The Frugal Travel Guy debunks Howard's "fool's gold" advice.
Charleston-North Charleston, SC (1888PressRelease) August 23, 2011 - During a CNN interview on August 5, 2011, nationally syndicated radio host and consumer advocate Clark Howard made the following comment:
"The redemption rate that people have with most of the airline frequent flier programs is so pitiful, that it's really fool's gold. See, I like gold, not fool's gold. And my version of gold is to get a cash-back reward card. A cash- back reward card doesn't tell you what day of the week you can spend your money, doesn't tell you there is limited space available to spend your money, it's none of the gimmicks that the airlines play with their games. Cash is king." (from CNN archives)
Rick Ingersoll, a veteran "travel hacker" and the author of the popular blog The Frugal Travel Guy, couldn't disagree more.
"I appreciate Mr. Howard's concern for his listeners," Ingersoll said recently, "but he is leaving a significant source of free travel on the table with his 'cash is king' thinking and short-changing his audience."
Ingersoll explained that cash-back rewards cards typically offer a rebate of one to two percent on spending. "The maximum I have seen is the Pentagon Federal Credit Union card that offers five percent cash back on gasoline purchases only. And the cash-back cards do not typically offer a sign-up bonus."
Travel rewards cards offered by the airlines, hotel chains, and the larger banks are now offering sign-up bonuses worth hundreds of dollars, he noted, just for signing up to use their cards.
"A recent example is Chase Bank, which offered a 100,000 mile sign-up bonus for its British Airways credit card. Those miles could be redeemed for a business class round-trip ticket to Europe or four domestic round-trip tickets on Chase's OneWorld partner airline, American Airlines. A conservative value of those four tickets would be approximately $1600 for the $95 sign-up fee. It would take $80,000 of spending on a two percent cash back card just to equal the value of those four readily available airline tickets."
Many travel rewards cards offer similarly large sign-up bonuses without a first-year annual fee. In most cases, the hotel rewards versions of travel cards issue points into their programs with no restriction on usage.
"If the hotel issuing the card has a room available, you can get the room with the points you earn on your travel card, which negates Mr. Howard's concern," Ingersoll said. "In fact, by using twice the miles of a typical saver airline award, the airlines offer 'anytime awards.' If there is a seat available, you can cash in your miles."
Just recently, Ingersoll needed to book a one-day trip from Savannah to Chicago. "After extensive research, the best cash price I could find that met my time constraints was $748 plus taxes. I easily redeemed 25,000 Continental Airlines miles and paid $10 in taxes for the flights I needed. I got three cents per mile in value -- a 50 percent increase over the typical cash-back card."
For those who travel frequently, Ingersoll realizes that his Savannah to Chicago deal is not an extreme example nor by any means a huge return. "But it is 50 percent better than Mr. Howard's cash back card. International premium cabin itineraries yield higher rates of return, at time in excess of six to eight cents per point. And the Starwood Preferred Guest rewards card typically offers a return in excess of 10 cents per dollar on cash and points redemptions."
Before settling for a cash-back card and its lower return for your loyalty, Ingersoll suggests you seriously consider travel rewards cards with their new flexibility and higher rates of returns. Current sign-up bonuses put huge value in your pocket immediately, he stressed:
"If you travel, even occasionally, don't be foolish by using a cash-back card, as Mr. Howard suggests. Cash in with the real gold: travel rewards cards."
For more information on maximizing frequent flier miles through sign-up bonuses and other means, visit Rick Ingersoll's blog at www.frugaltravelguy.com.