Which Rewards Credit Card Offers the Best Value?

There’s an interesting report, written by IdeaWorks, sponsored by Switchfly, reported by Tnooz, and linked to on Flyertalk by luv2ctheworld (…sigh…) that claims to have performed a thorough comparison of the financial return of several travel rewards credit cards. I applaud the report for assigning higher values than I usually see, but there are still some glaring errors.

Wrong: Southwest Premier Beats Sapphire Preferred

Why is this wrong? Because the Sapphire Preferred earns 2 points per dollar on all travel and restaurant spend, plus you earn a 7% annual bonus. The Southwest Premier card earns 2 points per dollar only on Southwest Airlines purchases, plus a 6,000 point annual bonus. You can transfer your Sapphire Preferred’s Ultimate Rewards points to Southwest’s Rapid Rewards program, so if the Sapphire Preferred gives you more points in more categories and lets you use them in more ways, how can its points be worth so much less?

Credit to author Jay Sorenson and editor Eric Lucas.

Credit to author Jay Sorenson and editor Eric Lucas. See report at Idea Works.

The report argues that Ultimate Rewards points earned with the Sapphire Preferred card earn only $0.016 per dollar spent vs. $0.019 returned from each dollar spent with the Southwest Premier card. I’d reverse that order, and probably make both numbers higher.

Subjective Valuation for Citi ThankYou Premier

I can forgive a little error with cards where you have to redeem a fixed number of points for a variably priced award. Ultimate Rewards points are best transferred to a program like United or Hyatt, where a 25,000 mile flight could cost $120 or $620 and a 22,000 point hotel room could cost $300 or $600. But the Citi ThankYou Premier card is much more clear about how much it’s points are worth, and this report gives it a value of only $0.021 per point. Let’s get our own calculators going.

You get at least 1.33 cents per point, because that’s how much they’re worth when you book a flight using their online reservations portal. You can pay the balance by charging it to your card, so there’s no lost value from “loose” leftover points. Furthermore, you can earn miles on these flights because they book into normal revenue space.

It’s very easy for me to find a $240 flight to cover 6,000 miles. Let’s assume they’re United miles, which I value at 2 cents each. That means I need 18,045 ThankYou points. In return, I will get a $240 ticket and 6,000 miles valued at $120. If I have a 100% 1K bonus, that becomes 12,000 miles valued at $240. So really, those 18,045 ThankYou points are worth $480 to me, or about $0.0266. If you get no bonus, you get only $360 in value, or $.02 per point. This report’s value is at best a floor for Citi’s ThankYou points and doesn’t reflect the most likely valuation for a regular traveler in my opinion.

Good Recognition of Sign-up Bonuses

I will give the report credit for properly acknowledging the added value of sign-up bonuses. It ranks the Chase Sapphire Preferred as the best card after accounting for the generous sign-up bonus, followed by the Southwest Premier and the Citi ThankYou Premier cards. That sounds about right to me. And if you want to do some Delta SkyPesos bashing, it ranks the Delta SkyMiles Gold card pretty low across the board. :D Other Delta cards offered by American Express provide better value.

Anyway, I thought some of you might be interested, and others amused, by what the report includes. I also hope that my quick comments will help you view these and similar valuations with a little more skepticism. Remember, valuing miles and points is always about what YOU get out of them. Some people prefer to use the cost of the ticket if they’d paid cash. Others use a lower number because they wouldn’t have bought it at any price other than with miles. If you value your United miles at 1 penny each, your numbers will be lower. What’s important is that YOU have a number so you can do these kinds of calculations yourself.

There is a very important quote at the beginning of the report on page 11 that should be your guiding principle when applying for any travel rewards card:

Individual spending and reward behavior determines how each credit card delivers value for cardholders.

Consumers who plan to use their card primarily for travel expenditures should favor offers that provide bonus accrual for airline tickets, hotel stays, and car rentals. This provides anearnings boost to deliver bigger rewards faster. But another type of behavior is just as important but not as obvious . . . and this is “how” the consumer plans to spend their points or miles.

A Week of Amazing Customer Service
Hilton Free Night Certificates Are Not More Valuable

Scott created Travel Codex after learning how to travel better on a budget during grad school. He now flies over 150,000 miles every year.
Email // Twitter // Facebook // Google+ // Subscribe by RSS

  • Bgiagg

    Your thankyou points calculation makes no sense. If that logic stays, $240 dollar cash would get you a $240 ticket and $240 in miles, so each dollar worth two dollars?

    When you paid 240 for the trip and got $240 worth of miles back, it just means you got yourself a free trip, courtesy of united airline. That has nothing to do with the thankyou points.

    • Scottrick

      No, I’m saying 18,045 points are worth two dollars to me. $1 for buying the ticket, and another dollar for the miles that I earn on that flight toward future travel.

      Excluding category bonuses, it would take $18,045 in spend to earn 18,045 points for $480 in benefits in my example. That works out to a return of $0.0266 per dollar, and since you earn 1 point per dollar excluding category bonuses, that’s $0.0266 per point.

      • Bgiagg

        Ok. If I have 18045 points and you find that $240 ticket, why don’t you let me pay for your ticket with the points. It worths $480 to you, but I am ok if you just pay me $250 and pocket the extra $230. Wait, I can now use $240 out of the $250 you pay me to buy the same ticket. Now I get the same $240 ticket and $240 worth of miles, plus the extra $10 you give me! Wow, now those points have made me $490 and got you $230 too! :)

        • Scottrick

          If I give you $250, then I earn $240 worth of miles and I am down $10. My net is $230.

          You have $250 and buy the same ticket, earning $240 worth of miles with $10 left in your pocket. Your net is $250.

          The total is still $480.

          • Frequent Miler

            I agree with Bgiagg. You can take your exact same words from the post above but replace ThankYou points with dollars and argue that each dollar is worth $2. That doesn’t make sense.
            Here’s another argument: you get the same stuff (the flight plus the earned United miles) regardless of whether you pay with TY points or cash. So, yes, you may value what you get higher than what you paid for it, but that doesn’t change the fact that each TY point gets you exactly the same stuff that 1.33 cents cash would get you.

          • Scottrick

            The issue is we’re talking about the return on each dollar spent using a rewards credit card. I have to spend $18,045 on a Citi ThankYou card to get a roundtrip flight that cost $240 and earns me another $240 worth of miles.

            If I want to take the same flight using miles earned with a United Explorer card, I need to spend $25,000 to redeem 25,000 miles for an award ticket that earns no miles back.

            I included the value of the additional miles because one card earns me a free flight plus more miles while other card options earn me a free flight with no more miles.

  • Elizabeth

    Southwest Premier has 6k annual bonus points (the Plus version is 3k), but I agree that Sapphire Preferred should be valued higher than Southwest Premier.

    • Scottrick

      Thanks. I’ve made the correction.

  • Jay Sorensen

    Greetings all, I’m Jay Sorensen and the author of the report. I’ve read the above and wish to offer these observations:

    1. Southwest beats Sapphire. Please review the table on page 12 for a presentation of how bonus points/miles were treated in the analysis. The table on page 11 explains the spending assumptions. I don’t find an error in the math.

    2. Subjective valuation of Citi ThankYou. I did not calculate the benefit of a bonus provided by elite status. Around 5% of frequent flier program members have status and this did not seem like calculation that would resonate with most members. Kudos to Scott for getting more bang for the buck.
    I enjoyed reading this review of my report. Goodness knows, it’s a tough topic to tackle.
    Best regards, Jay

    • Scottrick

      Very tough. I did point out that yours was one of the better ones, and my main goal was to show people how and why they should come up with their own personal numbers. You’re safe in defending the Citi ThankYou Premier card. Your number is fine for most people, but I think the percentage of elite travelers who read my site is a little higher than in the general population.

      As for Southwest vs. Sapphire Preferred. I still disagree after re-reading your report. You correctly note that the Sapphire Preferred cardholder earns more total points. The mistake is that your report assumes cardholders will use the Ultimate Rewards travel agency to book any ticket (except Southwest, which doesn’t let others book its flights). This is a poor redemption option and ignores the fact that customers can also transfer to Southwest. It’s like comparing apples to oranges despite the fact an oranges to oranges comparison is possible.

      Looking at Table 5, I have 23,400 Ultimate Rewards points from the Sapphire Preferred and 20,900 Rapid Rewards points from the Southwest Premier after spending $18,000 on each as described in Table 4. Anyone can open a Rapid Rewards account and transfer the Ultimate Rewards points. I turned my apple (Ultimate Rewards) into an orange (Rapid Rewards).

      The same $18,000 earns 23,400 Rapid Rewards points using the Sapphire Preferred card but only 20,900 Rapid Rewards points using the Southwest Premier card. That alone is enough to make the Sapphire Preferred card better. But there is additional value in the flexibility of Ultimate Rewards since I’m not forced to make any such transfer and could choose to move them to a mileage-based award program like United’s MileagePlus where I might get an even higher return.

  • kyunbit

    The main advantage of Citi thank you points is the flight points system. If you buy a few tickets on the card, it is an automatic 2.66% on everything card with 3% on gas, groceries etc