When Cash is King for Manufactured Spending

I like to do manufactured spending – my flexible schedule, ideal geography (with many MS-friendly stores nearby), and variety of credit cards with different category bonuses allow me the opportunity to bulk up spending on my credit cards to earn rewards for cheap.  I actually don’t do much manufactured spending for airline miles or hotel points, but rather for cash-back or cash-equivalents.

I’ve been lucky to get my hand on not one (not available anymore), or two, but three different cards that earn 5x points or cash back at drugstores, grocery stores, and gas stations.  While the 5X window on one of my cards recently expired, the other two are still going, so I can cycle between using two different credit cards on things like Vanilla Reloads at drugstores.

Not only that, but I think of cash as another type of transferable points currency. In fact, it’s the most transferable as it has the most liquidity. Many points currencies can be straight up bought with cash.  There is a downside as most programs limit the amount you can buy at a time or within a certain time period, but the upside is also that points tend to post immediately when you buy them, so you don’t have to wait for a credit card statement to close.

I recently got into a points-debate about which card to use at a drugstore (because who of us hasn’t done that?).  A friend wanted to use his American Express SPG card to earn valuable Starwood points, instead of a 5% cash back card.  I argued that the 5% cash back card was better.  I gave my math below:

If you buy 2 Vanilla Reloads with your SPG card, you pay ~$8 in fees and earn 1008 SPG points.  If you were to buy 2 Vanilla Reloads with your 5% cash-back card, you pay the same ~$8 in fees and earn ~$50.40 in cash back.  We can ignore the fees since they’re the same in each example.

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You take your $50.40 and go to points.com to buy 1,000 SPG points for $35 (and grab an additional 35 SPG points by using your SPG Amex since this is another transaction you wouldn’t have done otherwise).

Thus, for $35, you get 1035 SPG points, more than the 1,008 points you earn with your American Express SPG card at a drugstore, and you keep $15.40 in your pocket as profit.  Sure, this only works for 20,000 SPG points per year (per account), but you should always looks at the marginal cost per point.  Before you go and spend $20,000 on your SPG American Express, spend them on your 5% back card.

I don’t think I got through to him, but I convinced myself!  Since this works for the almighty SPG, I thought I’d check to see what other points currencies this works for.

Below is a list of several airline and hotel programs – for each, I detail:

Best credit card to use for points directly (for example, the best credit card to earn United miles would be a Chase Ink card at an office supply store for 5 points per dollar).

Number of points per $1,000 of manufactured spending (I will forgo the additional few points you receive from the fee for the reload or gift card, only because the fee isn’t necessary in the calculation since a cash-back card would be required to pay the same fee).

Normal buying price (this is the normal sale price for buying miles directly, and doesn’t take into account any additional miles/points you may earn by buying miles).

Required effective cash-back rate: this is the cash-back rate required to make buying miles/points as good a deal as using the best credit card(s) for getting points through manufactured spending.

Since I detailed SPG in my example above, I’ll walk you through that one first:

Starwood Preferred Guest

• Best credit card for MS: American Express Starwood Preferred Guest (you get 1 point per dollar, but no other card earns SPG points).
• Amount of points per $1000 of MS: 1,000 points (again, ignoring the few points earned from the fee).
• Normal buying price: 3.5 cents per point (they sell for $17.50 for 500 points – for programs that have variable pricing, I look at what you’d be likely to buy for an award). Limit 20,000 points per year per account (so only good for the first 20,000 points you want to earn in one account).
• Required effective cash-back rate: 3.5% cash back (i.e., a 2% cash-back card wouldn’t be a good choice if SPG points are your goal, but a 5% cash-back card would be).

I assume you buy reloads or gift cards in the normal $4-$5 fee range per $500 bought, since that’s the normal price at grocery stores or drugstores.  One major difference is that Chase Ink cards earn 5X at office supply stores, but most will only let you buy $200 gift cards for a ~$7 fee.  Tahsir mentioned how you could triple-dip with Plink and Shopkick to lower the price of a $200 gift card at Office Depot to ~$2 per card (though that only works for the first 10 transactions with Plink).  Still, we’re talking about “at the margin,” so for now, I’ll take that $2 fee for $200 and match it to $5 per $500.  Yeah, not perfect, so I’ll try to figure out a better way to take this into account.

This may also work for calculations on whether to use a mileage portal vs. a cash-back portal.

Also, rather than soak the following list with credit card links, I’ll simply just link to a summary page of various credit cards here.

Airlines:

Alaska Airlines Mileage Plan

• Best credit card for MS: American Express Starwood Preferred Guest – $20,000 spent earns 25,000 Alaska miles.
• Amount of points per $1000 of MS: 1,000 miles (1,250 miles if you spend $20,000).
• Normal buying price: ~2.96 cents per point ($27.50 + 7.5% tax per 1,000 miles).
• Required effective cash-back rate: 3.7% cash back if you spend $20,000.
• Notes: There is a limit of 40,000 miles per transaction, though I don’t believe there is a limit on the number of transactions.  Alaska recently had a 40% bonus on the purchase of miles.  Also, you can potentially earn Alaska miles for even cheaper by buying 10,000 miles for $190 (1.9 cents) whenever you purchase an Alaska Airlines ticket through their “Fly and Buy” program (although be sure not to abuse this tactic, else Alaska might cancel your award ticket). The effective cash-back rate required for this is 2.38%.

American Airlines AAdvantage

• Best credit card for MS: American Express Starwood Preferred Guest – $20,000 spent earns 25,000 AAdvantage miles.
• Amount of points per $1000 of MS: 1,000 miles (1,250 miles if you spend $20,000).
• Normal buying price: ~3.25 cents per point if you buy 25,000 miles ($27.50 + 7.5% tax per 1,000 miles + $30 transaction charge).
• Required effective cash-back rate: >4.06% cash back if you spend $20,000.
• Notes: There is a limit of 80,000 miles bought or received each year per account.  The $27.50 price assumes you buy 6,000 miles or more.  If you buy the maximum 80,000 miles in one transaction, you pay ~3 cents per point since the transaction fee is spread out over a larger number of miles bought.  This lowers the required effective cash-back rate to 3.75%.  AAdvantage has had some sales lately.  The Citi Executive AAdvantage card also earns 10,000 EQM after spending $40,000, so that’s worth taking into consideration.

AviancaTaca Lifemiles

• Best credit card for MS: US Bank Lifemiles Visa
• Amount of points per $1000 of MS: 1,000 miles
• Normal buying price: 3 cents per point, but frequent 2×1 sales allow you to buy at 1.5 cents per point for much of the year.
• Required effective cash-back rate: 1.5% cash-back, so 2% cash-back cards are better than the Lifemiles Visa.
• Notes: When I purchase Lifemiles, I use my Barclays Arrival card, which earns 2.2% back toward travel, since there are no foreign transactions fees and because the purchase processes through Avianca, so I can my Barclays Arrival points to reimburse myself.

British Airways Avios

• Best credit card for MS: Chase Ink Plus/Bold (5X at Office Supply Stores) with triple-dip.  After that, American Express Everyday Preferred earns 4.5x on supermarkets for the first $6,000 if you have 30 purchases in one billing cycle. American Express Premier Rewards Gold (2X at supermarkets, plus 15,000 bonus points after spending $30,000).
• Amount of points per $1000 of MS: 5,000 Avios with Chase Ink, 4,500 Avios with Everyday Preferred (max 27,000 points), then 2,000 Avios with American Express (2,500 if you spend $30,000).
• Normal buying price: ~2.85 cents per point if you buy 27,000 Avios. Limit 27,000 Avios purchased per year.
• Required effective cash-back rate: >14.25% cash-back with Chase Ink, down to 5.7% cash-back with Premier Rewards Gold.  Either way, not a good idea to buy points when manufactured spending is available.
• Notes:  The American Express Premier Rewards Gold card earns 2,000 Avios per $1,000 spent and has lower fees than the Office Depot route once the triple-dip ends.  The British Airways Chase Visa earns 1.25 Avios/$ and gives a “travel together” companion ticket after $30,000, but availability can be tough to find.

Delta Air Lines SkyMiles

• Best credit card for MS: American Express Everyday Preferred earns 4.5x on supermarkets for the first $6,000 if you have 30 purchases in one billing cycle. American Express Premier Rewards Gold (2 points/dollar at gas stations and supermarkets). If you spend $30,000 in a year on the American Express Premier Rewards Gold card, you get an additional 15,000 points.
• Amount of points per $1000 of MS: 4,500 miles on Everyday Preferred for first $6,000 of spending.  After that, 2,000 miles (2,500 points if you spend $30,000).
• Normal buying price: 3.5 cents per point ($70 for 2,000 miles). Limit 60,000 miles per year.
• Required effective cash-back rate: 15.75% cash back with Everyday Preferred, then 8.75% cash back with Premier Rewards Gold (i.e., the Premier Rewards Gold card is better than even a 5% cash-back card).
• Notes: The Delta SkyMiles American Express Platinum card gives a 10,000 Medallion and Redeemable mile bonus at $25,000 and $50,000 thresholds within a year, while the Delta Reserve card gives a 15,000 Medallion and Redeemable miles bonus at $30,000 and $60,000 thresholds within a year.  These are good options you prefer Delta points and SkyMiles status.  Also, the best way to earn Delta miles may not even be a credit card.

Lufthansa Miles & More

• Best credit card for MS: American Express Starwood Preferred Guest – $20,000 spent earns 25,000 Lufthansa miles.
• Amount of points per $1000 of MS: 1,000 miles (1,250 points if you spend $20,000).
• Normal buying price: ~3.36 cents (US) per point (290€ for 12,000 miles). Limit 12,000 miles per year.
• Required effective cash-back rate: 4.2% cash back.
• Notes: Lufthansa has a 20% bonus on purchase miles for the entire month of March 2014. Without a sale, it’s actually cheaper to buy SPG points to transfer to Lufthansa, especially since SPG has a higher buying miles cap.

Singapore Airlines Krisflyer

• Best credit card for MS: American Express Everyday Preferred earns 4.5x on supermarkets for the first $6,000 if you have 30 purchases in one billing cycle. American Express Premier Rewards Gold (2 points/dollar at gas stations and supermarkets). If you spend $30,000 in a year on the American Express Premier Rewards Gold card, you get an additional 15,000 points.
• Amount of points per $1000 of MS: 4,500 miles with Everyday Preferred.  With Premier Rewards Gold – 2,000 miles (2,500 points if you spend $30,000).
• Normal buying price: 4 cents (US) per point at the time of booking as long as you have at least 50% of the required miles for your redemption.
• Required effective cash-back rate: 18% cash back with Everyday Preferred, 8% with Premier Rewards Gold.  Buying miles isn’t a good option.
• Notes: Membership Rewards transfers to Singapore Krisflyer are not instant, but can take as little as 2 days.

United Airlines Mileage Plus

• Best credit card for MS: Chase Ink Plus/Bold (5 points/dollar at office supply stores).  The Chase United MileagePlus Explorer Business card earns 2x at gas stations and has a 10,000 mile bonus at $25,000, making it superior to the Chase Ink for gas stations.
• Amount of points per $1000 of MS: 5,000 miles at office stores or 2,400 miles at gas stations (assuming $25,000 spend).
• Normal buying price: ~3.76 cents per point including tax, limit 150,000 miles per year.
• Required effective cash-back rate: 18.8% cash back with Chase Ink with triple-dip, after that, 9% cash-back.  Either way, buying miles with cash-back isn’t the way to go.
• Notes: United has had some (pretty lame) sales for buying miles recently, but not enough to make buying miles the best way. Chase MileagePlus Club card earns 1.5x miles on all spending.  If you need to waive the PQD requirement for Premier Silver/Gold/Platinum, you must spend $25,000 on a United-branded Chase card.

US Airways Dividend Miles

• Best credit card for MS: American Express Starwood Preferred Guest – $20,000 spent earns 25,000 US Airways miles.
• Amount of points per $1000 of MS: 1,000 miles (1,250 miles if you spend $20,000).
• Normal buying price: ~3.76 cents per point including tax, but frequent 100% bonus sales in the past lowering the price to 1.88 cents.  Future sales may not happen with the merger..
• Required effective cash-back rate: 4.7% cash-back with no sale, 2.35% cash-back with 100% sale.
  
• Notes: The Barclays US Airways Mastercard awards 10,000 Preferred Qualifying Miles when you hit $25,000, so that’s worth considering if you want elite status credit.

Hotels:

Club Carlson

• Best credit card for MS: US Bank Club Carlson Visa earns 5X on everything.
• Amount of points per $1000 of MS: 5,000 points.
• Normal buying price: 0.7 cents per point (+ tax for Canadians). Limit 40,000 points per year.
• Required effective cash-back rate: 3.5% cash back.
• Note: Keep in mind that the Club Carlson Visa earns 5X on everything, so it would still be a good option for no-fee spending, like sending money on Amazon Payments.  And the free night at the end of each redemption makes it a great card to keep, if you can get it.

Hilton HHonors

• Best credit card for MS: Hilton Surpass American Express earns 6X at gas/grocery.
• Amount of points per $1000 of MS: 6,000 points.
• Normal buying price: 1.25 cents per point. Limit 40,000 points per year.
• Required effective cash-back rate: 7.5% cash back.
• Note: Spending on the Citi Hilton Reserve and Hilton Surpass credit cards also allows you to earn Diamond status with $40,000 spending in one year, which buying points doesn’t do.  The Citi Hilton Reserve provides a free night at $10,000 of spending but has no good bonus categories for MS.

Hyatt Gold Passport

• Best credit card for MS: Chase Ink Plus/Bold (5x at office-supply stores) with triple-dip. After that, Chase Freedom earns 1.1x anywhere with Chase Checking bonus and a Sapphire Preferred or Ink Bold/Plus to allow transfers.  If you want elite status, the Chase Hyatt card gives 1 point per dollar but gives night/stay credits at $20,000 and $40,000 spent.
• Amount of points per $1000 of MS: 5,000 points with Ink; after that, 1,000 points.
• Normal buying price: 2.4 cents per point. Limit 40,000 points per year.
• Required effective cash-back rate: 12% cash-back (with Chase Ink and triple-dip).  After that, 2.4% cash-back.
• Note: If you want elite credits and are deciding between the Chase Hyatt Visa or Chase Freedom, the Hyatt Visa is best for the first $20,000 or first $40,000, depending on how many elite nights/stays you need.  After that, the Freedom is marginally better when paired with a Sapphire Preferred or Ink Plus/Bold.

IHG Rewards Club

• Best credit card for MS: Chase Ink Plus/Bold (5x at office-supply stores) with triple-dip. After that, Chase IHG Rewards Visa earns 2X at gas stations and grocery stores.
• Amount of points per $1000 of MS: 5,000 points with Ink; after that, 2,000 points.
• Normal buying price: 0.7 cents using Points & Cash rewards workaround.
• Required effective cash-back rate: 3.5% cash back with Ink; after that, 1.4% cash-back.

Marriott Rewards

• Best credit card for MS: Chase Ink Plus/Bold (5x at office-supply stores) with triple-dip. After that, Chase Freedom earns 1.1 points per dollar.  Chase Marriott card earns 1 point per dollar but gives 1 elite night credit per $3,000 spent.
• Amount of points per $1000 of MS: 5,000 points with Ink; after that, 1,000 points.
• Normal buying price: 1.25 cents per point. Limit 50,000 points/year.
• Required effective cash-back rate: 6.25% cash back with Ink; after that, 1.25% cash-back.

Starwood Preferred Guest

• Best credit card for MS: American Express Starwood Preferred Guest (1 point per dollar)
• Amount of points per $1000 of MS: 1,000 points
• Normal buying price: 3.5 cents per point ($17.50 for 500 points). Limit 20,000 points per year per account.
• Required effective cash-back rate: >3.5% cash back (i.e., a 2% cash-back card wouldn’t be a good choice if SPG points are you goal, but a 5% cash-back card would be).

What do you all think?  Did I miss any programs or forget about certain spending/buying methods?

If you’re interested in some of the cards mentioned in this post, feel free to read more details here. I earn an affiliate credit for certain cards.