in the summer, you’d probably need to pay at least $1500 for a RT flight in coach. So then I look at it as I’m paying $500 to fly business which I’d gladly do. Add in the possibility for stopovers and open jaws and it really makes it pretty comparable.

[…] Buying points, unwittingly […]


Outstanding article. Made me think anew.


Good article. Keep it up.