Why I Hate Credit Card Points
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With few exceptions, I have no interest in rewards in the form of "points," "miles," or anything similar. (See also: Swipe Envy)
I've always felt this way, but I've been prompted to write this by a particularly annoying commercial. What sets me off is when the actor playing the customer talks about how his points are "like money in the bank."
Of course, my response is, "You know what's more like money in the bank? Money in the bank!"
Then he goes on to talk about how he can "spend" his points to get stuff he wants.
To which I say, "You know what else you can spend to get stuff you want? Money in the bank!"
(I actually do say these things — out loud, at the TV. So far, fortunately, my wife is managing to find my reaction amusing rather than annoying.)
When Points Are Worth It
There are two circumstances when taking points, miles, or any similar construct is a win: When someone else is paying (but you get the rewards), and when the company screws up.
When Someone Else Is Paying
The modern origin of these schemes is frequent flier miles. They were invented as a way to incentivize business travelers to chose a particular airline for their company-paid travel.
The issue was that business travelers had a lot of control over their business travel. Even within rules that required choosing the cheapest fare, the traveler had considerable influence, because they could control the details of when they could leave and when they had to return. If they wanted to travel on Airline X, it was easy to schedule meetings such that traveling on Airline Y would require an extra overnight stay or any extra day away from the office.
The reason there are so many complex rules about using and transferring frequent filer miles was to make it difficult for companies to insist that their business travelers use them for business trips or turn them over to the company.
But this is only an advantage when the person who's getting the miles isn't the one paying the fare. When you're paying for your own ticket, frequent flier miles are just a way to prepay for future trips that you may not even take.
A special case of this is when you can get your money back, but still keep the points. For a while there was a deal to let coin collectors buy directly from U.S. Mint at face value. People were buying coins with a credit card that offered miles, and then just depositing the money at their bank at face value.
When the Company Screws Up
It doesn't happen often, but sometimes a company will screw up. There was a famous case a few years ago where a company offered free travel for people who bought appliances. Unfortunately for the company, the people who designed the scheme got careless. They were thinking about large appliances like refrigerators, but wrote rules that let small appliances like vacuum cleaners and bread makers count. People quickly figured out the cheapest set of small appliances that would entitle them for the trip they wanted to take and bought those appliances in great numbers. The company ended the program as quickly as it could, but still ended up losing a lot of money.
Except for those special cases, you're almost always better off taking the cash — using a cash-back rewards card, or buying from a business that doesn't load you up with a stupid points-based rewards program.
I know some people parse these schemes very closely and find that there are circumstances where they can come out ahead. (See, for example: Credit Card Rewards Programs and Maximizing Rewards Programs with Points.com.) To a first approximation, I'm automatically doubtful.
I have a credit card that provides cash back. I could get one that provides miles instead. But I know that a credit card company that provides miles is buying the miles from an airline — and it wouldn't be doing so unless it's getting the miles for less.
The airline is glad to sell miles to the credit card company cheap, because it knows that it comes out ahead in a dozen different ways. It sets the rules for how much the miles are worth and when they can be used. Plus, it knows that most of the miles will go unused for months or years — and that some miles will never be used.
Even the people who do the careful parsing, and think they're getting their miles cheap, sometimes end up being unable to take the trip that they think they're getting such a good deal on — a work emergency or a family emergency or just a change in circumstance will force a change in plans, and there they'll be with a bunch of frequent flier miles.
Prefer cash. You can spend it on whatever you want, not just on whatever the firm that offers points or miles wants to sell you.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any card issuer.