Estimated first year value

The best way to earn miles and points (or even cash back) quickly is through credit card welcome bonuses. Many cards offer big bonuses for those who are approved and meet the offer’s minimum spend requirements. In order to help you decide which offers are best, we calculate each card’s estimated first year value. This is calculated as the estimated value of the card’s welcome bonus and select perks minus the card’s first year annual fee and the cost of meeting the spend requirement. Below you’ll find details of how we calculate each piece of that equation.

Calculation Overview

With every credit card welcome offer, we estimate the card’s first year value as follows:

Estimated value of welcome bonus
+ Estimated value of select perks
– First year annual fee
– Estimated cost of meeting minimum spend

The following sections show how each component of the formula is calculated…

Welcome Bonus Value

Welcome bonuses come in many forms including cash, points, free night certificates, enhanced earnings on spend, etc. Additionally, some bonuses are tiered: you’ll earn one part of the bonus after spending $X and the next part of the bonus after spending $Y. Here’s how we handle each type of welcome bonus:

Cash

This is the easiest. We value cash back at full face value. The estimated value for a $500 cash back welcome bonus is $500.

Points

Separately, we’ve calculated Reasonable Redemption Values for every reward currency available through major credit cards in the United States. Reasonable Redemption Values are cents per point estimates at which it is reasonable to expect to get that much value or more from your points.

In order to calculate a points-based welcome bonus we simply multiply the number of bonus points by the Reasonable Redemption Value. For example, a 100,000 point bonus with points valued at 1.5 cents per point would equal $1,500.

Free Night Certificates

Enhanced earnings on spend

Some welcome bonuses offer an enhanced earning rate for a limited time. For example, the Chase Freedom Unlimited card normally earns a minimum of 1.5 Ultimate Rewards points on all spend. Sometimes the welcome bonus for this card is an enhanced earning rate of 3 points per dollar up to certain limits. When that happens, the extra earnings (the extra 1.5x in this case) are considered to be the welcome bonus.

With these enhanced earning bonuses, we guess how much a cardholder is likely to spend on the card while the enhanced earnings are in place. Then we assign only the enhanced part of the earnings to the welcome bonus value. For example, if the Freedom Unlimited earns 3x in the first year, only the extra 1.5x is considered part of the welcome bonus. We might estimate that the cardholder would spend $20,000 over the course of the year and would therefore earn a welcome bonus of 20,000 x 1.5 = 30,000 points. That bonus would then be multiplied by the Reasonable Redemption Value of Chase Ultimate Rewards points to get to the final welcome bonus value.

Tiered Bonuses

Some welcome bonuses are tiered: you’ll earn one part of the bonus after spending $X and the next part of the bonus after spending $Y. In these cases, we guess which tier most people will achieve and we’ll use that to calculate first year value. Here are a couple of examples:

Example where we’ll assume the full spend:

Sometimes we see bonuses that offer something like this:

Earn up to 100,000 points: Earn 60,000 points after $5,000 spend in 3 months, plus 40,000 additional points after completing $20,000 spend in one year.

$20,000 total spend across 12 months seems like a reasonable requirement and so we will include the full 100,000 points and $20,000 spend in the first year value calculations.

Example where we’ll assume partial spend:

Sometimes we see bonuses where the second tier is out of reach for most of us:

Earn up to 350,000 points: Earn 150,000 points after $30,000 spend in 3 months, plus 200,000 additional points after completing $200,000 spend in 6 months.

While even the first part of this example ($30K spend in 3 months) is a stretch for many, presumably no one would apply for this offer if they didn’t think they could achieve that. $200,000 spend in six months, though, is kind of ridiculous. In this case we would base the first year calculations on the assumption that most people would stop spending once they earn 150,000 points after $30,000 spend.

Select Perks

Many credit cards come with valuable perks either every year or only as part of a welcome offer. We include some of those perks in our first year value estimates. One example of an ongoing perk is the Sapphire Reserve card’s annual $300 statement credit for travel purchases. An example of a welcome offer perk is when the Amex Gold card offers 20% back on dining for the first N months of card membership.

For the first year value calculations, we only value perks that have material cash-like value. For example, we don’t estimate the value of elite benefits, club access, etc. Additionally, we don’t try to estimate the value of discounts, free checked bags, and the like. These things can have huge value to some cardholders, but we prefer to limit our first year value estimates to the perks that we guess that most cardholders will take advantage of. Free checked bags, for example, are worthless to those who don’t check bags or who get free checked bags from elite status or other cards. We also do not include perks that aren’t available until second year renewal.

With each of the perks that we include, we estimate how much it would be reasonable to pay for this perk if it was available to buy in advance. This is very different from the amount saved or rebated since you would want to get a discount if buying this in advance.

Examples of perks we include, and the first year value assigned:

• Chase Sapphire Reserve annual $300 travel reimbursement: $285
• American Express Platinum $200 Airline incidental fee credit: $140
• American Express Platinum $200 Fine Hotels & Resorts credit: $100
• American Express Gold $100 Resy credit ($50 every six months): $85
• Capital One Venture X annual $300 travel discount: $265
• Hilton Surpass $200 Hilton credit ($50 per quarter): $150
• United Quest $200 TravelBank credit: $170

To see how we valued perks for a specific card, find the card on our Best Offers page and hover your mouse over the card’s first year value.

Examples of valuable perks that are not included in the first year value estimate:

• Delta Companion Tickets (not available until second year renewal)
• Venture X annual 10,000 point bonus (not available until second year renewal)
• Free checked bags
• Global Entry / TSA Precheck rebates
• Lounge access
• Elite perks
• Category bonuses
• Big spend bonuses (e.g. free night after $15,000 spend)

First Year Annual Fee

This is the easiest part of the calculation. With most cards, we simply use the card’s annual fee. Some cards waive the annual fee for the first year, though. In those cases, the first year annual fee is $0.

Cost of Spend

With many cards, there is a significant opportunity cost to meeting minimum spend on that card instead of the most valuable alternative. For example, suppose you apply for a 1% cash back card that offers a $500 welcome bonus after $5,000 spend. And further suppose that you have another card that earns 3% cash back for all spend. With the 1% card, you’ll earn $50 cash back for your $5,000 spend (not counting the $500 welcome bonus). But with your 3% cash back card you could have earned $150 back for the same $5000 spend. So in this example, your personal “cost of spend” is $100. Since the $500 welcome bonus is substantially higher than that, it’s still a good deal, but it’s better to think of it as being more like a $400 bonus ($500 minus $100 cost of spend).

We don’t know what each person’s best alternative card is for this calculation and so we use the best base earning rate found on our Best credit cards for everyday spend page. We don’t include cards where the earning rate is severely capped or where it requires very large bank deposits to achieve. With those constraints, at the time of this writing, the best card for everyday spend is the Blue Business® Plus Credit Card from American Express. It earns 2X Membership Rewards points on all eligible purchases, up to $50K spend per calendar year (then 1X thereafter). Our current Reasonable Redemption Value for Membership Rewards points is 1.55 cents per point. Therefore the card’s 2x earning rate equals 3.1%.

Our Cost of Spend formula is:

3.1% of the minimum spend
– Value of rewards earned from minimum spend

The value of rewards earned from minimum spend is calculated as:

Minimum spend amount
x Base earning rate
x Reasonable Redemption Value / 100

Example

At the time of this writing, the Bank of America Premium Rewards Elite card has a welcome offer for $750 after $5K spend. The card has a $550 annual fee and a base earning rate of 1.5% cash back. Additionally, there are two significant perks that we add to the first year value:

• $300 annual airline incidentals fee reimbursement: We value this at $210.
• $150 lifestyle conveniences reimbursement (streaming services, food delivery, fitness subscriptions and rideshare services): We value this at $120.
• Total for first year value for select perks: $330

So, let’s go back to the first year value equation:

Estimated value of welcome bonus
+ Estimated value of select perks
– First year annual fee
– Estimated cost of meeting minimum spend

And here we’ll identify the value for each component of the above equation:

• Estimated value of welcome bonus: $750
• Estimated value of select perks: $330
• First year annual fee: $550
• Cost of spend: $155 (3.1% of $5,000) – $75 ($5,000 x 1.5 / 100) = $80

Now plug those values into the equation:

$750 (Estimated value of welcome bonus)
+ $330 (Estimated value of select perks)
– $550 (First year annual fee)
– $80 (Estimated cost of meeting minimum spend)
= $450

Estimated First Year Value in this example = $450

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