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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