Gobank calls again

Yesterday I received a voicemail from a "Christie Smith" in Gobank's fraud department,  who left her direct phone number and asked me to call to talk about the activity on my Gobank account.

When I was finally able to reach her today, she explained that:

1. My level of account activity was "very unusual;"
2. She was not allowed to tell me the level of deposit and bill pay activity that was allowed, but;
3. I was exceeding it.

To her credit, she sounded apologetic about the absurdity of the situation. Still, she told me that unless I drastically reduced the amount of deposits I was making, my account would be closed (although she couldn't tell me what a "safe" level of activity would be).

The obvious explanation for this is that Green Dot, the prepaid card company which also operates Gobank, pays Walmart for each cash register load there. For most of their prepaid card products, Green Dot then charges the customer some amount (typically $3.74) that covers the fee they pay Walmart plus whatever their margin is.

In order to compete with American Express's groundbreaking Bluebird checking account alternative, which allows free cash register loads at Walmart, Green Dot decided not to charge Gobank customers for cash loads at Walmart. I suspect, however, that Green Dot still has to pay Walmart for those transactions, which means heavy users of that feature like myself are costing Gobank some serious money.

For now I don't think I'll change my usage pattern very much. Gobank is a remarkably valuable tool, but it's only valuable if you use it. I'll cut down my loads to less than $2,500 per week and less than $10,000 per month (I loaded considerably more than that last month).

And as always, I'll continue to report on every ongoing development with my Gobank account here on the blog.

The 5 best cards for manufactured spending at 7-11

[updated 7/25/13: see this post for the results of my experiment earning bonus points with American Express cards at 7-11. Long story short: it doesn't work, which takes options 3 and 4, below, off the table.]

As I reported yesterday, at least some 7-11 store locations that are coded by Visa as gas stations now allow Vanilla Reload Network reload cards and PayPal Cash cards to be purchased using credit cards. While the cost per dollar of manufactured spend is the same as reload card purchases made at CVS ($3.95 for up to $500), the ability to earn bonus points on Vanilla Reload and PayPal Cash purchases drives the cost per point earned down into even more lucrative territory.

Here are the cards that I believe offer the best return on manufactured spending at store locations coded as gas stations, in order of value to the average travel hacker: 

1.  US Bank Flexperks Travel Rewards Visa Signature. As I explained in Chapter 2 of the Free-quent Flyer's Manifesto and in this blog post comparing fixed-value rewards points, the Flexpoints earned by this card are worth between 1.5 and 2 cents each when redeemed for paid airline tickets. The card has a somewhat confusing earning structure, whereby you'll earn 2 Flexpoints per dollar on purchases at whichever one of gas stations, grocery stores, or airline tickets you spend the most on each billing cycle. Using this card to purchase Vanilla Reload Network reload cards at a gas station, you can buy 3-4 cents in airfare for .79 cents, a 74-80% discount on mile-earning airline tickets. Once you account for the value of the frequent flyer miles you'll earn flying these tickets, this makes airline travel very close to free or even profitable if spent on 3-4 cent per mile mileage runs.
2. Chase Ink line of small business credit cards.  These cards earn either fixed-value (Ink Cash) or flexible (Ink Bold and Ink Plus) Ultimate Rewards points. All three cards earn 2 points per dollar spent at gas stations on up to $25,000 (Ink Cash) or $50,000 (Ink Bold and Ink Plus) in purchases per year. If you have an account that earns flexible Ultimate Rewards points, you can then transfer the points to Chase's airline or hotel partners at a 1:1 ratio. If you have a Chase Sapphire Preferred card, you can also redeem these points at a value of 1.25 cents each for paid, mile-earning airline tickets, giving a total discount of 68% on paid airline travel.
3. American Express Premier Rewards Gold/Business Gold Rewards.  Both of these cards earn 2 Membership Rewards points per dollar spent at gas stations. These points can be redeemed for paid airline tickets at 1 cent each, or transferred at various ratios to American Express's transfer partners.
4. American Express Hilton HHonors Surpass. In the very early days of Vanilla Reload Network cards, many people (your humble blogger included) signed up for the no-fee American Express Hilton HHonors credit card, which at the time earned 6 HHonors points per dollar spent at drug stores. We earned hundreds of thousands of points buying reload cards at CVS until American Express eliminated drug stores as a bonus category with our May statement closing dates. However, gas stations are still a bonus category.  Using the standard "no-fee" HHonors card you'll only earn 5 points per dollar spent at gas stations, but the HHonors Surpass card still earns 6 points per dollar at gas stations, the same earning rate that attracted people to the Hilton cards in the first place. The Surpass card does have a $75 annual fee, so you'll need to make an individual decision on whether the additional HHonors point per dollar spent will be worth more than the cost of that annual fee.
5. Bank of America Bankamericard Cash Rewards.  In terms of cash value, this card is second only to the US Bank Flexperks card, earning 3% cash back on gas station purchases. The reason I place it fifth on this list is that the 3% cash back is limited to $1,500 per calendar quarter. While $300 per year at a cost of $47.40 is a perfectly good deal, it's not possible to leverage it to the extent possible with the 4 options I've described above.

New Vanilla Reload Opportunities

In the comments to one of last week's posts, reader A wrote:​

I've been buying Paypal reloads at 7-11 with a CC. Now that 7-11 carries Vanilla Reloads I'll be running tests to see if the purchases code correctly for 2x.

Having seen 7-11 on the list of "Reload Locations" on the Vanilla Reload Network site, I naturally checked my local stores about 6 months ago. Since they weren't carrying them, and I had easy access at CVS, I didn't think about it any more. However, the opportunity for double points at gas stations drove me back to my local 7-11, where sure enough, both Vanilla Reload Network reload cards and PayPal Cash cards were for sale by credit card.

Now, I haven't seen a 7-11 location with actual gas pumps​ in a long time. However, Visa has a publicly available database of the "merchant codes" used by every merchant in the country. It's these codes that determine how a purchase transaction is coded by credit card companies for the purpose of awarding bonus points.

​And sure enough, my local 7-11 store locations are entered into that database as:

GAS STATIONS/FUEL/SUPPLIES-5541

This means that credit cards which bonus gas station purchases will almost certainly award bonus points for Vanilla Reload purchases at these locations, at least for Visa cards, which use Visa's supplier code database. 

My credit card statement hasn't closed yet, so I ​cannot guarantee bonus points will be awarded. ​However, I'm very confident that they will, since I used a Visa card, which means a new front has been opened in the use of the Perpetual Points Machine I outlined here.

​I'll discuss the implications of this discovery in the coming days. For now, a good place to start is Frequent Miler's chart of credit cards which bonus gas station spending. That chart is somewhat out of date, but still useful for getting a general picture of credit cards which will make this development such a lucrative opportunity.

Update to Gobank load limits and cost per point analysis

In my ongoing quest to document as many details as possible of Gobank, the relatively new alternative checking product, in order to make it easy for my readers to take advantage of this exciting new opportunity, I want to clarify one additional limit that I have so far failed to mention in previous posts.

As you know, there is a daily limit of $2,500 when loading money to the card using cash or a PIN-enabled debit card at any Walmart register or MoneyCenter kiosk. However, the ​Gobank website also explains (you can find this under "Deposit > Deposit Cash > Learn more"):

We allow between $20 (minimum) and $1,100 (maximum) per transaction.

Cost per dollar using MyVanilla Debit

This restriction made me wonder, what's the minimum cost a Gobank user can pay per dollar of manufactured spend using the techniques I described in my post, "The Perpetual Points Machine is Real​?"

​When buying a Vanilla Reload Network reload card with its maximum value, $500, you'll pay $3.95 per $503.95 in manufactured spend. But if you load the reload card to a MyVanilla Debit card, you'll also pay a flat $0.50 per transaction fee when you move the money to your Gobank account at Walmart. To minimize the cost per manufactured dollar, you'll therefore also want to make your unloading transactions as large as possible, in this case, $1,100. (Note that I do not do this, out of an overabundance of caution; I make multiple, somewhat smaller load transactions).

To make the math simple, say you buy $5,500 in Vanilla Reload Network reload cards. You'll pay $43.45 in load fees to manufacture $5,543.45 in spend. To unload that $5,500, you'll make 3 trips to Walmart, loading $1,100 twice during the first two trips and  once on your third trip. Those 5 transactions will cost an additional $2.50 total, bringing your total cost to $45.95 for $5,543.45 in manufactured spend, or 0.82 cents per dollar.

I find it lucrative to pay this cost when I use a 2% cash back credit card (or a card offering 2.22% cash back as statement credits), or when I use one of my other cards that offers ​big rewards when I reach a high level of annual spending. Whether it's worth it for you depends on how highly you value the points or miles you're manufacturing, and whether you are using this technique to meet minimum spending requirements you can't meet with your everyday purchases.

Do this now: Order Bluebird checks

One of the three most straight-forward ways to manufacture spending using a rewards-earning credit card is through the American Express Bluebird checking alternative. ​After loading your Bluebird account with up to $5,000 per calendar month using a rewards-earning PIN-based debit card or Vanilla Reload Network reload cards, you can then use your balance to pay bills that wouldn't normally allow you to earn rewards: taxes, credit cards, mortgages, student loans, utility bills, and so on.

One problem people run into using Bluebird is that ​the built-in bill pay system doesn't recognize all potential bill issuers. Local property taxes are a common example, where you need to make your check payable to your city or county department of revenue, which may not be loaded into the Bluebird bill pay service.

To solve this problem, Bluebird began offering checks which are linked to your Bluebird account and allow you to pay anyone you wish, after first "pre-authorizing" the check through the Bluebird website or smartphone application.

As an introductory offer, Bluebird is offering users up to 100 checks at no cost, including free shipping and handling!

​This deal was supposed to end today, but according to Bluebird's website now

Checkbook order fees are waived until 08/13/2013.

​But since you're limited to one order of free checks, there's no reason to wait.

Order your completely free checks now, before you forget.

Three cards worth manufacturing spend on

Last Wednesday I laid out a simple, reproducible method for manufacturing spending at no net cost. Then on Friday I explained why for most travel hackers, it's not necessary to reduce net costs to zero. Rather, it makes more sense to use 2% cash back cards to merely reduce your net costs so that your individual travel hacking budget takes you farther.

Today I'd like to give an overview of some of the best cards to use when manufacturing spending in order to maximize your travel rewards. Some of this material will be familiar from my article in February on "true" credit card earning rates.

Here are 3 cards that I think have annual fees worth paying in order to manufacture spending using the card.

1. Delta Platinum American Express cards (personal and business)

First, a caveat: these cards are only relevant if you are interested in achieving a higher Delta Medallion elite status than you can earn through flight activity alone. However, if you are a Delta frequent flyer then one or both of these cards is indispensable for the ability to earn up to 20,000 Medallion Qualifying Miles per card each year.

• How much you should spend: $25,000 or $50,000
• How much you'll pay (at .79 cents per dollar): $197.50 or $395, plus a $150 annual fee
• What you'll get: 35,000 or 70,000 Delta Skymiles and 10,000 or 20,000 Medallion Qualifying Miles
• Why it's worth it: paying $545 for the 20,000 MQM alone is a good deal, since that's just 2.7 cents per MQM, which is very respectable as a mileage run alone.  The fact that you also receive 70,000 Skymiles, which are worth a minimum of $700 (because you can use them to Pay With Miles at a value of 1 cent each), makes this deal unbelievably good. Additionally, starting in 2014 it'll be necessary to spend at least $25,000 on a Delta co-branded credit card in order to escape the onerous new Medallion Qualifying Dollar requirements for Medallion status.

As I mentioned last month, I picked up the business version of this card during my April application cycle, and I'll get the personal card in January, once 12 months have passed since I canceled my last card, if there's still a lucrative enough signup bonus.

2. Citi Hilton HHonors Reserve

• How much you should spend: $10,000
• How much you'll pay: $79, plus a $95 annual fee
• What you'll get: 30,000 Hilton HHonors points and a free weekend night certificate, good at any Hilton property in the world with the exception of Hilton's all-inclusive resorts and Hilton Grand Vacation properties
• Why it's worth it: the free weekend night certificate is doing most of the work in this calculation. Since the certificate can be used at almost any Hilton property in the world, you can wait until your travels take you to a particularly expensive city during a weekend and score a free room at the most expensive Hilton in town. That kind of flexibility is worth an incredible amount to me.

I haven't had a chance to apply for this card yet, but I certainly will during my next application cycle, if a more lucrative Citi offer doesn't come along before then.

3. US Bank Flexperks Travel Rewards Visa

his is an interesting card because it offers two different opportunities to manufacture unlimited quantities of US Bank's fixed-value rewards currency, Flexpoints. The card has an annual fee of $49, which you can also pay by redeeming 3,500 Flexpoints.

Opportunity #1: Grocery Store Gift Cards

As described in Chapter 2 of my book, if grocery stores are the bonus category you spend the most in during a statement cycle, you'll earn 2 Flexpoints per dollar spent in that category. You can take advantage of this bonus category by buying Visa or Mastercard gift cards which can be used to fund a Bluebird or Gobank account at any Walmart register.

The objective is to purchase a high-denomination gift card with as low a fee as possible. Since your 2 Flexpoints are worth up to 4 cents each when redeemed for airfare, if the fee is less than 2% of the face value of the card (for example a $5.95 fee for a $500 gift card, or 1.1%), you'll earn more net value than you would by buying a Vanilla Reload Network reload card using a 2% cash back card.

Opportunity #2: Kiva Loans

Since Kiva loans are processed as "charitable contributions," loans funded using your Flexperks Travel Rewards card earn 3 Flexpoints per dollar loaned. Using this technique you can manufacture as many Flexpoints as your risk tolerance allows. Kiva loans have a repayment period of 6 to 60+ months; you receive the amount of your loan back as the borrower makes loan payments. If the borrower defaults, you lose your remaining loan amount. You can select short-term, low-risk Kiva loans using Kiva's tools or the tools available at kivalens.org.

I have 2 of these cards: US Bank allows you to apply for and carry as many of the same card type as your credit history allows you to be approved for. I applied for my first card under the standard signup bonus of 17,500 Flexpoints, and then again during the Summer Olympic Games promotion, where I ended up earning an additional 33,150 Flexpoints. When my first annual fee is due, I'll ask for a product change to the lucrative, no-fee US Bank Cash+ card.

Conclusion

Each of the cards in this post offers out-sized value when used to meet specific travel goals. The Delta Platinum cards allow you to jump almost an entire Medallion tier by aggressively manufacturing credit card spend; the Citi Hilton HHonors Reserve card offers a free weekend night that is begging to be redeemed for a super-expensive night at a property in the center of one of the world's reat cities; and the US Bank Flexperks Travel Rewards card lets you buy paid tickets at a huge discount, while earning elite-qualifying and redeemable miles for your flights.

You can manufacture points at no net cost; should you?

On Wednesday I laid out a simple, reproducible technique to manufacture points at no net cost by using a 2% cash back credit card to offset the cost of Vanilla Reload Network reload cards purchased with a points-earning credit card.

Today I want to discuss some of my thinking behind this technique and some of the potential pitfalls.

Why I Don't Manufacture Points at no Net Cost

To manufacture 100,000 miles or points using a card that earns 1 mile per dollar spent, you'd need to buy 199 $500 Vanilla Reload Network reload cards.  Your total out of pocket cost after liquidating the cards would be $786.05. You could then use the 100,000 miles, plus taxes and fees, to book a round-trip business class award trip to Europe, which might retail for a few thousand dollars. 

To recoup that $786.05, you'd then need to buy ​129 Vanilla Reload Network reload cards with a 2% cash back card, earning back $790.77.

The problem here is straightforward, and why I don't use a 2% cash back card to completely offset the cost of my points: ​if I don't value the roundtrip ticket to Europe in business class at $786.05, why am I paying $786.05 for it?  If I value the money more than the trip, I should just keep the money and not earn the points to begin with.  That way, I'll have $790 in pure profit.

Of course, as I discussed in my first article on travel hacking theory​, I do value that award trip at more than $790, in fact, I value it at about $1,300, since that's what I'd typically pay for an economy class ticket to Europe.  For $500 less, I get to fly in business class instead.

​That isn't to say that I don't use a 2% cash back card to reduce my net costs: I do, in order to achieve my travel goals while keeping within my budget.

Perpetual Points: Potential Pitfalls

​This perpetual points machine has a number of moving parts, so before getting started you should be aware of the risks involved with each one.

• MyVanilla Debit cards. This Flyertalk thread is full of reports of people having their MyVanilla Debit cards shut down with no notice after using the cards aggressively to manufacture spending. The two most common reasons seem to be using the cards for cash advances at bank tellers and ATM withdrawals, however people who do neither have been shut down as well. You can register up to 3 MyVanilla Debit cards per Social Security number, and my recommendation is to (1) spread your spending across all 3 cards and (2) don't empty your entire card balance immediately after loading. Following those two simple rules I've been able to use my 3 cards successfully for months, although that could change at any time.
• Gobank.​ Gobank currently doesn't have a reported monthly swipe reload limit, and has a high, $2,500 daily swipe reload limit.  However, that could change at any time, either by instating a monthly swipe reload limit or reducing the daily swipe reload limit to the point that it's no longer worth repeated trips to Walmart.
• Credit card companies. Frequent, high-dollar-amount purchases at drug stores could raise concerns at your credit card company. For that reason I spread out my Vanilla Reload Network reload card purchases throughout the month and over several different cards and card issuers.

Conclusion

A lot of digital ink has been spilled over the "value" of different rewards currencies (for example here, here, and here). Ultimately though, you can't use Skymiles to pay your rent or Membership Rewards points to pay your taxes. That's why no matter what your travel goals are, you should first set a monthly budget for how much you're willing to spend to achieve them. Using a 2% cash back card is a great way to keep your expenses in line with your budget while achieving your travel goals faster.

Since you can use these techniques to manufacture almost unlimited spending at a net cost of your choosing, on Monday I'll discuss some of the most potentially lucrative rewards-earning credit cards to use when doing so.

The Perpetual Points Machine is Real*

*If you have access to (1) Vanilla Reload Network reload cards you can buy using a credit card, (2) any Walmart location, and (3) a good enough credit score to be approved for a 2% cash back credit card.

The Quest for a Perpetual Points Machine

One of the first blog posts I read after I started travel hacking ​was the Frequent Miler's chronicle of his quest for a "perpetual points machine." That three part series described the ideal perpetual points machine as follows:

1. The Perpetual Point Machine (PPM) may take effort and money to setup initially, but must not take much effort or money to keep it going.

2. The PPM must be able to generate hundreds of thousands of points per year.

3. The PPM must do no harm. In my earlier post “Perpetual Point Machine… Not!” I described a failed scheme to buy gift cards with gift cards and earn miles each time, indefinitely. The problem with that scheme is that, if it had worked, it would clearly harm the retailer who would have been responsible for buying all of those miles.

4. The perfect PPM would also somehow do some good for the world, not just for the recipient of the points. Kiva loans are a great example of this, but the number of points that can be accrued annually is limited by the amount of money you have available to loan. For most people, this won’t come anywhere near the goal of achieving hundreds of thousands of points per year.

​This search eventually led Frequent Miler to his ground-breaking post on the American Express Bluebird checking account alternative, which is now one of the cornerstones of most miles- and points-earning strategies.

The problem Frequent Miler inevitably ran into was uncertainty. ​His early attempts relied either on continued, reliable shopping portal payouts, or outsmarting Google.

3 Simple Goals

My goals when designing a perpetual points machine were simpler:

1. Generate as many points as possible;
2. at as low a cost per point as possible;​
3. in as mechanical a method as possible.

​The third point is the most important for my purposes. Unlike Frequent Miler, I'm still just a struggling author (have you considered buying my e-book?), and I don't have the resources to risk lots of my own capital buying and reselling merchandise, one of Frequent Miler's (successful) recent schemes.

Since starting this blog in February, I've discussed the MyVanilla Debit card, which is reloadable using Vanilla Reload Network reload cards at a cost of $3.95 per $500 load. Then in a three part series (part 1, part 2, part 3), I broke the story of the features of the new Bluebird competitor, Gobank, before asking the question, "Does Gobank have a monthly swipe reload limit?" Finally I broke down the features of and differences between two credit cards which earn 2% cash back.

My Perpetual Points Machine

Today I want to describe a simple perpetual points machine that takes advantage of the features of each of these products. The premise of the PPM relies on just two numbers:

• $3.95: the cost of a $500 Vanilla Reload Network card.
• $6.13: the amount of net cash back earned on a $503.95 purchase made with a 2% cash back credit card, after subtracting the $3.95 load fee.​

​The ratio of these numbers is conveniently approximate to 2:3. Consequently, to manufacture spending at virtually no net cost, you can buy 2 Vanilla Reload Network reload cards with a 2% cash back card (netting $12.26, after paying the $3.95 fee for each card) for every three reload cards you purchase with your preferred points- or miles-earning credit card (at a cost of $11.85).

Of course, now you have $2,500 in Vanilla Reload Network reload cards.  To turn them back into cash, you can load them directly to a Bluebird card, up to $5,000 per month, per Bluebird.  From there, you can transfer the funds to a bank account or use them to pay off your credit cards.

Fortunately, you can also now liquidate Vanilla Reload Network reload cards in excess of $5,000 per month by loading them to a MyVanilla Debit card and using the MyVanilla Debit card to load your Gobank account at any Walmart register, up to $2,500 per day.  

The drawback: every transaction made with a MyVanilla Debit card incurs a fee of $0.50, which will very slightly increase your cost per point.

Does it Measure Up?

How does my perpetual points machine measure up to the 4 goals Frequent Miler set? ​

1. ​Does it require much money or effort to keep going? This largely depends on the geography of your area. If you have convenient access to Vanilla Reload Network reload cards and Walmart store locations, this strategy has no cost, except your time and gas. If you don't have access to them, this strategy won't help you get it!
2. Can it generate hundreds of thousands of points per year? ​To generate 100,000 of your preferred loyalty currency in 12 months at no net cost, you'd need to buy $12,500 in Vanilla Reload Network reload cards per month: $8,500 on the credit card that earns your preferred points, and $4,000 on a 2% cash back card (the net cost in this example would actually be about $18.12 per month).
   You could then load $5,000 to your Bluebird account and $7,500 to your Gobank account.
3. ​Does the PPM do no harm? ​This perpetual points machine only uses the advertised features of commercial products.
4. Does the PPM do any good for the world?​ Well, you can't have everything.

Next Up: Tips and Tricks for Maximizing the Perpetual Points Machine

Check back on Friday, when I'll discuss some of my thinking about how to maximize the value of this strategy, as well as some potential risks to avoid.