Waiveable annual fees

Preface

I'm not going to write about any changes to the Target Prepaid REDcard until tomorrow. For all the wailing, lamentations, and gnashing of teeth you could possibly want, go read boardingarea.com or something. We'll all know everything there is to know, soon enough.

Waiveable annual fees

As I've written before, signup bonuses play a trivially small role in my miles and points strategy. Instead, I focus on cards that offer either valuable ongoing benefits, like the US Bank Club Carlson Business Rewards credit card (at least until the last-night-free benefit is discontinued at the end of this month), or sufficiently high returns on my manufactured spend, like the Barclaycard Arrival+ MasterCard, which earns a functional 2.22% cash back on all purchases.

Unfortunately, those cards and several others I carry come with annual fees and the requisite (after a quick call to see whether threatening to cancel will earn you a worthwhile retention bonus) annual soul-searching about whether those annual fees are worth paying.

Two cards I carry waive that annual fee for high spenders, but in two very different, very roundabout ways.

US Bank Flexperks Travel Rewards high-spend bonus

After spending $24,000 in a cardmember year on the US Bank Flexperks Travel Rewards Visa, you earn a bonus in your anniversary month of 3,500 Flexpoints.

Additionally, roughly two months before your anniversary month, the Flexperks Rewards site enables the option to redeem 3,500 Flexpoints against your annual fee of $49.

Now, that's a pretty screwy system. First of all, 3,500 Flexpoints are worth up to $70 in paid airfare, so at first glance it seems like a rotten deal to redeem them for a statement credit of just $49. But second of all, if they wanted to waive the annual fee for cardholders spending $24,000 on the card, you'd think they could just waive the damn annual fee (interestingly, that's precisely how the FlexPerks Business Edge Travel Rewards card works)!

Squaring that circle is easy once you remember my maxim that the least valuable point is always the one you don't redeem, as well as its corollary, that the most valuable point to your bank is the one you don't redeem. Seen in this light, their high-spend bonus scheme is a win-win from US Bank's perspective:

• If you hoard your Flexpoints and refuse to redeem them for a paltry $49 annual fee, you have to pay that annual fee, which goes directly to US Bank's bottom line;
• If you redeem 3,500 Flexpoints against the annual fee, you'll be further away from your next award ticket, increasing the amount of time you sit on worthless, unredeemed Flexpoints, and decreasing the chances they'll ever be redeemed.

In my opinion, the least bad option, unless you actually need the bonus Flexpoints for an upcoming, high-value flight redemption, is to redeem them against your annual fee and forget about them. That turns this up-to-4%-earning product into the most valuable, year-round, no-annual-fee credit card out there.

Barlcaycard Arrival+ World MasterCard's redeemable annual fee

Never having paid an annual fee on my Arrival card, until Frequent Miler wrote about his experience downgrading his card I hadn't realized that the card's $89 annual fee counted as a redeemable "travel" expense.

I often say that the $89 annual fee of the Arrival+ is only worth paying if you manufacture more than about $44,500 on the card each year. That's the amount where the 10% rebate on travel redemptions will generate $89 in Arrival+ miles.

But if the $89 annual fee is a redeemable travel expense, that calculation doesn't hold precisely true, since you can redeem 8,900 Arrival+ miles against the fee and earn an 890 mile rebate, worth at least $8.90 in future redemptions.

Remember, our goal is to find the amount of manufactured spend which justifies keeping the Arrival+ MasterCard, and with that $8.90 rebate against the annual fee, you need spend a maximum of just $40,050 on the card to offset the now-miraculously-lower $80.10 annual fee.

Unconvinced? Here's a quick proof: spend $40,050 and earn 80,100 Arrival+ miles. Redeem 8,900 miles against the annual fee and earn an 890-mile rebate. Redeem 72,090 miles and receive a 7,209-mile rebate. Redeem 7,209 miles and receive a 720-mile rebate. You've now received $88.19 in rebates from $40,050 in spend and just 3 redemptions (one of which – the annual fee – didn't even require an eligible travel purchase).

Obviously, the proof above also illustrates that the more redemptions you make, the closer you'll come to achieving the theoretical maximum return on manufactured Arrival+ spend of 2.22%, which is one reason to privilege small redeemable transactions over larger ones.

Conclusion

Credit card companies earn money from cardholders in 4 main ways: interchange fees on purchases, annual fees, cash advance and interest charges, and selling customers' personal information to their marketing partners.

If a bank has a target for the profitability of each cardholder, it seems only right to me that high-spending customers (earning the bank higher interchange fees) should receive a break on annual fees.

But few credit card products have explicitly adopted that philosophy yet, hoping instead to earn both swipe fees and annual fees from the same customers.

How important is diversifying manufactured spend?

I often highlight a concept I like to call "imputed redemption values:" the dollar cost of a hotel night (after taxes and fees) that makes it worth redeeming that hotel's rewards currency instead of Barclaycard Arrival+ miles earned by manufacturing the same amount of spend and earning the equivalent of 2.22% cash back, when the miles earned are redeemed against travel purchases.

These imputed redemption values are an attempt to synthesize three values: the earning rate of a hotel chains's co-branded credit card; the number of hotel points required for each property in that hotel's portfolio; and the amount of cash you would earn putting the necessary manufactured spend on a 2.22% cash back card instead.

For example, here are the imputed redemption values I generated for a Hilton HHonors member manufacturing spent with an American Express Surpass card at gas stations and grocery stores:

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It's important to note these are break-even values: if a hotel room costs 40,000 HHonors points or $148 after taxes and fees, then the exact same amount of manufactured spend is required, whether it's on a Surpass American Express or Arrival+ MasterCard. As a 40,000 point room gets more expensive, HHonors points become a better value, and as it gets cheaper, Arrival+ miles become a better value.

At the exact imputed redemption value, your decision will depend on your own balances: if you have been inadvisedly stockpiling HHonors points, you should be eager to cut your loses and redeem them, while if you're saving up HHonors points for a future high-value redemption you might lean towards redeeming Arrival+ miles instead.

Should you strongly prefer cash over loyalty currencies in general?

I've been thinking about this question lately in two contexts.

In the comments to my recent post on using American Express gift cards, reader Brown wrote:

"However the most important thing is it shifts away my spending on Arrival+.

"I have a long list waiting to be redeemed on my Arrival+, like car rentals and hotels using points& cash. I believe Barclay cannot allow huge spending on their card, unlike Amex. I try to keep it below 12k each month."

Meanwhile, on February 4 Frequent Miler reflected on the opportunity cost of manufacturing elite status instead of cash back. He wrote:

"Unless you value Diamond status at more than a few hundred dollars, or you value Hilton points more than I do, I don’t see manufacturing Diamond status as a great opportunity. In this analysis, the value of the earned points and status are maybe equal to the opportunity cost. That’s not enough, in my book. As a rule of thumb, I believe that you should value the earned points and benefits much more than the opportunity cost, to make it worth doing." [emphasis mine]

These are directly opposite conclusions based on the same set of facts:

• All else being equal, cash is usually preferable to hotel points;
• But all else isn't equal — different cards are used to earn each, and there's an inherent value to spreading manufactured spend over more cards rather than fewer (within reason).

Is there a way to thoughtfully resolve this contradiction?

Why use less lucrative cards to begin with?

I think Frequent Miler is begging the question when he insists that cash is better than airline or hotel rewards currencies. He says you should prefer cash, but you already prefer cash. The only reason you'd find yourself earning hotel points or airline miles is that you've already exhausted all your most-rewarding cash-back-earning credit cards.

After all, the "new old Blue Cash" only earns 5% cash back on up to $50,000 in purchases per year — that's just over $4,000 in spend per month. Assuming you have access to more manufactured spend than that, at some point you're going to have to decide which cards you want to put the rest of your manufactured spend budget on.

In other words, you're going to run out of supercharged cards to manufacture spend on. You'll hit annual spend limits or, failing that, realize that your card issuers aren't going to let you run up multiple times your credit limit each month forever. But unless you want to stop manufacturing spend, you're going to need to dig deeper into your credit card portfolio.

That's the point where you'll need to make a conscious decision about which cards to put additional manufactured spend on, and it's at that point metrics like imputed redemption values can aid in your decision making.

For that marginal manufactured spend, whether it's $10,000 or $100,000, you should try to put spend on the cards that most closely approximate (or, ideally, exceed!) your highest-earning, unlimited cash back credit card (in my analysis the Barclaycard Arrival+ MasterCard), while not drawing additional attention from any one card issuer.

Conclusion: diversify purposefully

You shouldn't manufacture spend on a Hilton HHonors Surpass American Express just because I do, or just because it has, along with the Club Carlson Premier card, one of the most favorable imputed redemption value structures.

If you decide to manufacture spend on those cards, and others, you should do so because you find the value you receive from redeeming those rewards currencies competitive with the value you receive from your Barclaycard Arrival+ card, and you've reached your comfort level with Arrival+ spend.

More good news: Barclaycard Arrival+ no longer rounds up redemption amounts

Barclaycard is the undisputed master in my mind of the marketing technique of "underpromise and overdeliver." It seems like every month they're making small, positive changes and adjustments to improve their flagship proprietary rewards card, the Arrival+.

When the card launched, it had a great earning rate and rewards structure, but the limitations on qualifying "travel" purchases were arbitrary and frustrating.

Since then, they've introduced the following changes, all positive:

• Increased redemption period from 90 to 120 days;
• Widened eligible "travel" purchases, importantly to include taxis and services like Uber;
• Started providing free Transunion FICO scores;
• Improved their smartphone app, including the addition of in-app Arrival+ mile redemptions;
• Issued Arrival+ cards as "chip and signature cards with PIN capability," which can be used at unattended kiosks abroad.

With absolutely no publicity, as far as I can tell, Barlcaycard has made another positive change: Arrival+ mile redemptions for irregular amounts are no longer "rounded up" to the nearest dollar (100 miles).

Previously, a redemption against a travel purchase of $35.50 would cost 3,600 Arrival+ miles. You'd receive the full 10% mile rebate of 360 miles, but you'd still be losing 45 Arrival+ miles.

And I do mean losing: you'd pay 50 "extra" Arrival+ miles for the redemption but wouldn't receive an extra $0.50 as a statement credit. The $25 in purchases required to generate those miles was well and truly wasted.

Sometime in the last month or two Barclaycard removed this penalty for uneven redemption amounts. Now you can redeem Arrival+ miles "to the penny" for all travel redemptions, like this train ticket I bought at an unattended kiosk in Milan:

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Conclusion

Is this a small change? Tiny. But it's also more unabashedly good news, and I want to give Barclaycard all the credit they deserve for making ongoing, positive changes to such a popular and lucrative credit card.

Just remember, don't pay the annual fee unless you spend more than $44,500 on your Arrival+ card each cardmember year; that's the point when the 10% mileage rebate makes up for the $89 annual fee compared to a no-annual-fee 2% cash back card like Fidelity's or Citi's.

And in any case, call Barclaycard and ask for that annual fee to be waived when it comes due. I've seen increasing reports of such requests being denied, but it's absolutely free to ask.

Is pure Arrival+ mile arbitrage possible?

I have a lot of bad ideas. I have a lot of good ideas, too! Basically, I have a lot of ideas. Being self-employed, I have a lot of time to sit and think (and, naturally, manufacture spend), all for the sake of my beloved readers.

Lying in bed late last night, I came up with what I believe may be my worst idea yet, although readers are of course free to chime in with their own candidates. Interested yet?

You can redeem Arrival+ miles against refunded purchases

Whenever I mention a creative way to maximize the value of Barclaycard Arrival+ miles, I always get pushback from readers who dismiss any actual travel redemption as a mug's game: after all (the logic goes), since you can redeem Arrival+ miles for as little as $25 against any travel purchase, even if that purchase is later refunded, no one should ever have a problem with "orphaned" Arrival+ miles.

I don't do this, for two reasons: first and foremost, I have plenty of authentic travel purchases (like this Monday's Orbitz deal) that Arrival+ miles are redeemable against, so I never have more than a few tens of thousands of Arrival+ miles in my account at one time anyway. But secondly, and this is where I meet a lot of resistance, since the Barclaycard Arrival+ card is one of the most lucrative cards for non-bonused spend I don't feel any compulsion to abuse that relationship by repeatedly making preposterously large purchases, redeeming miles against them, and then refunding them (it works in the opposite order, as well). That's easily tracked and easily flagged abuse, and it doesn't interest me.

Refunded purchases forfeit earned miles

When you make a purchase with your Arrival+ card, you earn 2 miles per dollar spent with the card. When you refund a purchase made with your Arrival+ card, you forfeit the same number of miles.

10% of miles redeemed for travel purchases are instantly redeposited

Whenever you redeem your Arrival+ miles against a travel purchase, 10% of the redeemed miles are instantly redeposited into your Arrival+ balance.

These miles are pure abstractions; they are not and could not be linked in any way to the "original" mile-earning purchase(s).

Consequently, while refunding a purchase causes the exact number of miles earned with that purchase to be "clawed back," any redeposited bonus miles remain in your account.

Rube Goldberg, eat your heart out

All of these facts were swirling around in my mind last night when I came up with the following. Consider the following stylized situation:

• On January 1, the cardholder makes 10 prepaid, refundable airfare or hotel reservations, each for $1,250, for September 1.
• On January 2, the cardholder makes 10 prepaid, refundable airfare or hotel reservations, each for $1,250, for September 2
• On January 3, when the January 1 reservations post and the Arrival+ miles are deposited into the cardholder's account, she redeems the 2,500 Arrival+ miles earned with each purchase against each purchase.
• The cardholder will receive $250 in statement credits and have 2,500 Arrival+ miles remaining in their account.
• Also on January 3, the cardholder makes 10 prepaid, refundable airfare or hotel reservations, each for $1,250, for September 3.
• On January 4, the cardholder makes 10 prepaid, refundable airfare or hotel reservations, each for $1,250, for September 4
• Also on January 4, when the January 2 purchases clear and Arrival+ miles are deposited into the cardholder's account, she redeems 5,000 Arrival+ miles against one January 2 reservation and 2,500 Arrival+ miles earned with each purchase against the other nine January 2 reservations.
• The cardholder will receive $275 in statement credits and have 2,750 Arrival+ miles remaining.
• The cardholder can then cancel a September 1 reservation, refunding $1,250 to her account and forfeiting 2,500 Arrival+ miles, leaving a balance of 250 miles.
• This continues forever.

It works, but only for a certain definition of "works"

As I said to begin with, this is certainly one of the worst ideas I've ever had. There are two key problems with it, which are already illustrated in the stylized example above:

• It takes roughly 10 days to earn enough miles to cancel all ten reservations made on Day 1. Each day you'll earn enough bonus miles to forfeit one reservation's worth of earned miles;
• It takes roughly 5 days to earn enough cash back to "pay" for each reservation. Remember that each day you're redeeming roughly $250 in cash back, while each reservation costs $1,250.

In other words, it's impossible to "catch up" to yourself: you'll eventually (around September 24, in the example above, by my back-of-the-envelope calculation) have outstanding reservations when the day of the reservation comes around, and have to cancel the reservation without a sufficient Arrival+ mile balance to cover the deficit.

Of course, this is all setting aside a much more profound problem: In order to avoid paying interest, you would have to pay off your Arrival+ card each month! Even though all your reservations would be eligible for redemption eventually, each statement would close with some outstanding reservations that would have to be paid off to avoid interest charges.

Conclusion

So what do you think? Where does this idea stand in the pantheon of my terrible ideas?

Buy Uber credit in "redeemable" chunks

Back in October, Uber and American Express were offering a $10 credit when you spent $10 or more on Uber using a linked American Express card. That was great if you were planning to take one (or many more) eligible Uber rides by December 31, but it was also possible to prepay future Uber rides at a steep discount by using linked American Express cards to buy Uber gift credit (and applying it to your own account).

The catch was that Uber only allows gift credit to be purchased in increments of $25. While that was enough to trigger the American Express statement credit, Uber doesn't let you split payment for gift credit, meaning you were still stuck paying $15 out of pocket for your $25 in Uber credit.

Last weekend in San Antonio I ended up taking quite a few Uber rides, and was glad that I had "overpaid" for my Uber credits. Why? Because my Uber rides in San Antonio were cheap:

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Two of my rides fell under $10, and wouldn't have triggered the $10 statement credit if I'd paid with an American Express card. Interestingly, another fell below $25, meaning it wouldn't even have been eligible for redemption if I'd paid with my Barclaycard Arrival+ MasterCard. As it turned out, my Uber balance (after referral credits) was applied dollar-for-dollar to those fares, and I was able to capture the entire 40% discount by prepaying.

Prepay your Uber rides, $25 at a time

By now readers can no doubt see where this is going. By pre-funding your Uber account with $25 gift credit, purchased with the Arrival+ MasterCard, you can guarantee that every ride you take – no matter how short – is eligible for Arrival+ redemption. Since each credit card transaction will be exactly $25, the minimum Arrival+ redemption, you can squeeze the maximum value from an Arrival+ balance of any size.

Conclusion

Before my faithful readers flood the comments to chastise me for passing over the myriad ways Uber has invited its service to be "gamed" by travel hackers willing to color outside the lines, let me assure you that I am fully aware of this. This post is not about those techniques: it's for folks who use Uber, pay for their rides, and want to do so in the most efficient method possible.

Oh, and here's the obligatory Uber referral link.

The newest 2% cash back card (and how to use it)

Introduction

For quite a while now, there have been two cards worth mentioning for everyday, non-manufactured, real honest-to-God spend: the Fidelity Investment Rewards American Express card, which gives 2% cash back on all purchases, and the Barclaycard Arrival (now Arrival+) MasterCard which earns 2 Arrival "miles" per dollar spend, redeemable for 1 cent each against travel purchases, with a 10% rebate on all travel purchase redemptions.

With its $89 annual fee, the Arrival+ MasterCard is theoretically only superior (with its 10% rebate) to the Fidelity Investment Rewards card if you spend over $44,500 per year on your Arrival+. Thanks to Barclaycard's liberal approach to annual fee waivers, that hasn't actually been a binding constraint for literally anyone I have talked to about the card. But that fee waiver policy could change at any time, so the annual fee is still important to be aware of.

Citibank has now entered the market with what claims to be a 2% cash back, no-annual-fee MasterCard. It's no secret that I've given Gary Leff a hard time about his fawning treatment of the card, but I'm not one to throw babies and bathwater out together. I'll probably get the card one of these days, and this is how I'll use it.

What we know – and don't know – about Citi Double Cash

The new Citi Double Cash card earns 1% cash back on purchases and an additional 1% cash back "as you pay." I assume my readers' first reaction to this scheme was the same as mine: "Wait, can I earn 1% cash back on bill payments?!?" Here's the relevant entry in the card's Terms and Conditions:

"Cash Back on Payments: You will also earn 1% cash back on payments you make that appear on your current month's billing statement as long as the amount paid is at least the Minimum Payment Due that is printed on your billing statement and there is a balance in the Purchase Tracker. The balance in the Purchase Tracker is reduced by eligible payments you make. When the Purchase Tracker reaches $0, you won't earn cash back on payments until more eligible purchases are made." (emphasis mine)

Good try, but whoever came up with the unlimited 5-ThankYou-Point-per-dollar offer has apparently been let go, so they aren't just shoveling cash willy-nilly into furnaces anymore.

What we don't know is what the hell a "Purchase Tracker" is and, most importantly, whether purchases show up there immediately upon posting or only after a statement has closed.

There's simply no way to know until datapoints start coming in, but that's a potentially huge difference: will folks who pay off their entire balance before each statement closes earn 1% or 2% cash back on their purchases?

For those who do wait to pay off their balances until after their statement closes, the final 1% cash back won't be earned until two months after the initial purchase was made. That makes the card a hybrid between the "old" Blue Cash's 2-statement delay and the Fidelity Investment Rewards card's 2% cash back program, which allows you to redeem all your rewards each month (as long as you've accumulated at least $50 in cash back).

The beauty of negative-interest-rate loans

Many cards offer 0% introductory interest rates on purchases. The goal, naturally, is for customers to run up large bills during the interest-free period, then pay them off over time (or, realistically, never) once the promotional period ends. It's a ludicrously simple – and effective – trap for unsuspecting customers.

Few of those 0% introductory rate cards offer 1% cash back on all purchases. None of them have offered 2% cash back on all purchases, until now.

The Citi Double Cash card offers 15 months of 0% interest rate financing for purchases (and balance transfers, but with their 3% balance transfer fee).

The 1% immediate cash back rate makes your initial manufactured spend purchases free once your first statement closes. Except they're better than free: they're interest-free. Fund Kiva loans with a US Bank Flexperks Travel Rewards card, stick the money in a Mango 6% APY saving account, or pay off your Blue Cash card and go around the track another time or two each month. No matter what you do with the money, your returns will be printed at the bank's expense, since the 15-month loan is interest-free.

Then 14-and-a-half months later, pay off your Citi Double Cash card with your favorite miles-earning debit card and pocket another 1% cash back on the amount you've been floating.

Conclusion

That's how I'll be using my Citi Double Cash card, once I make up my mind to actually apply for one. I'd love to hear from readers who have already decided to jump in: what the hell is a Purchase Tracker, and what else do we need to know about the card?

Point density versus imputed redemption values

There are two related, but distinct, concepts that bear thinking about when contemplating hotel loyalty currencies. The same concepts are involved in airline mile redemptions, but in a much more nebulous way since airline award availability is much more closely tied to fares than in the hotel world, where (in some cases and under some circumstances) you are able to redeem your points for hotel rooms year-round.

Those concepts are "point density" and what I've called in the past (Club Carlson, Hilton) the "value per night required" to justify manufacturing spend on a co-branded credit card rather than a 2.22% cash back credit card like the Barclaycard Arrival+ MasterCard.

What's the difference?

Point Density

Point density, in the sense I use it, is a specific measure of the rebate value of a dollar spent with a hotel chain when the earned points are used for award stays with that chain.

On this page, I've calculated the point densities for 6 hotel loyalty program under a variety of conditions. Point density takes into account 2 variables: your elite status with the chain in question (and use of a co-branded credit card, if applicable) and the desired hotel category you aim to redeem your points in, and generates a single number: the number of dollars you need to spend to generate that award night redemption.

Some of this information was assembled by Travel is Free in this sprawling infographic (now slightly dated). You'll want to examine my complete point density charts if you want to make an educated decision about your own loyalty.

To give the most trivial example of point density, here's the amount of money that has to be spent with each hotel loyalty for a non-elite member using a third-party credit card to earn an award night at a top-tier property in that program, notwithstanding any promotions:

• Starwood Preferred Guest (excluding "suite-only" properties): $17,500
• Hilton HHonors: $9,500
• Hyatt Gold Passport: $6,000
• IHG Rewards: $5,000
• Marriott Rewards (excluding Ritz Carlton properties): $4,500
• Club Carlson: $3,500

Point density is the concept you want to focus on when you're paying out of your own pocket for your travel or have a choice where your employer puts you up. By examining the various point density charts, you can decide where the rebate value of your hotel spend will be highest: which chain will reward you with free nights at the properties you want to stay the most quickly?

Imputed Redemption Values

What I've previously called the "value per night required," but which is better called "imputed redemption value," measures something different: the value you need to get from redemptions of your manufactured spend to justify putting it on a hotel's co-branded credit card rather than a 2.22% cash back card like the Barclaycard Arrival+ World MasterCard.

My updated calculation of these imputed redemption values for Club Carlson are illustrative:

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Reading this chart is simple: if you're redeeming 70,000 Gold Points for one night at a Category 7 Club Carlson property, your imputed redemption value is $308, since that's the value of the Barclaycard Arrival miles you could have earned with the same $14,000 in manufactured spend. If a revenue room at the same property is less than $308, you would have been better off manufacturing that spend on a 2.22% cash back card — or staying at a cheaper property!

However, as I've stressed before (here and here), that doesn't mean you shouldn't redeem your Gold Points for that night. On the other hand, if you find yourself consistently redeeming your points for below their imputed redemption value, you should take the time to reconsider your overall miles and points strategy.

Here's the chart I assembled for the Hilton HHonors program, assuming your spend is manufactured with the HHonors Surpass card at 6 HHonors points per dollar spent:

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Here's a real-life example of decision making using this chart: I'm planning a 2-night stay at the Hilton Molino Stucky Venice this January, when the cheapest standard room award is 50,000 HHonors points. When I pull up room rates at the property, I find that rooms on my travel dates are costing $193. Since that's $8 above the imputed redemption value of $185 for 2-night, 50,000 point stays, I know that I'm not going to be leaving money on the table booking with HHonors points rather than my Arrival+ card.

This analysis doesn't take into account the points and elite night and stay credit earned on paid stays. In this case, by booking with HHonors points I'm foregoing about 3,700 HHonors points (as a Gold elite), or more depending on any promotions running in January.

That's a trivial enough sum that I'm comfortable disregarding it, but if you're gunning for high-level elite status with a chain that rewards loyalty better than Hilton does, like Starwood or Hyatt, foregoing your elite stay and night credits might require a larger redemption surplus.

Remaining Imputed Redemption Values

The remaining co-branded credit cards don't feature high earning on everyday spend like Club Carlson or lucrative bonus categories like the HHonors Surpass, so their imputed redemption values are easy to calculate:

Starwood Preferred Guest

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Marriott Rewards

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Hyatt Gold Passport

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IHG Rewards

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Remember: lower imputed redemption values are better

When deciding whether to redeem a fixed-value points currency or a hotel's own loyalty currency, you'll ideally maximize the difference between the value of your stay and your imputed redemption value. That's the money you "save" by manufacturing spend on a co-branded credit card instead of a 2.22% cash back credit card.

In this light, some of the higher imputed redemption values in the charts above are so high it's hard to imagine their relevance. In reality, if you look closely at the properties involved you might find the values are not completely unrealistic.

True, in a few minutes of surfing I wasn't able to find a single IHG property that retailed for over $1,100 per night. But Park Hyatts like Milan ($662 for the first date I checked), Paris Vendome ($730), and Sydney ($939) can easily exceed the $660 imputed redemption value for Category 7 properties. That's worth keeping in mind if you have your heart set on a specific property in an exotic locale (so-called "aspirational" award trips).

Conclusion

Imputed redemption values give you a simple method to decide how to achieve your travel goals as effectively as possible.

On that note, consider that cash and points awards, such as those offered by Hilton, Hyatt, and Starwood, sometimes provide the best of both worlds: the ability to redeem your Arrival miles against the cash portion of the award, while cashing in your hotel points at a value that exceeds the "remaining" imputed redemption value for your stay.

Update: Do refundable Arrival reservations justify keeping Sapphire Preferred?

Background

In the most recent of my periodic, blistering attacks on the Chase Sapphire Preferred, I explained why I consider the "travel" bonus category to be a red herring:

• "The Barclaycard Arrival isn't superior in earnings to the Sapphire Preferred for travel purchases;
• "It's superior to the Sapphire Preferred for travel purchases because that's how you can leverage its dominant 2.22% cash back earning rate on all non-bonused (manufactured) spend."

Developments

Then on Sunday, when I wrote my wrap-up post on Frequent Traveler University, I shared something mentioned in one of the sessions on manufactured spend (and which had previously been shared with me by a few readers privately):

"Speaking of which, Barclaycard allows Arrival redemptions against purchases that are later refunded (tread lightly here)."

In response to a reader question, I explained that neither airlines nor credit card companies like to see a repeated pattern of refunded purchases, but that doing so occasionally in order to maximize your rewards probably wouldn't pose a risk of account closure.

While I did (accidentally) do this once, the fact is that I actually do spend a lot of money on travel, and I'm happy to capture my 60-70% discount by putting manufactured spend on my Arrival card and redeeming Arrival miles against those real travel purchases.

Updated Analysis

The fact that you can redeem manufactured spend against manufactured transactions undermines the first proposition I laid out: that travel purchases have to be put on the Arrival in order to leverage its high earning rate. The most extreme case would be saving up your manufactured Arrival miles until the end of the year and buying a single, $15,000 refundable first class ticket.

That way you would be able to put all the travel reservations you intend to honor on a Chase Sapphire Preferred and earn 2 Ultimate Rewards points per dollar on those purchases.

However, even without that analysis, my first argument, regarding the annual fee, still stands:

"Consider how much you'll have to spend in order to recoup the Sapphire Preferred's $95 annual fee:

• At 2.5 cents back per dollar, you'll need to spend $3,800 in travel categories in order to earn back the value of the annual fee.
• But it'll take another $3,040 to recover the $76 in value you would have earned from putting the initial $3,800 in travel spend on a no-annual-fee 2% cash back card!
• With the conservative valuation of 2.5 cents back per dollar spent in bonused travel categories, you'll need to spend $6,840 before you start showing a profit."

This is obviously an attainable sum for very, very many of my readers.

And if you prefer to take the Sapphire Preferred's 7% annual dividend into account, just $3,551 covers the annual fee and $2,655 covers the foregone 2% cash back on that amount.

Whether you're using $6,840 or $6,206 as your "true" break-even point, a business traveler might spend that amount in just two or three business trips, while even a leisure traveler who has to buy tickets and hotel rooms for a family could easily anticipate spending that amount in a year on bonused travel purchases.

Was I wrong?

Sorry, but I'm not about to go that far.

While the Sapphire Preferred's 50,000 Ultimate Rewards signup bonus is terrific, the possibility of asking for a product change from the Sapphire Preferred to a second, third, or fourth Freedom card means that by keeping the Sapphire Preferred for an additional, paid, year you're foregoing (using this year's bonus categories as an example) 15,000 Ultimate Rewards points at gas stations, 7,500 Ultimate Rewards points at restaurants, and 7,500 Ultimate Rewards points at Amazon.com.

All while paying $95 for the privilege.

Chase Freedom bonus categories and the Sapphire Preferred

I assume everyone who carries a Chase Freedom card has already received their quarterly text message telling them to register for next quarter's bonus categories of "restaurants and Lowe's home improvement stores."

So instead of reminding you to register for 5 Ultimate Rewards points per dollar spent on the Freedom in those categories next quarter, let me take the opportunity to continue my fruitless war against the Chase Sapphire Preferred.

The Sapphire Preferred, with its $95 annual fee, has 2 permanent bonus categories: restaurants and travel.

But neither category alone, nor both together, is worth a $95 annual fee. Here's why.

You should put non-bonused spend on a 2% cash back card

In non-bonused categories, a no-annual-fee 2% cash back card is clearly superior to a dollar spent on the Chase Sapphire Preferred. You would need to get over 2 cents per point in value from every Ultimate Rewards point earned in non-bonused categories in order to work your way up to a loss of only the $95 annual fee.

Just use the 2% cash back card instead.

You should put eligible travel purchases on the Barclaycard Arrival

As I reported back in December, the Arrival's definition of "travel" purchases doesn't align exactly with the Sapphire Preferred's. Namely, while Chase bonuses taxi fares, Barclaycard does not allow Arrival mile redemptions against them. That's a real difference, but of course its significance depends on how frequently you take taxis.

2 flexible Ultimate Rewards points are strictly more valuable than 2 Arrival miles, being worth a minimum of 2.5 cents towards paid travel through the Ultimate Rewards portal, compared to the 2 Arrival miles' value of 2.22 cents.

So why don't they justify putting your travel purchases on the Sapphire Preferred? Because of the annual fee.

Consider how much you'll have to spend in order to recoup the Sapphire Preferred's $95 annual fee:

• At 2.5 cents back per dollar, you'll need to spend $3,800 in travel categories in order to earn back the value of the annual fee.
• But it'll take another $3,040 to recover the $76 in value you would have earned from putting the initial $3,800 in travel spend on a no-annual-fee 2% cash back card!
• With the conservative valuation of 2.5 cents back per dollar spent in bonused travel categories, you'll need to spend $6,840 before you start showing a profit.

What makes the Barclaycard Arrival World MasterCard different? Redeeming Barclaycard Arrival miles against the same $6,840 in travel purchases will yield at least $752 in excess value over the 2% cash back card, with an annual fee of just $89:

• Redeeming 684,000 Arrival miles against a single transaction will yield a 10%, 68,400 mile, dividend, worth $684 towards a future redemption;
• That future redemption will yield a dividend of 6,840, redeemable for up to $68 towards a third purchase.

To rephrase this point slightly differently:

• The Barclaycard Arrival isn't superior in earnings to the Sapphire Preferred for travel purchases;
• It's superior to the Sapphire Preferred for travel purchases because that's how you can leverage its dominant 2.22% cash back earning rate on all non-bonused (manufactured) spend.

Lots of cards bonus restaurant spending

Earning 2 Ultimate Rewards points earned per dollar spent at restaurants with the Sapphire Preferred is a nice touch, but it's hardly revolutionary. Check out Frequent Miler's list of cards giving bonuses in various common categories to see why.

The no-annual-fee Chase Freedom offers 5 Ultimate Rewards points per dollar spent at restaurants this quarter.

So for 25% of this year you would be downright insane to put restaurant charges on your Sapphire Preferred card. And for the rest of the year, you can simply select restaurants as one of your US Bank Cash+ bonus categories to secure 5% cash back year-round on up to $2,000 per quarter spent at restaurants.

Conclusion

Leave the Sapphire Preferred at home.

My next application cycle

Background: What's in my wallet?

Compared to many travel bloggers, I rely on signup bonuses for a relatively small part of my travel needs. For example, my Barclaycard Arrival World MasterCard came with a 40,000 "mile" signup bonus, worth $444 in statement credits against travel purchases.

However, since it earns 2 miles per dollar, worth 2.22% cash back against travel purchases, it's also my go-to card for non-bonused manufactured spend, and I've earned and redeemed many tens of thousands of miles with the card. The 40,000 mile signup bonus is a great incentive to include it in any application cycle, but it's not the only reason to get the card, and in a lower-signup-bonus environment the card might still be worth applying for — at least for the first, fee-free, year.

All this leads me to say that since I rely on manufactured spend more than signup bonuses, it's more important for me to find the right combination of cards on the earning side than merely waiting for the highest signup bonuses. For example, I applied for the American Express Blue Cash back in January because of its earning potential, not its signup bonus — then I included a few cards with valuable signup bonuses to round out my application cycle.

The cards I'm waiting for

There are a few cards I don't yet have, which are going to complement my current holdings nicely. I plan to apply for these cards during my next application cycle:

• Bank of America Alaska Airlines Signature Visa. The signup bonus for this card went as high as 50,000 miles back in December, during what I called a perfect storm of signup bonuses. It's currently stuck at 40,000 miles after spending $10,000 within 6 months, which is a great offer. But I'm hoping it pops back up to 50,000 sometime soon, so I can keep earning Alaska miles after May 31, when the Bank of America Alaska Airlines debit card finally disappears;
• American Express Starwood Preferred Guest Personal or Business. This card has a 25,000 Starpoint signup bonus, and the ability to earn Starpoints, which are incredibly valuable for hotel stays, but also transferable to partner airlines and redeemable for paid airline tickets. In other words, if approved I'll be putting this card in heavy rotation, despite its earning rate of just 1 Starpoint per dollar;
• Chase Ink Bold or Plus. I write about the earning potential of these cards fairly regularly, mainly when I'm envying people who already have them. I've grown increasingly disgusted with my Chase Sapphire Preferred card, since I put my travel purchases on my Arrival card and just don't eat out all that often (no reimbursed business expenses here!). I'm looking forward to changing my Sapphire Preferred to a Chase Freedom card (doubling my quarterly bonus earnings) and adding an Ink Bold or Plus to retain the flexibility of my Ultimate Rewards points.

What's missing

After picking up those three cards I'll have access to virtually all the most valuable points currencies. But there are a few cards I'm still considering for their other benefits:

• Chase Hyatt Visa. I've written about this card before when contemplating whether it's worth renewing for its annual free night certificate (short answer: yes, if you'll use it). It simply isn't the case that staying at a Hyatt property is the best option for me very often, which makes it a tough decision to spend a hard credit pull on the card without specific upcoming plans;
• Membership Rewards. American Express has a number of cards with lucrative Membership Rewards earning structures, but until I can find a few reliable venders where I can maximize those bonus categories, I'm not willing to commit to a $95 or $175 annual fee, given the signup bonuses currently available;
• Club Carlson Premier Rewards Visa Signature. I already have the business version of this card, and I love it. The personal version has a slightly higher annual fee ($75 vs $60), and gives an additional 40,000 Gold Points on each account anniversary. That's a great value, but I'm not convinced it's worth another $75, given that I can manufacture 40,000 Gold Points whenever I want, without paying $75 or waiting for my account anniversary!

Those are the cards that are currently on my mind. What do you think: what cards do I need to include in my next application cycle?