Sunday, June 20, 2010

Credit Cards: Miles versus Money (and a funny story)

For many years I have only used one credit card.  It gives me Alaska Airlines miles and an annual $99 companion-fare coupon.

Lots of credit cards offer 1% cash back, usually as a store credit to a specific merchant.  Years ago I did the math to check that earning miles was worth more to me.

Recently Fidelity began offering a 2% cash back card, with the rebate going to an IRA instead of store credit.  So I wondered if this was a better deal for me.

I'll change my actual numbers slightly, both to round them and to hide my family's actual financial habits.

First, consider the Fidelity card.  Our average monthly credit card spending is $1,500.  Multiply by 12 to get $10,000 per year. The Fidelity card would put 2% into my IRA, so $360 per year.

Second, consider airline travel using only Alaska or Horizon planes.  The Alaska card would earns 18,000 miles each year.  Travel that only uses Alaska or Horizon plans costs 15,000 miles per trip.  This would probably be to San Diego to visit relatives: a $300 flight.  We would earn 1.2 of these flights each year, so a $360 value.

Finally, consider airline travel using "partner airlines".  This kind of travel costs 25,000 miles per trip.  Typical flights I might take to visit East Coast cities with family cost $620.  We would earn 0.72 of these flights each year, so a $446 value.

So the end result is that as long as I might need to travel across the country I should stick to the Alaska Airlines card.

I still got the Fidelity card.  It has no annual fee, so I'll own it but not use it.  If airline fares go down in price then it will be easy to switch over.

But getting the Fidelity card was not without an unexpected consequence!

A decade ago most credit card companies would happily raise your card's credit limit if you called them and asked nicely.  Just for fun, I tried this a few times and soon had my card's limit up to $19,000.  There was no reason for this, but I found it amusing.

But, alas, no more!  When my credit check for the new Fidelity card happened, it somehow triggered something with Bank of America, who runs the Alaska Airlines card.  They lowered my credit limit to a much more reasonable $7,500.  Probably a wise thing for both them and myself in case my card ever gets stolen.

(I last blogged about my credit card about a year ago, when I mentioned its website's ability to generate one-use fake card numbers.  I should be doing that more!)


Unknown said...

wow David this was really facinating, especially becaseu we have both kids of cards & one other upromise card. I willhave to take a good look at the math.
Have you looked at the Upromise cards from both a math and parent view?

davidvs said...

Hi, Meriel,

I've never heard of Upromise. I'll add that to my to-do list. Perhaps in a few weeks I'll get to it and post a blog post about it.