Itâ€™s important to check the fine print before you shell out a hefty annual fee
More premium cards are offering travel credits to mitigate the sticker shock of big annual fees and to push consumers to put a new card top of wallet, says Tiffany Funk of PointsPros, a service that helps consumers maximize their credit card rewards.
For example, the new Chase Sapphire Reserve credit card takes the sting out of a $450 annual fee with a $300 travel credit. The marketing gambit apparently works because high demand for the card depleted the issuer’s initial supply of metal cards, forcing them to send out temporary plastic ones to new cardholders.
“A $450 annual fee is pretty out there and not something most people are comfortable with, but a travel credit provides an incentive to apply,” Funk says.
How credit card travel credits work
Card issuers typically offer travel credits only on premium travel rewards cards aimed at frequent travelers. These cards tend to offer richer benefits than typical travel rewards cards at a much higher price.
Travel credits vary by card and typically range from $100 to $300 on cards with annual fees ranging from $200 to $450. A travel credit can essentially reduce a high annual fee to a much more reasonable $100 or $150.
To get the credit, in most cases, you simply use the card to make a qualifying travel purchase and then automatically get a statement credit. If your first purchase costs less than the amount of the travel credit offered by the card, you continue to get reimbursed for qualifying purchases until you reach the total.
For example, Saya Hillman, a lifestyle company owner in Chicago, says she and her husband recently used their new Chase Sapphire Reserve cards to book airline tickets and tours for an upcoming winter trip to Belize, where they plan to go snorkeling, visit Mayan ruins and explore a cave system that “is supposed to be beautiful and magical.” A few days after booking the trip, they logged into their online accounts and noted that they their travel credit had already been posted.
However, not all issuers are so quick to reimburse. The fine print on the Citi Prestige Card, which offers a $250 travel credit, notes that it can take one to two billing cycles for a credit to appear on the account. And American Express airline credits can take two to four weeks to post, while hotel credits are applied to the final bill at checkout, according to American Express.
Whether the credit posts quickly or not, most cards don’t require the cardholder to take any additional action in order to receive the credit, says Funk, who owns several cards that offer travel credits. “It’s pretty seamless,” she says.
Not all travel earns a travel credit
When it comes to travel credits, some cards, such as the Chase Sapphire Reserve credit card, define travel pretty broadly, counting plane tickets, drinks and seat upgrades purchased on flights, hotel rooms, rental cars, taxis and even Uber rides.
“I didn’t realize Uber counted until I got credited,” says Russ Ferguson, a Charlotte, North Carolina, lawyer and Chase Sapphire Reserve cardholder. He also has been credited for taxis and parking fees in his home city. “That’s nice because you’re getting some of that money back on a daily basis even if you’re not traveling,” he says.
I didn’t realize Uber counted until I got credited. That’s nice because you’re getting some of that money back on a daily basis even if you’re not traveling.
|\u2014 Russ Ferguson|
Lawyer and Chase Sapphire Reserve cardholder
However, some cards use a much more narrow definition of travel.
For example, the Platinum Card from American Express offers a $200 airline fee credit and a $100 hotel credit. The airline fee credit applies only on one airline of the cardholder’s choice and only to extra airline costs, such as baggage fees, in-flight refreshments, flight change charges, airport lounge day passes, pet kennel costs and phone reservation fees, according to American Express. And there’s a long list of exclusions, including airline tickets, upgrades, mileage points transfer fees, gift cards and any purchase not charged by the designated airline, such as a wireless internet pass at the airport.
And the hotel credit requires that you book your stay at one of about 450 participating hotels through the website of The Hotel Collection from American Express, using your AmEx card. Once you arrive at the hotel, you can use the credit for “qualifying dining, spa and resort activities” such as golf, excursions and swim lessons.
“Some cards have really restrictive rules,” Funk says.
And no matter what card you have, don’t expect your credit to count toward restaurant meals – even if you’re eating pizza on a piazza in Italy – or store purchases such as souvenirs, Funk says.
What to know about travel credits
Travel credits can be a big draw, convincing consumers who don’t consider themselves big spenders to pull the trigger and apply for a premium card.
“Even a $75 or $95 annual fee is tough to swallow, so in order for us to say yes to a $450 fee, there had to be some carrots dangled,” says Hillman, who, along with her husband, recently got the Chase Sapphire Reserve. “The travel credit was the thing that pushed us over the edge.”
While travel credits can be a good deal, it’s important to take a hard look at the details of the offer and your own situation before you apply. Here are four questions to ask before getting swayed by a travel credit:
- What does the travel credit cover? “It’s important to know what counts as travel,” Funk says. That can determine how much value you get out of the credit. For example, a travel credit that only applies to airline fees might be worthless to you if you fly only one airline and you already have a co-branded airline credit card or elite status that allows you to avoid most fees, Ferguson says.
- Is the credit applied automatically? Most cards give you the credit automatically, but some may not. For example, Ferguson once had a Ritz-Carlton rewards card that required him to call or go online to request reimbursement for each qualifying charge within 90 days of the purchase. “It was a real hassle,” he says.
- Will the travel credit renew every calendar year or membership year? Some card issuers apply the credit every calendar year, while others apply it every membership year, meaning your credit renews every time you get charged an annual fee, Ferguson says. Knowing when the credit renews can help you calculate how much value the card offers. For example, cardholders who get a Chase Sapphire Reserve card before the end of 2016 could get two $300 travel credits within a few months’ time, covering the first annual fee and putting an additional $150 in their pockets. “You make money right away,” Ferguson says.
- Is the annual fee too high even with the credit? It’s important to make sure any card that charges an annual fee pays for itself. But if you’re paying an annual fee of almost $500, it’s crucial to make sure the card is worth it and also to see if you could get a better value for less money. Even if you subtract the amount of a travel credit, the annual fee for a premium card still may be higher than the fee for an ordinary travel rewards card, which might have all the perks you need.
“Look at all the benefits of the card and make sure it makes sense for you,” Funk says, adding that travel credits are virtually equivalent to cash for frequent travelers.
But homebodies probably shouldn’t shell out for a premium card. “If you’re a once-a-year traveler, you probably have better options,” she says.