Deceptive Deals: The Pitfalls of Some Bank Rewards Points

It’s time for one of these again. I like the idea of turning it into a semi-regular series, if that’s possible. So if you have a deceptive deal to share, send me an email!

The three kings of flexible bank rewards points are Chase (Ultimate Rewards), American Express (Membership Rewards), and Citi (ThankYou). These programs allow you to earn generic points when charging purchases to your card that can later be used to book “any” ticket through their respective travel agencies. By “any” I mean most of the flights you would find through an online travel agency like Expedia or Orbitz, but excluding tickets with Southwest or other carriers that withhold their fares from the Global Distribution Systems (GDSs).

The Good Guys

Points in each program are worth a fixed amount, so the cost of your ticket in points depends on the cost in cash. Ultimate Rewards points are worth 1.2 cents per point, ThankYou points are worth 1.33 cents per point, and Membership Rewards points are worth 1 cent per point (if you have Business Platinum Card from American Express, then you get a 20% rebate, for a value of 1.25 cents per point). Most programs have no fees or limits, but Membership Rewards does impose a 5,000-point minimum redemption and a processing fee of a little under $10 per ticket. In all three programs, people who do not have enough points can charge the remaining amount to their card.

All three programs also allow you to transfer the points to other loyalty programs instead. This is usually a better deal. I can transfer Ultimate Rewards points to United Airlines miles, which I value at 2 cents per mile if I use them for an award. Sure, an ordinary ticket doesn’t have the blackout dates and availability issues, but I have to accept a 40% devaluation if I redeem them with Chase instead of United.

Both Ultimate Rewards and Membership Rewards have lots of good transfer partners. ThankYou only recently added Hilton as its first transfer partner, and they have the best rate for booking tickets, so historically this is the only program I’ve used for that purpose. Anyway, you got the picture now. These programs have lots of transfer partners, and if there isn’t any award space, you can choose to just book any ticket if you’re willing to give up some value. Few or no fees, and tolerable redemption minimums.

The Bad Guys

Now we go to the dark side. People made such a fuss about the US Bank FlexPerks card during the Olympics, when they significantly increased their sign-up bonus. There are ways to work the card to your benefit, but once you get the points it’s a pain to use them. The minimum redemption for FlexPoints is 20,000 points. This gets you a ticket valued up to $400.

Does this mean FlexPoints are worth 2 cents per point? That would be a great deal, easily beating the competition from the Big Three. But no, it doesn’t. It means if you luck out and find a ticket that costs exactly $400, then they’re worth 2 cents per point. If you go over by one penny, then you need to redeem 30,000 points for a ticket valued up to $600. And so on… I don’t know about you, but there aren’t a lot of $400 tickets I buy. I am either booking cheap $150-250 fares for domestic flights, maybe the odd $300, or I’m in the $700-800 range for international flights. That means I’m going to leave money on the table or I’ll have to save up a lot of FlexPoints.

Capital One plays a different game with its Spark small business cards. It actually has two versions: Spark Miles and Spark Cash. Despite the name, you don’t actually earn miles. They’re just bank points like any other, and Capital One chooses to call them “miles.” But what’s the difference between these programs? Spark Cash gives you cash back. Spark Miles have to be redeemed, either for cash or travel. The earnings and redemption rates are exactly the same, so all they’ve done is taken one program and diluted it across two brands. True, you are earning the equivalent of 2% cash back with either card, but you have to pay a $59 annual fee to do so. I know of lots of better cards for $59.

More recently, my dad got burned by Wells Fargo’s so-called Enhanced Rewards Program. Wells Fargo is not known for its fancy credit card promotions, which may be a good thing. That’s where he and I keep our money, because we trust a boring bank more than one full of flashy deals. (I keep some with Chase, too, because it helps improve my card application odds.)

Wells Fargo cardholders get an amazing 1 point per dollar on all purchases! And there’s a cap on how many points you can earn each year: 120,000. What? No bonuses AND there’s a cap?! I would never apply for a card like this. Yet somehow my dad accumulated 270,000 points. And then Wells Fargo started deleting them from his account. Apparently there’s also an expiration date on points, and it doesn’t get extended even if you keep the account active.

crossed out Wells Fargo VISA card image

So with 15,000 points gone and the rest of the pile sitting vulnerable, he looked at his options. It gets worse.

Wells Fargo offers a fairly generous 1.75 cents per point, and it doesn’t use the same tiered structure as US Bank. But it does have a hefty minimum of 25,000 points. This means my dad could only redeem for tickets costing $437.50 or more without leaving money on the table. He doesn’t like to fly commercial much, and the only place he wanted to go was Denver, nonstop from San Francisco. Wells Fargo was going to charge him 25,000 points — worth $437.50 — for a $180 roundtrip ticket.

He needed two tickets, for him and his girlfriend. At this point I told him he was crazy. I told him, instead of blowing 50,000 points on a $360 redemption, use them for me instead. I had already spotted a fare to Bangkok that conveniently came in just under $875. So he spent 49,143 Wells Fargo Rewards points on my $860 ticket to Bangkok, and I bought him two tickets to Denver for $360. He actually saved ~900 points. I saved $500. And no money was left on the table.

He still has 220,000 points left in his account. I told him to take the family to Hawaii (yes, me too!). That’s about a $400 fare from where he lives and would make good use of his points considering the minimum redemption amount. But more importantly, I told him to stop using that awful card. Don’t be duped into a bad credit card rewards program like he was. How you use the points is just as important as how you earn the points. Now he carries a Chase Sapphire Preferred, and I think he’s a lot happier.

MileWise: An Innovative Way to Maximize Your Miles and Points
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  • Nick

    Have you ever looked at the PNC points program? It’s very odd and often confusing compared to TYP/UR. You get four points per dollar instead of one and I get the impression that’s done just to mess with people’s calculations (or maybe just to make them feel like they’re getting more points). I had to create a spreadsheet to get an idea of whether or not the program is any good. And they also do the Cap One Spark thing where they have a cash card which is pretty similar to their points card except you get cash.

  • Jason

    My wife recently got a pre-approval offer from First National Bank of Omaha, which promises 2% cash back on gas and groceries and advertises ‘Travel Privileges’. The travel privileges makes me curious, but there are no details on this, makes me think it’s just a standard AMEX.

    • Scottrick

      Gas and groceries are nice. I think there are some cards affiliated with investment brokerages that provide 2% on a larger number of purchases.

      To be clear, 2% is not bad for a rewards card, but charging for it and creating a misleading “Miles” version of the card, which doesn’t really earn miles, are what got Capital One on my naughty list. Capital One does have a no-fee version of the card, but it earns fewer points and has an almost identical name. And again, there are Miles and Cash versions, creating four possible products and lots of potential for confusion.

  • AKold

    I think if you are aware of the pitfalls, “bad” rewards programs don’t have to be bad. The “bad” just means they are inflexible. I still use my FlexPerks card from the Olympics promo a lot, mainly because … umm, let’s just say US Bank doesn’t have as strict rules on “spending” as Citi does. 😉

    I routinely buy tickets in the $370-$400 range for trips I have to make, so 20K FlexPerks is perfect. I can also get the $25 fee reimbursement … I have a SkyGuide membership that’s still active at the moment, so I just buy a club pass on my US Bank card and get it double reimbursed. I end up at the 2+cpp range with this.

    • Scottrick

      The problem as I see it is that many of these “bad” cards are often opened by people who already had checking and savings accounts with the same bank. They don’t know to look for anything better. And this type of person is also less likely to know how to maximize the program, e.g., my dad’s rude awakening.

  • mhenner

    You haven’t mentioned the Travelocity AMEX from Barclay’s.
    5 points for purchases on Travelocity, 2 points for supermarkets, plus special offers. Then a $400 credit for using 20,000 points toward your ticket, with you then paying the overage in cash. Since the credit is to your card and not attached to the ticket, you have a receipt for the full amount of the ticket to submit.

    • Scottrick

      Coming soon!

      Then again, this post was meant to focus exclusively on bank-branded programs. I would consider the Barclay’s Travelocity card to be co-branded. It does have some potential good uses.

  • Jeffsauer

    I have long been a hater of Flexpoints… until I realized they are awesome. I think that they are fantastic and I can almost get a redemption at 2 cents per dollar. This is because I use it on travel that I need to take as opposed to the mileage runs you are suggesting. If I need to visit the in-laws for $585 over Thanksgiving, Flexperks are a lifesaver. There is not a better currency for that redemption – I even earn miles.

    • Scottrick

      Great if it’s $585. Not if it’s $601. I guess a mix of different bank programs creates flexibility to meet any price.

      • Jeffsauer

        I think that is key – “a mix of different bank programs creates flexibility to meet any price” that’s how I view and value points. Between Flexpoints and airline miles, I am usually able to get at least 2 cents per dollar on one of them.

  • jakonoske

    thanks for taking the time to write this. Not sure if this is still true, but the Wells Fargo exchange for cash is now 1 cent per point. The 1.75 cent exchange you’re talking about might be just for airlines.

    • Scottrick

      Correct, it’s only 1.75 cents for travel. I think they plan on most people not maximizing the value of a 25,000-point minimum redemption, so the average cost to WF is still close to 1 cent yet they can advertise 1.75.

      There has been some evidence that WF may be changing the the terms of this rewards program soon, as well as making a larger push into the credit card game. They have come out the recession very successful partly by focusing on cross-marketing products to existing customers, but they are not at all competitive on the credit card front right now.

  • doctorofcredit

    On the new Wells Fargo card it says they never expire, are you sure your information is still accurate?

    • Scottrick

      No, I’m not, but this post is well over a year old. I think there have been several changes to Wells Fargo’s rewards program.

      • HB

        Business Reward points expire Nov 30th, three years from the year in which they were earned. So points earned Jan 1st 2012 expire Nov 30th 2015.

        The redemption I’m used to is a fixed point for tickets up to $400 and you pay cash for anything over $400. No booking fee. Must redeem by phone. Can’t remember how many points it takes as it isn’t my account. I don’t think it is capped, that account earns 9-10 tickets a year. Might be a grandfathered deal as it has been open for over 20 years.

  • Changed name 123

    Good idea to do the swap thing. Better if you get to go to Hawaii. That aside, this post sounds like whining. The poor grammar doesn’t make it better.