Are Those Hyped Credit Cards Really Different?

You can hardly watch TV for more than a few minutes before you are hit by a credit card commercial. Capital One is heavily promoting its “Venture” card, Chase is big on “Sapphire,” and AmEx is pushing a new Gold card, but you also see others. With all the intense hype, however, readers question just what’s really new:

“Are those widely promoted new credit cards really different, or is the current exposure mainly hype?”

My short answer is, “No, they’re not really different, and, yes, there’s a lot of hype. Even so, however, the cards may be good deals.” Although we’ve covered this ground before, today’s big promotional campaigns suggest that a quick update is in order.

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What the Cards Do

Sapphire, Venture, and similar cards are all basically rebate cards—what I call “bank reward” cards. Each time you use the card you get points/miles/whatever that you accumulate in an account maintained by the issuing bank. When you want to use that credit, the bank actually buys whatever you’ve chosen.

The basic formula is that, with most reward cards, you earn one unit of credit for each dollar you charge to the card, and each unit of credit is worth one cent when you go to redeem it. Different cards modify that formula:

• With some, you earn up to two or even three points for each dollar you charge to the card. Most cards restrict those extra earning options to specific types of purchases: air tickets, groceries, gasoline drugstore items, and such.
• Some cards give you a higher value when you “spend” them, again usually limited to a few types of purchases.
• Most bank reward cards allow you to use your credit to buy anything you want. A few, however, limit point exchange to travel purchases. Several used to limit rewards to airline tickets, but very few now impose that limit.
• Many cards allow you to redeem credit for cash, again typically at the rate of one cent or less per unit.

Regardless of these variations, however, all bank cards use that basic approach.

Miles—But Not Airline Miles

Even though some bank reward cards call their credit “miles,” that credit is not the same as the “miles” you earn in airline programs. You can’t combine your bank credit with the miles in your airline frequent flyer account. The only cards that earn miles in airline accounts are the cards co-branded with the airline—and each major airline co-brands one credit card—plus the American Express and Diners Club cards that allow you to transfer card credit into miles in participating airline programs.

Given that bank card credit is not equivalent to airline miles, calling the credit “miles” is something of a misnomer. Even when you use bank credit for air travel, you don’t go through the airline’s frequent flyer program. Instead, the bank uses your accumulated credit to buy a ticket. That’s why the banks can claim “no blackouts and no seat limits” for their “miles.” That’s a big advantage, but the offsetting disadvantage is that you can’t use bank miles for upgrades at all, and you have to pay huge numbers of miles to “buy” premium tickets.

Why the New Hype for Bank Cards?

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The sudden push for bank cards is based on your increasing recognition that airline miles really aren’t worth as much as you thought—and as the airlines would have you believe. Frequent flyer seats have become so hard to come by that most of you have concluded that you can’t count on getting a domestic coach round-trip on a popular long-haul route for the “standard” cost of 25,000 miles. To have any chance for a seat, you have to pay up to 50,000 miles for a “most-seats” award.

Banks that issue cards aren’t stupid—avaricious, maybe but not stupid. Bank managements are well aware of your growing disillusion with airline miles. So, as airlines devalue the worth of their miles, the banks clearly want to offer a more attractive alternative.

I’ve often noted—as has my colleague Tim Winship—that the real value of frequent flyer programs these days is in the elite status the miles measure, not in the miles themselves. Elite status gives you access to lots of perks, including “free” domestic upgrades, access to preferred coach seats when you can’t get upgrades, and reduced or waived baggage charges. Typically, you can earn elite status only by flying. The miles you get on your airline credit card usually don’t count (although they might in a few short-term promotions).

Except for airline miles, most airline credit cards are less attractive than bank reward cards. Their annual fees and APRs are typically higher than for many cards that are otherwise equivalent. As I see it, these days you’re better off with a good bank-buys card except if:

• You earn a lot of miles by flying and like to augment them with miles you get through a credit card.
• You prefer to use your credit for upgrades or premium class travel.

What About the Current Promotions?

All three of the cards currently being hyped are worthy of your consideration:

Capital One’s Venture card gives equivalent of two cents per mile when you redeem miles—even more on some purchases—which are significantly better than you get on most cards. And redemption is not limited to airlines. All in all, if you’re happy with purchased rewards, I know of no other card with such a consistently high rate of return. The financials are also better than average; the only downside is that the card is limited to folks with good credit scores. And as an extra feature, Capital One charges no fee on foreign purchases.

The American Express Premier Awards Gold Card is a bit different. You earn one point per dollar charged to the card for most purchases, two points per dollar for gas and groceries, and three points per dollar for air tickets. You can either convert those points to airline miles (with16 lines including Delta and, through next September, Continental). You can also use points to buy travel services, at about the rate of one cent per point, or various kinds of merchandise at about one-half cent per point. Alternatively, the co-branded Delta Skymiles card earns two points per dollar charged through Delta and Delta waives the fee for your first checked bag on all Delta flights. AmEx surcharges foreign purchases by a bit less than 3 percent. All in all, the Delta card is a good deal for Delta frequent flyers; average for others.

Chase’s Sapphire card gives one point for each dollar charged to the card and the equivalent of one cent per point toward any purchase, not just travel. You earn two points per dollar when you buy airline tickets through the bank’s “Ultimate Rewards” program, but you have no guarantee that you’ll get the lowest possible fare through that system. Chase adds its usual 3-percent gouge on foreign charges. In general, I find Sapphire to be less attractive than Venture.

Your Turn

Would you change credit cards based on the recent promotions? Tell us why or why not by adding a comment below!