[WSJ] It Isn't Just You: Credit-Card Points Buy Less Than They Used To

Article Link discusses how inflation impacts the value of accumulated credit card points.

Americans are accumulating large amounts of credit-card points. However, inflation is decreasing their worth.

Cardholders accumulated over $34 billion worth of points in 2023, a 70% increase from 2019, according to reports from card issuers like American Express, Capital One, and JPMorgan Chase.

Storing credit-card points is similar to hiding cash under a mattress. While money in the bank or stock market can earn returns that combat inflation, credit-card points cannot be invested.

The article also linked to a previous one from last year titled: Credit Card Rewards Are Headed Towards a Crisis. It may sound a bit sensational, but it contains some relevant data:

In a study involving hundreds of millions of U.S. credit cards, researchers from the National University of Singapore, the International Monetary Fund, and the Federal Reserve found that rewards cards can lead cardholders, especially those with lower FICO credit scores, to “overborrow” compared to classic cards.

The six largest card-issuing banks reported spending nearly $68 billion combined on rewards and related expenses in 2022, a 43% increase from 2019.

“High-FICO cardholders typically benefit financially from using reward cards, while low-FICO cardholders generally lose money,” they noted. Overall, the study revealed that rewards cards caused a $15 billion annualized transfer of wealth from low-score to high-score consumers.

@Meech
People with bad credit generally cost those with good credit more money because they drive interest rates to a certain level for all consumer debt. So we with good credit are just reclaiming a bit of that. Plus, people with bad credit are likely to cost taxpayers money too.

@Vine
Interest rates don’t affect those with good credit, do they?

William said:
@Vine
Interest rates don’t affect those with good credit, do they?

Actually, they do. Good credit holders still pay interest on their debts. The interest rate is based on the risk of lending. The risk is influenced by the percentage of borrowers who default and go bankrupt.

@Vine
But with credit cards, the goal is to avoid paying interest, right? And those with good credit get lower interest rates anyway?

William said:
@Vine
But with credit cards, the goal is to avoid paying interest, right? And those with good credit get lower interest rates anyway?

I was referring to other types of consumer debt, but even with credit cards, the high interest rate reflects the risk involved.

The point about stockpiling points is interesting. I’m particularly concerned about Chase Banks. I’ve heard stories of them closing accounts under the suspicion of fraud, even when there’s none.

I always transfer my points out of Chase if I have over 25,000 UR. I’d hate to lose a large balance if they were to shut down my account unexpectedly.

@Dacey
Chase shut down my grandparents’ account. It was a huge hassle. They weren’t big on points; they just used it as their local bank. They were furious and switched to BofA because it was more convenient for them.

They never found out why. Chase is known for being tight-lipped when they decide to shut someone down.

@Dacey

I always transfer my points out of Chase if I have over 25,000 UR.

Chase would be useless to me if I didn’t let my UR balance exceed 25k. Just last week, I redeemed 117k UR points for flights.

In the past few months, I’ve also redeemed 148k and 70k.

@doreendayson
I don’t redeem my Chase UR for portals; I transfer it to their partners, especially Hyatt.

With Amex, I’m okay keeping a large sum of points there, but I also transfer to ANA (All Nippon Airlines).

@Dacey

I transfer it to their transfer partners, especially Hyatt.

I use Hyatt too when I need a hotel. Sometimes UR points work well for flights, even through the travel portal.

Sadly, Air Hyatt is never an option.

This is why I moved from ‘team points’ to a cashback system. I feel there’s significantly less monetary value in the points game compared to what you actually earn with higher cashback setups, unless you travel internationally a lot or manage to book those ‘influencer level’ business or first-class trips.

Earn and burn. If I have points for over 6 months, I start trimming my balance.

Dez said:
Earn and burn. If I have points for over 6 months, I start trimming my balance.

How do you determine 6 months’ worth of points?

Are you referring to the amount needed to cover your travel expenses for 6 months? So, assuming you take a trip every other month, you’d need enough for 3 sets of flights and hotel stays?

@Beckett
Exactly. I track my redemption history to have a rough idea of costs.

Is it an exact science? No. I adjust my estimates if I know I have a big trip coming up, but it’s manageable.

It’s not just inflation affecting the value; it’s also the redemption rates. The consolidation in the industry has led to dynamic award charts. While there can be great deals (especially for flexible business or first-class travel), overall, dynamic awards have made redemptions more expensive.

I got burned during the Marriott merger. I had 1.6 million points at that time, and I should have booked some dream vacations. The changes in the award chart were brutal. First, categories changed, and many hotels increased in redemption value; then, they introduced off-peak/standard/peak pricing.

For instance, an Autograph Collection hotel I stayed at for 45,000 points a night in July 2017 now costs 297,000 points for a stay in November.

@SlopRules
I agree, and that’s why I’m increasingly unimpressed when I can redeem a night for a higher cpp. It’s not a great metric like it used to be.

I’d prefer to earn and burn, but with recent layoffs, my workload is so heavy that I can’t take time off. I’m envious of everyone who can travel whenever. I have around 8 weeks of vacation saved up with no plans to use it.

I earn points and cash out once I hit around $10, then I invest them.

So far, so good!