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Wealth and Wants

Airline, hotel rewards devaluations boost cash back’s appeal

Getting the most value out of travel rewards is hard work these days. Why not simplify your card strategy?

Summary

In recent years, many airlines and hotels have watered down their loyalty programs. The end results have been negative for most travelers. The COVID-19 pandemic should accelerate these trends, and it’s one of the reasons why I prefer cash back credit cards.

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In recent years, many airlines and hotels have watered down their loyalty programs.

The most common example is requiring more miles or points to book the same flight or room. Most airlines have also altered the earning side of the equation, focusing on dollars spent rather than miles flown.

The end results have been negative for most travelers. The COVID-19 pandemic should accelerate these trends, and it’s one of the reasons why I prefer cash back credit cards.

Right now, of course, travel demand is incredibly low. But I’m looking beyond that to a different kind of supply and demand. Once travel does bounce back (likely in 2021 or 2022, after a COVID-19 vaccine or treatment is widely available), travelers will be sitting on a giant stockpile of miles and points. Airlines and hotels will be eager to liquidate those liabilities and prioritize paying customers.

Check out all the answers from our credit card experts.

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Reward devaluations likely to get worse

Smart consumers are continuing to accrue miles and points via credit card spending, even if they’re not traveling at the moment. In fact, many travel cards have made this easier by altering their rewards structures to emphasize pandemic spending habits such as groceries, streaming services and food delivery and takeout.

The market has been further flooded by transactions such as the roughly $2 billion that American Express and Chase recently paid Hilton and Marriott. The hotel chains got some much-needed cash ahead of schedule, and the card companies got tons of points they can use to acquire and retain customers.

United took things a step further, securitizing a $5 billion loan with its frequent flyer program. In an SEC filing that included elements of its investor presentation, one of its stated “pros” was that it can devalue miles as desired to limit liability.

There’s no better evidence that airlines and hotels treat their miles and points like currencies, and they can alter their exchange rates at will. The practice isn’t new, but I fear it will get worse.

Even before COVID-19, Delta and United did away with their traditional distance-based award charts in favor of “dynamic pricing,” which means that more expensive tickets require more miles. And earlier this year, Marriott moved 22% of its properties to higher tiers and lowered just 7%. Travel cards have been trending toward higher annual fees, too. Devaluations all around.

See related: How much are Marriott points worth?

Cash back is simpler and more stable

I don’t mean to rag on travel rewards programs. They can still be quite valuable.

In fact, if you love to travel and if you’re willing to put in the work, they’re usually more valuable than cash back credit card rewards.

The elbow grease factor is key, though. It has become a lot harder to obtain maximum value. To make it work, you need to put in the work. You need to be flexible, too (which is hard for people like me who have kids and full-time jobs). Cash back programs are much simpler, and their value is more stable.

I think most people should focus their credit card spending on a flat 2% no annual fee cash back card like the Citi® Double Cash Card (technically 1% when you make a purchase and another 1% when you pay it off). Or if you want a little more flair, get the Fidelity Rewards Visa Signature card and earn 2% cash back, which you can put to work in the stock market.

Obviously, some people will do better by juggling multiple cards. That’s work, too, though. While I’ve been tempted to go all-in on one card for simplicity’s sake, I currently use four cards (which, for example, pay me 6% cash back on groceries, 5% on rotating categories, 3% on travel and dining and 2% on everything else).

See related: How to redeem cash back

Bottom line

There are different strokes for different folks, of course. I’m really not hating on travel cards. If you know what you’re doing, then by all means, go for them. I just think between the pandemic, more devaluations, more complexity and higher fees, the idea of getting 2% cash back on everything without an annual fee is an easy, solid return that makes the most sense for most people.

Have a question about credit cards? Email me at ted.rossman@creditcards.com and I’d be happy to help.

Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

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Credit Card Rate Report Updated: October 28th, 2020
Business
13.91%
Airline
15.50%
Cash Back
15.85%
Reward
15.75%
Student
16.12%

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