Trailing interest charges: the silent killer

Every travel hacker knows that interest charges (and annual fees) are the flip side of credit card rewards. You may earn 2% on the front end when paying with a credit card, whether you're buying a cup of coffee or manufacturing spend, but if you don't pay off your entire balance in full by the due date on your statement, you'll give it all back and more as your remaining balance accrues interest. On my credit cards rates typically start at 12.99% APR annually and go way, way up from there.

All over the travel hacking blogosphere you'll find variations of the mantra, "if you don't pay your credit cards off in full every month, travel hacking isn't for you." There's an ironclad kernel of truth to that (your interest charges will far exceed the value of your rewards) but also a deep illogic: even if you have to pay interest, you're strictly better off earning the most valuable rewards possible on any purchases you have to make. So I'll skip the lectures and stick to the facts.

Warning: trailing interest is like interest, but worse

Just like the interest earned on your savings, the interest paid on your credit card balances compounds, which gives rise to a (deliberately) confusing concept: trailing interest. Trailing interest is the product of a mismatch between the pace at which interest accrues (daily) and the pace at which it posts to your outstanding credit card balance (monthly).

Here's the description of trailing interest given on my American Express credit card statements:

"About Trailing Interest

You may see interest on your next statement even if you pay the new balance in full and on time and make no new charges. This is called "trailing interest." Trailing interest is the interest charged when, for example, you didn't pay your previous balance in full. When that happens we charge interest from the first day of the billing period until we receive your payment in full. You can avoid paying interest on purchases by paying your balance in full and on time each month."

The takeaway from this statement is that, if you failed to pay for your purchases in full and thus have a balance that's accruing interest, the date your credit card statement closes is the only date when your outstanding balance accurately reflects the amount you owe. Every subsequent day, a hidden amount of trailing interest accrues which will only post on the following statement closing date.

To avoid paying interest, you have to pay your balances off on time. To avoid paying trailing interest, you have to pay any interest-bearing balances off early, preferably on the statement closing date, to avoid giving trailing interest a chance to accrue.

Bonus warning: know how your banks calculate interest charges

Since I pay off my credit cards in full every month (preferably before my statement closes, to ensure as low a credit utilization as possible is reported to the credit bureaux), I never took the slightest interest in how banks calculate interest charges.

Until a few months back, that is, when due entirely to my own negligence I paid $5 less than my statement balance on my US Bank Flexperks Travel Rewards Visa Signature card:

Mint, the website I use to track my bank accounts, credit cards, and investments alerted me that interest had been charged on one of my accounts, so I pulled up my statement and was horrified to see an interest charge of $20.35. Naturally my first move was to call in and ask a representative reverse the interest charge:

But while I was on the phone, I asked her to explain how it was possible that I was charged $20.35 in interest on a $5 unpaid balance. The representative explained that at US Bank, they charge interest on your entire balance if any part of it is unpaid on the statement's due date.

So in case you were wondering how credit card companies pay for the rewards they shower on us, this is how: by aggressively charging customers who are anything less than totally and utterly vigilant about paying off their credit cards in full and on time.

Conclusion

I hope credit card interest charges are an issue that will remain completely and utterly academic for all my readers. Realistically, that's not going to be the case, but the more information you have about the kinds of interest charges and the way they're calculated, the more lucrative I hope your relationship with your credit card issuers will be.

Anatomy of an Award Trip: City of New Orleans

As teased in yesterday's housekeeping post, I'm headed to New Orleans for a week! Here's the scoop:

Getting there: a family bedroom on Amtrak's City of New Orleans

Amtrak operates a daily service between Chicago and New Orleans stopping in, among other places: Champaign-Urbana, IL, Carbondale, IL, Memphis, TN, and Jackson, MS.

Since both Chicago and New Orleans are in Amtrak's "Central Zone," a roomette award costs 15,000 Amtrak Guest Rewards points while a bedroom award costs just 25,000 Amtrak Guest Rewards points. Importantly, such awards include the fare for up to the maximum occupancy of the room. In other words, up to two people can travel in a roomette on a single, one-zone 15,000 Amtrak Guest Rewards award redemption.

Since my partner and I have already experienced the "roomette" (on the Empire Builder) and "bedroom" (on the Southwest Chief and Coast Starlight) room types, I decided to redeem my points for a "family bedroom." Here are a few key things to know about such redemptions:

  • They cost the same number of Amtrak Guest Rewards points as a regular bedroom award;
  • They include up to two adults and two children;
  • They have windows facing out both sides of the train (roomettes and bedrooms are lined up along each side of the wagon, looking out one direction or the other);
  • They do not have en-suite facilities. My understanding is that the family bedroom is on the same level of the wagon as the public showers, while bedrooms have private showers and toilets directly off the sleeping quarters.

Since the ride is just under 20 hours, my expectation is that the roomier accommodations and better views will make up for the lack of a private toilet and shower, but on a longer, cross-country trip that may become increasingly inconvenient.

Total cost: 25,000 Amtrak Guest Rewards points (transferred instantly from Ultimate Rewards).
Total value: $637. Value per point: 2.55 cents.

Staying there: Club Carlson and Hilton HHonors

Since we'll be in New Orleans for 7 nights, there were a few decent options for hotel redemptions:

  • There's a category 6 Marriott downtown, the AC Hotel New Orleans Bourbon/French Quarter Area, where I could have redeemed 230,000 Marriott Rewards points for a 7-night Hotel + Air package and received a rebate of up to 55,000 United Mileage Plus miles or, more realistically, 50,000 Alaska Airlines Mileage Plan miles. That would have involved transferring 180,000 Ultimate Rewards points, worth $1,800 in cash. Since 7 nights at a 4-star hotel downtown cost (very roughly) $1,300, even generously valuing the Alaska miles at 2 cents each I'd only be getting about 1.28 cents per transferred Ultimate Rewards point. I felt I could do better.
  • There's a Club Carlson property downtown in the French Quarter, the Country Inn & Suites By Carlson, New Orleans French Quarter, LA. As a Category 5 property costing 44,000 Gold Points per night, I could theoretically book 7 nights for the price of 6, or 264,000 Gold Points. Using the same $1,300 valuation as above, that would yield 0.49 cents per Gold Points. Since the Club Carlson Business Rewards Visa earns 5 Gold Points per dollar spent, that would yield a return of 2.46% on the spend I manufacture with the card, which isn't terrible for non-bonused spend.
  • There's also a category 7 Hilton property downtown, the Hilton New Orleans/St. Charles Avenue. It ordinarily costs 50,000 HHonors points per night, but due to weird Hilton premium award pricing is available for 44,519 HHonors points during our stay in New Orleans. The wrinkle is that as an HHonors elite, I can book 5 nights for the price of 4, or 200,000 HHonors points, but unfortunately that benefit only applies to standard room awards, not premium room awards, which is where "weird" award pricing comes into play! Nonetheless, 280,000 HHonors points for a 7-night stay, $1,300 stay would yield 0.46 cents per HHonors point, or a 2.79% return on gas station and grocery store spend with my American Express HHonors Surpass card.

Ultimately, I split the difference: since the last night is free on all Club Carlson award reservations separated by at least one day, I booked our first two and last two nights in New Orleans at the Country Inn & Suites, and the middle three nights at the Hilton New Orleans/St. Charles Avenue, taking advantage of "weird" premium award pricing. In total, I paid 88,000 Club Carlson Gold Points for four nights (0.84 cents per Gold Point at $185 per night) and 133,557 HHonors points for three nights (0.42 cents per HHonors point at $185 per night).

However, if standard rooms open up for five consecutive nights at the Hilton, I'll cancel the first or last Club Carlson redemption and rebook using 200,000 HHonors points instead, saving the Gold Points for another day.

Getting back: US Bank Flexpoints for Delta first class (credited to Alaska)

For our return, I noticed that Delta was selling first class seats on the perfect itinerary home for just a hair under $400: $392.10, to be precise. Since I'm sitting on a constantly-growing stash of US Bank Flexpoints, it was a no-brainer to book us in paid first class for 20,000 Flexpoints per ticket. I'll credit the flights to Alaska, which will net me 3,922 Mileage Plan miles and get me 2,139 elite-qualifying miles closer to MVP status for next year.

Total cost: 40,000 Flexpoints.
Total value: $784.20. Value per point: 1.96 cents.

Conclusion

We're thrilled to be headed back to New Orleans, and I'm excited to try out a new Amtrak accommodation type on a new route. So until next week, I'll leave you with this:

Have a great weekend!

Blog housekeeping for March 26, 2015

A few quick notes on the site, feel free to skip if this stuff bores you.

WELCOME SAVEROCITY READERS!

Matt, the benevolent dictator/head honcho over at Saverocity, recently reconfigured his site and generously offered to plug my RSS feed into his front page. I leapt at the opportunity and want to extend the warmest welcome to Saverocity readers discovering my site for the first time: make yourselves at home!

Should I re-enable the site's mobile theme?

I hate mobile themes. When I visit this site on my mobile phone, it's because I want to access one of the resources conveniently linked at the top of the page (like hotel promotions) or check an airline's alliance membership or flexible currency transfer partners.

But I understand my readers are more likely to just want easy access to blog posts. If you care one way or the other, vote in the following poll and I'll act accordingly:

Updated revenue disclosure

Reader Declan made an interesting point in the comments to this post about the old disclosure I had at the top of each page. He wrote:

"Do you know what "personal referral links" are - including links from Amazon Associates accounts? They're "third-party" (i.e. not you, not me) affiliate links."

In response I explained my reasoning, and still feel that my old disclosure policy (which explicitly mentioned Amazon Associates revenue) gave readers the information they needed to judge any possible conflicts of interest, but I've made it even more explicit so there's no mystery as to how I make (not very much) money from this site: Google Adsense, Amazon Associates, blog subscriptions, and personal referral links to sites like TopCashBack (the same links anyone else gets when they open an account).

I also decided to no longer include Amazon Associates links to specific products I'm reviewing (as far as I know, I've only ever included one, in my review of Pound Foolish, which I've now removed). The disclosure now reads:

"Disclosure: to the best of my knowledge, the only remuneration I receive for any of the content on this site is through my personal referral links, my Amazon Associates referral link, the Google Adsense ad found in the righthand sidebar, and my blog subscribers, who also receive my occasional subscribers-only newsletter. You can find all my personal referral links on my Support the Site! page."

I hope that makes sense, and if anyone has any other questions or concerns I'd be more than happy to address them.

Off to New Orleans

On Friday I'm heading to New Orleans for a weeklong vacation (look for an Anatomy of an Award Trip on Friday). The trip starts with a 20-hour Amtrak trip on the City of New Orleans, so my online presence will be limited over the weekend, but I anticipate keeping to a normal blogging schedule once there. We're planning a swamp kayak tour, so follow me on Twitter if you want to maximize your chances of seeing egrets next week.

Onward from Madrid, Dublin, Berlin

Last week I wrote about the three transatlantic British Airways partners that, due to the distances involved and the fact that taxes and fees are low on these routes, make even post-devaluation Avios redemptions competitive with cash or (depending on your other balances) award redemptions using other loyalty currencies. Those routes again are:

These redemptions — even post-devaluation — are great values in business class compared to cash (between 2.45 and 9.8 cents per Avios) and decent values compared to other airline miles. If nothing else, you should be aware of them because it's an additional option if you can't find award availability on your first-, second-, or third-choice airlines.

Judging by the comments to that post, you might think travel hackers are indifferent to this problem, on the grounds that it's better to build a trip around award availability on airlines you actually want to fly.

But for people with more restricted schedules (not me, but my understanding is this applies to most people in the working world), being aware of as many options as possible maximizes the chances of scoring a cheap award flight instead of being stuck paying retail to sit in economy.

A whole different problem, however, is the very real issue that you may not want to go to Ireland, Germany, or Spain!

Searching for cheap onward connections

A good first stop when thinking about Avios redemptions is the Wandering Aramean's Avios Map. Type in an airport code and you'll see all the possible non-stop Avios redemptions. Be sure to cross-check those flights with Google Flights or another flight search site, however; Seth's data are often out of date or inaccurate.

The Avios Map tool has two drawbacks: it doesn't show the taxes and fees for the route, and it only goes up to the 12,500 Avios distance band (so flights between New York and Germany don't appear, even though they're terrific values on airberlin). Still, if you're piecing together a multi-stop itinerary, you're likely sticking to shorter routes anyway, since Avios prices increase so rapidly with each additional leg and distance band.

After finding the routes you're interested in, plug them into British Airways' Avios calculator (and Iberia's if your flight is operated by Iberia) and look for the taxes and fees you'll incur. Don't forget to check the return as well; departure taxes vary wildly between airports.

This is basically brute force work, but if you're rich in Avios (or cheap Ultimate Rewards points), it's also a great way to travel around the world for next to nothing.

A few fun finds

These are literally just the first couple of options that jumped out at me in 30 minutes of clicking around using the exact procedure I described above:

  • Berlin-Abu Dhabi. 12,500 Avios in economy, 25,000 Avios in business (will be 37,500). $48.24 in taxes and fees outbound, $21.78 in taxes and fees return. From Abu Dhabi, continue on Etihad virtually anywhere in the world.
  • Dublin-Prague/Vienna. 7,500 Avios in economy, 15,000 (unchanged) Avios for intra-Europe business class. $51.90 in taxes and fees outbound from either, $68.25 return from Vienna, $53.86 return from Prague.
  • Madrid-lots of places!

Take Iberia everywhere, but beware Iberia weirdness

Once you get to Madrid, you have a ton of great options, but you need to beware of Iberia's intense weirdness. For example, here's an Iberia-operated flight to Tel Aviv booked with British Airways Avios:

Here's the same flight booked with Iberia Avios:

I'm not going to get into an argument about whether 7,500 Avios are worth more or less than $45.59 (more), I'll just point out that this Iberia flight, unlike ones departing New York and Boston to Madrid, incurs more taxes and fees using Iberia Avios than British Airways Avios.

When the Iberia devaluation takes place on April 1, and the British Airways devaluation on April 28, 2015, it'll become even more important to check, every single time, which currency makes your awards cheaper overall.

Here's another cool option to Moscow's Domodedovo airport, booked with British Airways Avios:

And the same flight booked with Iberia Avios:

Conclusion

Obviously these flights are only a small sample of those operated out of Berlin, Dublin, and Madrid by British Airways partners, but I hope they illustrate the possibilities of plugging together Avios flights as a way to navigate to, from, and around Europe. If you spot any other long-distance, low-fee gems, feel free to share them in the comments!

I love Uber, but they are seriously terrible

The private ride-coordinating app Uber exists for a single reason. It’s not the ubiquity of smartphones and it’s not the rise of the freelance economy. It’s the fact that taking taxis is the worst, and always has been.

For me and most people I know, taking a cab thrusts me into a shadowy world I don’t like or understand: taximeters (which after the driver fidgets with the keys always end up $2-4 higher than the fare itself); “broken” credit card terminals; being assured that the driver has a “shortcut” to get wherever you’re going; and of course never being able to get one when you need it (Washington, DC, and Los Angeles — I’m looking at you). It’s all just so painful.

Uber neatly solves all these problems: no taximeter, no credit card terminals, a GPS map that makes it obvious if your driver is screwing with you, and even “surge pricing” to encourage drivers to come out at times of peak demand (and push notifications when surge pricing has ended).

But you don’t have to use Uber very many times to realize that it comes with its own slew of problems. It seems I can never take an Uber without running into one or more of these issues:

Drivers and cars don’t match the app

If an Uber driver’s car is in the shop, he’ll borrow a friend’s, and riders have no way of knowing whether that car is insured, whether it’s safe, or even whether it’s stolen. Always compare the license plate in your app to the one on the car: if they don’t match, don’t get in.

The same is true of drivers, although it’s not particularly easy or fun when your car shows up to make a split-second decision about whether the picture and the driver look “enough” alike.

Drivers accept a ride and then…go do something else

I once ordered a pickup in Brooklyn and the driver who accepted was driving the other direction on the Williamsburg Bridge. He at least had the good sense to call and ask if I wanted to wait for him to turn around.

Another time the driver who accepted my pickup was getting gas. After 5 minutes of watching his car sitting still on my iPhone screen, I canceled the ride and ordered another. And the same driver accepted! Which brings me to…

The driver selection process is completely opaque

As the story above shows, there’s no way to participate in the process of choosing your driver. After a ride you can provide feedback, but you can’t do something as simple as marking whether or not you want that driver to pick you up in the future. And if the ride doesn’t take place, there’s no way to provide feedback at all. If you or or driver cancels the call before the ride begins, you can’t indicate whether you canceled the call because the car or driver didn’t match, if you canceled it because your driver was busy getting gas, if you didn’t feel safe, or any other reason.

Uber doesn’t collect that information because it doesn’t want that information: if it were receiving reports in real time about unregistered drivers or vehicles, it would have a duty to act on that information immediately.

Likewise, every time someone borrows their friend’s Uber account to give a few rides, or uses a different car than the one they registered with Uber, Uber still gets their cut of the fare.

I am personally unconvinced, however, that their studied ignorance will protect them against the coming wave of lawsuits. Fortunately, settling out of court with Uber’s victims is their problem, not mine.

Uber operates as a semi-criminal enterprise

It’s no secret why Uber works this way: it’s because their business in many markets is in violation of applicable laws and regulations. While their customers may be hipsters, businesspeople, and travel hackers, the independent contractors who provide rides for those users are not: they’re by definition the kind of people who are willing, for whatever reason, to work as freelance contractors, using their personal vehicles and personal liability insurance to provide rides to strangers, all while operating in a legal grey area.

Conclusion

I don’t use Uber very much, for the same reason I don’t use cabs very much: I walk, bike, and take public transportation as much as possible.

But I do use Uber, because sometimes you need to get somewhere by car, but don’t want to go to the trouble and expense of renting one or trying to use a taxi (see above).

Still, I wish Uber weren’t a bunch of criminals, I wish the rider-driver matching mechanism was more transparent and that the rider had more control over it, and I wish it were possible to alert Uber to shady behavior that makes you cancel a ride before it begins.

But I’m not holding my breath.

If you haven’t experienced the joys of Uber for yourself yet, feel free to use my signup referral link. You’ll receive a free ride (worth up to $20 at the time of writing, although it periodically changes) in your account immediately and I’ll receive one as soon as you take your first ride. If you end up finding Uber useful, I’ve written before about prepaying for Uber rides by sending yourself gift credit $25 at a time; it counts as a redeemable travel purchase with the Barclaycard Arrival+ MasterCard, and you can spend it down over time – gift credit doesn’t expire (until Uber does!).

Fun with post-devaluation Avios for premium cabin redemptions

In the last few years we've been flooded with airline rewards program devaluations. A few examples:

  • On the earning side, we've seen revenue-based earning on Delta and United. Alaska also reduced earning on Delta-operated flights, leaving American (and for the next few weeks US Airways) and the Alaska-American partnership the last major domestic distance-based loyalty programs.
  • On the redemption side we've seen increased United partner award costs, Delta's multiplication of award levels and close-in booking penalties, and British Airways' April 28, 2015, move to increase business and first class partner award redemptions from 2 and 3 times the cost of economy awards, respectively, to 3 and 4 times.

That last devaluation — increasing by 50% and 33% the cost of British Airways Avios redemptions in business and first class, respectively, got me thinking: when are Avios redemptions still cheaper than other alternatives?

The question is interesting because British Airways is by far the oneworld member it's easiest to earn miles with, as a transfer partner of both Chase Ultimate Rewards and American Express Membership Rewards, both of which offer bonus spending categories that make it easy to get big point balances with relatively little manufactured spend.

American Airlines, the other main oneworld member airline for US residents, is a transfer partner of Starwood Preferred Guest, but earning Starpoints is laborious at just one Starpoint per dollar spent with their co-branded American Express card and a transfer ratio of 1 Starpoint to 1.25 AAdvantage miles (if transferred in blocks of 20,000 Starpoints).

The big three transatlantic Avios routes

There are three transatlantic routes which, due to the distances and airlines involved, are often cited as key Avios sweet-spot redemptions:

  • airberlin flights between New York City and Dusseldorf or Berlin, Germany;
  • Iberia flights between Boston or New York City and Madrid (after transferring Avios to the Iberia Plus program);
  • Aer Lingus (not a oneworld member, but a British Airways partner) flights between Boston and Dublin, Ireland.

All three partners charge low or no fuel and carrier surcharges, and are on the higher end of their respective Avios distance bands such that your Avios take you farther than on comparable transatlantic routes that happen to be slightly longer.

Since these three redemptions are among the most popular routes for Avios redemptions, I thought it'd be interesting to compare similar redemptions using other points currencies (and, of course, cash).

Iberia: Boston and New York to Madrid

At 3,410 (Boston) and 3,589 (New York) miles in length, economy tickets on these routes cost 20,000 Iberia Avios each direction on flights operated by Iberia. Business class tickets currently cost 40,000 Iberia Avios, but on April 1, 2015, "Off Peak Season" redemptions will go down to 34,000 Iberia Avios each way in business class, and "Peak Season" redemptions will go up to 50,000 Iberia Avios each way in business. Learn more about peak season pricing here.

Outbound award flights incur about €76.20 ($80.83) in fees and charges, and the return costs about €110.53 ($117.25) in fees and charges. A brief scan of roundtrip business class fares shows nonstop business class flights from New York costing from $2649 and from Boston costing from $4672 (one-way fares are the same or higher), so in cash terms a roundtrip Iberia Avios redemption would yield:

  • BOS-MAD: 6.58 cents per Avios (Off Peak Season), 4.47 cents per Avios (Peak Season);
  • JFK-MAD: 3.6 cents per Avios (Off Peak Season), 2.45 cents per Avios (Peak Season).

Those are pretty good redemptions!

Of course, it's cheating to compare these redemptions to cash fares. We're travel hackers; we don't pay retail.

From the New York area, here are the additional non-stop, roundtrip business class award redemption options:

  • Delta. From 125,000 SkyMiles plus $52 in fees;
  • United. From 115,000 Mileage Plus miles plus $52 in fees;
  • American. From 100,000 AAdvantage miles plus $52 in fees.

From Boston, Iberia operates the only nonstop flight, so American (or, for the next few weeks, US Airways) miles are the only domestic airline miles you can redeem for that route.

airberlin: New York to Dusseldorf and Berlin

At 3,749 (Dusseldorf) and 3,968 (Berlin), these flights are knocking on the very top of the same band as the Iberia flights discussed above. They cost 20,000 British Airways Avios each way in economy, and 40,000 Avios each way in business. On April 28, 2015, business class redemptions will go up to 60,000 Avios each way.

Outbound flights incur $5.60 in fees and charges, and return flights incur $88.17 in fees and charges. Nonstop, roundtrip business class flights from New York City to Dusseldorf start at $3,067, while flights to Berlin start at $3,065. If we split the difference we get an Avios redemption rate of 2.48 cents per Avios for roundtrip itineraries in business class.

Besides Avios redemptions on airberlin, here are the other options on these routes:

  • United operates a flight between Newark and Berlin. 115,000 Mileage Plus miles and $89.80 in taxes and fees.
  • Lufthansa operates a flight between Newark and Dusseldorf. As a partner award, business class flights cost 140,000 United Mileage Plus miles and $91.90 in taxes and fees.
  • American (on airberlin). 100,000 AAdvantage miles and $91.90 in taxes and fees.

Aer Lingus: Boston to Dublin

Sneaking in at 2,993 miles, this route is pretty much what Avios were designed for. Economy flights cost just 12,500 Avios each way, and business class flights currently cost 25,000 Avios, going up to 37,500 Avios on April 28, 2015.

Outbound flights incur $34.17 in taxes and fees, while the return flight costs $74.08 in taxes and fees. Nonstop, one-way business class fares cost from $3,709 (this is the only route of the three discussed here with one-ways for half the cost of roundtrips). That gives you an Avios redemption value of between 9.7 and 9.8 cents per Avios. That preposterously high Avios valuation is actually borne out on this route, since I could identify no other airlines operating flights on this route.

However, Aer Lingus is a partner of United, as well as British Airways, which means it's technically possible to redeem Mileage Plus miles for the same route for 70,000 miles each direction in business class. In reality, since United and British Airways are both transfer partners of Chase Ultimate Rewards, it's literally never worth transferring points to United instead of British Airways in order to book the same Aer Lingus award reservation.

Analysis

As a transfer partner of all three major flexible points currencies, we're always going to be eager to redeem British Airways (or Iberia) Avios when possible, since they're so easy to acquire. With that in mind, here's the breakdown of these three key routes to Europe (all figures are roundtrip):

  • Aer Lingus between Boston and Dublin. Avios are a no-brainer, since this is British Airways' lowest transatlantic distance band, and any region-based airline partner is going to charge far more for the same flights. Even if you're flying on to mainland Europe, Dublin's a great place to start your itinerary, since you can get there for just 75,000 Avios roundtrip in business class.
  • airberlin between New York City and Berlin or Dusseldorf. Unless you're flush with American Airlines AAdvantage miles from credit card applications, you'll want to take advantage of the luxury of choosing between United, Lufthansa, and airberlin availability. At 115,000, 140,000, and 120,000 Ultimate Rewards points, respectively, all are great choices on this route.
  • Iberia between Boston or New York and Madrid. From Boston, this route is a no-brainer, since it's the only non-stop route to Madrid. From New York, again unless you're flush with AAdvantage miles, you'll want to look at your mileage balances and enjoy the luxury of choosing between Delta-, United-, and Iberia- operated flights between New York and Madrid, which clock in at 125,000 SkyMiles, 115,000 Mileage Plus miles, and 68,000-100,000 Iberia Avios, respectively.

Conclusion

I don't pretend that this analysis is definitive. I'm omitting important issues like transfer bonuses between Membership Rewards and British Airways that could substantially drive down the cost of even longer-haul flights on these carriers.

However, I've never seen a comprehensive analysis of the miles and cash cost of these routes before, let alone one taking into account the April, 2015, devaluations of both Iberia (April 1) and British Airways (April 28), so I'm happy to provide a first step in that direction.

Thoughts and criticism are, as always, welcome in the comments.

How many Ultimate Rewards points do you stockpile?

I recently saw Frequent Miler bemoaning his low Ultimate Rewards balances and had to chuckle to myself. Why? Because I do my best to keep my Ultimate Rewards balance at the bare minimum I'm likely to need in the immediate future.

I've written before about periodically redeeming my Ultimate Rewards points for cash. I do so because:

  • Points are worth nothing until they're redeemed;
  • Hyatt and British Airways (and Amtrak) are the only Ultimate Rewards transfer partners with points consistently worth more than 1 cent each to me;
  • Unredeemed points are vulnerable to seizure by Chase;
  • Flows are more important than balances.

I think it might be interesting to focus on that last point for a moment.

Flows versus balances

I have 3 primary methods of earning Ultimate Rewards points:

  • Chase Freedom bonus categories (7,500 Ultimate Rewards points per card, per useful quarter)
  • Chase Ink Plus office supply store purchases (250,000 Ultimate Rewards points per year)
  • Chase Ink Plus gas station purchases (100,000 Ultimate Rewards points per year)

With two Chase Freedom cards and two useful quarters this year (grocery stores in the first quarter and gas station in the third quarter of 2015), I'll earn 380,000 Ultimate Rewards points this year, or roughly 32,000 Ultimate Rewards points per month on average.

That's my flow, and it's the number I think about regularly: managing credit lines, managing liquidation methods, and managing my schedule to make sure I hit my earning targets month-in-and-month-out.

Balances, on the other hand, are only relevant at the moment of redemption. It's very important – essential even – to have a sufficient balance of Ultimate Rewards points at the moment when you need to transfer them to Hyatt, British Airways, Amtrak, or United (if you're a glutton for punishment), or when you need to redeem them for a paid flight or hotel reservation.

But since your balance is just the sum of your flows over time, it's trivial to manage your balance in order to always have the correct number of points at the moment of redemption, when they're actually needed. For that reason, I'm happy to put any excess points to work in my bank account, as cash.

I still stockpile a few Ultimate Rewards points

With that being said, I don't redeem my entire Ultimate Rewards points balance for cash. Obviously I first look ahead and make sure that my incoming points flow really will cover any future redemptions I already have planned. But I additionally keep a reserve of Ultimate Rewards points for unexpected and unplanned redemptions.

I don't think it's absolutely necessary to have such a reserve. After all, I have tens of thousands of US Bank Flexpoints, British Airways Avios, Delta SkyMiles, Hilton HHonors points, and even Marriott Rewards points that I could use to get and stay anywhere in the United States I needed to be particularly quickly. Failing that, I can always charge travel to my Barclaycard Arrival+ card and take up to 120 days to "work it off."

At the end of the day, however, there are reservations that really are made most cheaply with Ultimate Rewards points (for example my $200 flight to Reno).

So I keep a reserve balance of 45,000 Ultimate Rewards points in my Chase Ink Plus account. Here are a few of the potential redemptions that made me arrive at that number:

  • 40,000 Hyatt Gold Passport points: 5 nights at a Category 2 Hyatt;
  • 45,000 Hyatt Gold Passport points: 3 nights at a Category 4 Hyatt;
  • 40,000 Amtrak Guest Rewards points: a Bedroom - Two Zones award;
  • 50,000 United MileagePlus Miles (I already have a small balance): a Standard Award in economy anywhere in the United States;
  • Up to $562.50 in airfare or hotel reservations.

So with a balance of 45,000 Ultimate Rewards points I have a high level of confidence that I'd be able to get and stay anywhere I wanted or needed to be on short notice, regardless of my balances in the other programs I mentioned above. That's my reserve fund.

How many Ultimate Rewards points do you stockpile?

Obviously my calculation is based on variables that are specific to me: I don't have family abroad, so don't need a reserve fund that could take me overseas on short notice, and I'm budgeting for a single traveler, without a spouse or kids I would need to buy additional tickets for. Those expenses would add up fast.

What do my readers think? Do you save up Ultimate Rewards points for specific redemptions? Do you keep some in reserve for unexpected last-minute redemptions? Do you ever redeem them for cash? See you in the comments.

Weekend thoughts on killing deals

I saw a few interesting posts in the last few days about the ethics and mechanics of writing publicly about techniques to manufacture spend:

In the 2-and-change years I've been writing this blog, I've developed a general rubric I use to guide my thinking about whether to share a technique to manufacture spend: if the technique takes advantage of a publicly advertised product of a for-profit company, I feel fine writing about it. If a technique involves a glitch, mistake, or oversight on the part of a company, I'll save it for my subscribers-only newsletter.

This rubric doesn't have the goal of "keeping every deal alive as long as possible." If I had that goal, I wouldn't blog about manufactured spending (and many of my critics would rejoice). Rather, it's based on the philosophy that when a company knows what it's doing, writing about a technique is more likely to help readers take advantage of a product for as long as it exists, while when a company doesn't know what it's doing lots of casual readers piling in will likely kill a deal before anyone can benefit substantially. That includes, unfortunately, the readers who would call into a company to "make sure something works," drawing even more attention to the oversight or mistake.

In other words, since every deal dies eventually, I ask whether I'm helping readers maximize their profit from a deal, or helping it die before anyone is able to benefit?

I don't think this philosophy is any better or worse than anyone else's, but it's the one I've settled on for now. Here are a few examples of how I've applied it in action:

  • The TD Go, Nationwide, and US Bank Visa Buxx cards are all products that by design allow or allowed users to fund PIN- and ATM-enabled prepaid debit cards with MasterCard and Visa credit cards. I wrote about them frequently and they still occasionally come up on the blog.
  • When TD Go announced that credit card loads would be limited to cards issued by TD Bank, third-party credit cards that had already been saved continued to work. Since that was a programming oversight, I didn't write about it. The more publicity the oversight received, the sooner it would be fixed (as it eventually was).
  • When Evolve Money first launched, it allowed contributions to 529 college savings plans to be funded with prepaid debit cards. There were risks (you might get a call from Bill), but that was how the product was designed, and I wrote about it extensively.
  • When Evolve Money first launched, due to lax implementation they also accepted credit cards to fund contributions to 529 college savings plans. Since that was an unintentional oversight, I shared it only in my subscribers-only newsletter, but not here on the blog, and it continued to work until a few days after affiliate blogger Daraius Dubash wrote about it on his highly-trafficked blog.
  • Kiva loans, still one of the most lucrative and accessible manufactured spending techniques available, are bonused as "charitable spending" by US Bank as a matter of policy. That doesn't mean they'll continue to be bonused forever — they won't. That's because every deal dies eventually. But when the corporate policy is clear, as it is in this case, the more of my readers able to take advantage of the policy, the better.

While that's my general approach, there are a few obvious exceptions:

  • When I agree in advance not to share something from a reader, I honor that even if it would otherwise be fair game, unless it's already common knowledge. After all, I actually do manufacture spend, so I'm thrilled to find out new techniques, even if I can't share them with my beloved readers!
  • On the other hand, when something is not corporate policy but has lasted long enough to become background or institutional knowledge, like refunding travel purchases made with an Arrival+ card, I'll write about it on the informed guess that the company simply doesn't care enough to change or fix it.

Conclusion

That's my overall attitude towards blogging about manufactured spend. I don't make any claim that it's the right attitude, but it's mine, and if it helps anyone trying to figure out where they stand on the subject, I'll be happy I could help.

Unvarnished and uncensored criticism is always welcome, of course, in the comments.

Understanding Alaska Airlines Mileage Plan earning activity

I like to think there's a difference between loyalty programs that are confusing and those that are merely complicated. It's confusing how many Delta SkyMiles an award ticket will cost because Delta continually obfuscates and changes the number of SkyMiles required, while it's merely complicated to figure out whether a British Airways Avios redemption is cheaper when broken up with an intermediate stopover.

Since I'm relatively new to crediting paid fares to Alaska Airlines Mileage Plan, I wasn't familiar with their system of elite-qualifying-mile bookkeeping. I know that many of my readers are in the same position I am, aiming to keep or reach elite status with Alaska, so I thought it would be useful to share what I've found so far.

Crediting American Airlines flights to Alaska Airlines Mileage Plan

From the Alaska Airlines website, here are the rules for crediting American Airlines-operated flights to Mileage Plan:

"Elite Qualifying Flight Miles: Earned flight miles and premium cabin bonuses on American count towards Elite Status.

Economy Class Cabin: Earn actual flight miles* flown in B, G, H, I, K, L, M, N, O, Q, R, S, V, W, X or Y classes of service.

Business Class Cabin: Earn actual flight miles* flown in C, D, I, or J classes of service, plus 25% Bonus Miles.

First Class Cabin: Earn actual flight miles* flown in A, F, or P classes of service, plus 50% Bonus Miles.

*Earn 500 minimum miles on flights less than 500 miles. Actual miles flown = 1 mile per flight mile flown. O class of service accrues for flights taken on or after February 1, 2015. Miles may not be earned for tickets flown in E, T, U or Z classes of service. Some deeply discounted, and industry fares are ineligible to earn miles."

Since my American Airlines flights last week have finally posted to my Mileage Plan account, I can report that while these rules are followed, their application is unnecessarily opaque.

"Earn 500 minimum miles on flights less than 500 miles"

Here's the flight I was rebooked on from Reno to Los Angeles:

Since the actual miles flown was under 500 miles, I should have earned 500 miles, plus 625 bonus miles as an MVP Gold 75K elite. Instead, I was credited with the 390 miles actually flown and the "Bonus" column was "topped up" with the missing 110 miles, leaving me with the correct total number of miles.

"Earn actual flight miles* flown in A, F, or P classes of service, plus 50% Bonus Miles"

As I mentioned in a previous post, for my flight from Los Angeles to Dallas I was booked into the first class "F" fare bucket, which earns 50% bonus miles when credited to Alaska. Here's how that flight posted to my Mileage Plan account:

Here the third column reflects the number of miles actually flown, and the fourth column includes both the 50% class of service bonus and the 125% MVP Gold 75K elite status bonus. Importantly, the class of service bonus does not increase the base mileage to which the elite status bonus is applied: both bonuses are applied only to the base number of miles actually flown.

"Earned flight miles and premium cabin bonuses on American count towards Elite Status"

Here's where things get tricky: your total number of elite-qualifying miles is the number of actual miles flown (the entire third column), and the portion of the "bonus" column that represents 500-mile minimums and class of service bonuses.

The best way to illustrate this is another example. Here are all five paid flights I've credited to Mileage Plan this year:

And here's what my tier status counter looks like:

The elite-qualifying miles shown represent the sum of my actual miles flown (4226), the part of the "Bonus" column representing my 500-mile-minimum "top up" (501), and the 50% class-of-service bonus I earned on my flight from LAX to DFW (618).

Conclusion: Alaska Airlines elite-qualifying-mile earning is unnecessarily complicated, but fair

While I was credited with all the redeemable and elite-qualifying miles I was due for the 5 American Airlines flights I credited to Mileage Plan, Alaska doesn't make it trivial to verify those numbers. With just 5 flights I could check their math manually, but when that number gets up to 20 or 30 I'll be left taking their word that my miles are being allocated correctly (or keep my own running tally).