Grocery store spend and the possibilities of loyalty-agnostic travel

I'm a big proponent of the US Bank Flexperks Travel Rewards card, since I think it provides the straightest path for most people to pay as little as possible for their airline tickets. With the recent return of PIN-enabled prepaid debit cards to many grocery stores, that view has been confirmed and even strengthened.

But it's also true that another favorite card of mine, the American Express Hilton HHonors Surpass card, also earns bonus points at grocery stores. And of course unbonused spend can earn between 2% and 2.625% cash back, and at lower cost than grocery store manufactured spend.

So I thought it would be useful to revisit some break-even points, or what I call imputed redemption values, for spend on a variety of cards, to help readers think through the best way to book their flights and hotel stays.

Three opportunities, three costs

The simplest way of approaching the tradeoffs between bonused grocery store spend and unbonused spend is to look at the cost per point. Using only the most widely available methods of manufacturing spend, you'd arrive at these simple calculations:

  • US Bank Flexperks Travel Rewards, 2 Flexpoints per dollar spent at grocery stores: 0.62 cents per Flexpoint;
  • Hilton HHonors Surpass American Express, 6 HHonors points per dollar spent at grocery stores: 0.21 cents per HHonors point;
  • 2% cash back credit card at unbonused merchants: 0.43 cents per cent in cash back.

That final line allows us to have an anchor for the kind of value we should expect to get from Flexpoints and HHonors points that would make them competitive with unbonused cash back. For example, if you redeem Flexpoints for cash back you'll never come out ahead compared to a 2% cash back card, since you're paying 44% more for each Flexpoint, which are, like pennies, worth just a penny each.

The flip side of that calculus is that all Flexpoint airfare redemptions above 1.44 cents each are cheaper than paying cash for the same trip. For example, a $288 plane ticket would cost 20,000 Flexpoints, and $124 in out-of-pocket grocery store fees, while the same $288 plane ticket paid for with cash earned on unbonused spend with a 2% cash back credit card would cost $123 in fees. That means for all airline tickets between $289 and $399 (or any other price point that falls between a multiple of 10,000, 0.0144, and 0.2), the Flexpoint redemption is cheaper than the cash ticket.

Now let's do the same math with Hilton HHonors points earned at grocery stores with a Surpass card. Due to the difference in total price per point, compared to a 2% cash back card, Hilton HHonors points have to be redeemed not at 0.33 cents each, but rather at 0.49 cents each. For example, a 5,000 HHonors-point stay would cost $10.50 in fees, while $10.50 in fees would earn $24.42 in cash back — 0.49 cents per point. This is a purely mechanical calculation: a 95,000-point HHonors redemption would cost $199.50 in fees, while $199.50 in fees would earn $463.95 in cash back — 0.49 cents per point. That produces the simple maxim that stays which offer more than 0.49 cents per HHonors point are cheaper if paid for with HHonors points than with cash.

Flexpoints can also be used for hotel stays

There's one additional wrinkle worth mentioning here: Flexpoints can provide value on hotel stays that are too cheap for HHonors redemptions. I'll be the first to admit that this doesn't happen very often, but it's something to keep an eye out for: when Flexperks redemptions fall in the 1.44 to 1.5 cent per point band on hotel redemptions, they still entail a lower out-of-pocket cost than manufacturing the needed cash with unbonused spend on a 2% cash back card.

For example, a $144 stay (including taxes) would cost 10,000 Flexpoints ($62 in fees), and paying in cash earned with a 2% cash back card would require $62 in fees. Of course, it might be cheaper yet depending on the HHonors point rate available, if any.

This makes Flexpoints one of my favorite currencies to earn speculatively: if good flight opportunities present themselves, they can be redeemed for valuable flights; if middling hotel opportunities present themselves, they can be redeemed for middling hotels; and if no opportunities present themselves, they can be redeemed for cash.

While it's easy to posit a general principle that Flexpoints should be spent where they're most valuable — on paid airline redemptions — it's also true that they're more valuable redeemed for hotel stays than for cash, so if you find yourself in the situation of having to choose between spending precious cash or spending down a constantly growing balance of Flexpoints, you'll probably thank yourself later if you save the cash today.