Patrick McKenzie (patio11 fame) had a great blog post in credit card rewards

There is a lot that goes into it, and it is interesting how customers like me who literally never have carried interest and have to made thousands of $ in rewards over the years still make the banks money....

https://www.bitsaboutmoney.com/archive/anatomy-of-credit-car...

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swed420 14 hours ago | parent | next [-]

Discussion of patio11's article:

https://news.ycombinator.com/item?id=39928604

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steveBK123 15 hours ago | parent | prev | next [-]

Credit card points/miles are an interesting topic, and I have found them to be kind of useful cyclically myself over last 20 years.

They are a way for airlines to create value out of thin air with their own fiat currency. For the average consumer the miles create less of a pure economic efficient benefit and more of a psychic benefit - funny money bucket that accumulates to defray some trip expenses. Economically they'd be best off with an outright 2% back card.

For the minority of customers who are flexible on dates/locations and willing to plan in advance - most airline/hotel programs have sweet spots at the more premium level.

I use them to fly overseas business class refundable fares at discount. It's not free, but the taxes paid + foregone $ I could have gotten with a cash-back card ends up being 2-3x economy non-refundable fare instead of the 5-7x listed cash price if I bought the business class ticket outright.

It's generally a time-vs-money thing though in that to maximize airline/hotel programs you need to pay attention to various limited time offers for signup bonuses, spending bonuses, conversion bonuses, redemption bonuses, etc. Without those it's a very uphill battle.

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nickjj 15 hours ago | parent | next [-]

> It's generally a time-vs-money thing though in that to maximize airline/hotel programs

Credit card hotel booking portals are often much worse than what's available too.

For example, you might end up paying 30-100% more for a hotel booked through Chase Travel. At the very least you'll have way less selection. Even if price matching exists, you could still end up paying more.

I am traveling to Mexico next month and I do have a Chase Sapphire Preferred card (the one with the $95 annual fee). You get $100 in hotel credits per year if you book through Chase Travel.

In one of the spots I'll be at, there was (1) selection. It was $92 for 2 nights in a pretty low populated town that I'll be passing through. That hotel was rated 3.2 stars on Google.

If I use Google search or any hotel aggregator site, there were over 10 hotels available for half the price with much better ratings.

In this case it cost me about $50 extra to use the card's benefits.

Many people don't understand how rewards work when it's marketed towards your annual fee. The $100 credit doesn't offset the $95 annual fee. You pay $95 out of pocket for the fee. As soon as you book that hotel for $100 you've now paid $195 total out of pocket of which $100 gets credited back, so you're still out $95. If you instead didn't have the card and got the hotel at the cheaper rate, you'd only be out $45 or whatever you paid.

I mainly got the card because it had a really good sign up bonus, 0% international exchange fees and reasonable rental car coverage. Other cards can cover these benefits without an annual fee.

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ethersteeds 15 hours ago | parent | prev | next [-]

> For the minority of customers who are flexible on dates/locations and willing to plan in advance - most airline/hotel programs have sweet spots at the more premium level.

What does this mean? I'm not clear what the sweet spot is - are you talking about buying points/miles/etc outright with cash rather than earning them as credit card rewards? Everything I've read is that these are almost always bad deals.

	▲	steveBK123 14 hours ago \| parent [-]
		It means that the vast majority of redemptions are a bad deal, but every program has gaps in their earn/burn charts that lead to good values. There is no one-size-fits-all answer. If you do not have time to look into it, plan trips 6-12 months in advance, or have flexibility (will go anywhere thats a deal), then they aren't worth it.

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quickthrowman 15 hours ago | parent | prev [-]

> They are a way for airlines to create value out of thin air with their own fiat currency. For the average consumer the miles create less of a pure economic efficient benefit and more of a psychic benefit - funny money bucket that accumulates to defray some trip expenses. Economically they'd be best off with an outright 2% back card.

“Saving” airline miles is definitely suboptimal, like you said, getting 2% cash back and redeeming it immediately is the optimal strategy. Money is fungible and cash depreciates.

Plus, the “deals” you have access to with airline miles are not slanted in your favor.

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Mamut3 15 hours ago | parent | prev [-]

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