Reminder: rewards aren't earned on statement credits and fees

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Over the course of about 24 hours I ran into several variations of this situation, and it took me about 25 minutes of staring at my credit card statements to figure out what was going on. In case any of my gentle readers run into a similar situation, I thought I'd share my experience.

Statement credits are treated as discounts, not payments

This is a situation you're bound to run into if you take advantage of Amex Sync deals or Visa Savings Edge. When your statement closes, you won't receive points for the part of your purchase rebated by the two programs.

So if you paid exactly $50 in flowers from 1-800-FLOWERS for Valentine's day and received a $15 Amex Sync rebate (and a 5% Amex OPEN rebate), you'll only earn miles and points on $35 (or $33.25).

Of course that's not true of portal earnings, which your credit card company doesn't see, so you'll receive portal earnings on the entire purchase as reported by the online merchant (who may exclude taxes, shipping, or gift cards, but frequently don't).

Credit card fees aren't treated as purchases

A kind of inverse problem arose when my Chase Sapphire Preferred annual fee hit this month. Since I pay off all my credit cards each month, my statement balance should always equal my purchases during the statement cycle, and I should earn exactly that number of Ultimate Rewards points (plus bonused earnings, which are listed separately).

But this month my numbers were off! Since I'm constantly running experiments with my rewards credit cards, my first thought was that I hadn't earned points for one or more of those small experimental transactions. It wasn't until I realized that I had earned exactly 95 fewer points than I expected that I realized the problem: my $95 annual fee was included in my statement balance, but wasn't treated as a purchase (which, of course, it wasn't).

Conclusion

All this is spelled out in your credit card's terms and conditions, so don't think they're trying to pull a fast one on you. However, it can be confusing the first time you notice it happen. Hopefully after reading this post you'll be both forewarned and forearmed.

Is it time to reconsider Hilton HHonors?

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[update 2/18/14: I updated the charts below to show the effect of the depreciating 5th night free for stays of 6 – 10 nights in length.]

I applied for the no-annual-fee American Express Hilton HHonors card in January of last year, in order to take advantage of its then-lucrative 6 HHonors points per dollar spent at drug stores. Of course that was rapidly followed by both the 2013 Hilton devaluation and an end to bonus points at drug stores in May, 2013.

Since my experiment buying PayPal My Cash cards for bonus points at 7-11 ended in failure, I shelved my HHonors card except for periodically taking advantage of promotions like Small Business Saturday and Amex Sync offers.

Now that I have another local gas station willing to play nice, I need to decide whether it's worth getting the card back out and potentially even upgrading to a Surpass card that would earn 6, instead of 5, HHonors points per dollar there.

Back in December I tried out a new approach to valuing manufactured spend, by calculating the value you would need to get from a night's stay to make it worth manufacturing spend on a chain's co-branded credit card, rather than a 2.22% cash back Barclaycard Arrival. The advantage of this approach is that it gives you a straightforward calculus (do I value this hotel night at more or less than the break-even point?), without needing to take into account the actual cost of an identical, paid hotel stay.

Here's that same analysis applied to the American Express Hilton HHonors Surpass card, assuming that your spend is manufactured exclusively at merchants that give 6 HHonors points per dollar.

Note two things about these charts: first, I've assumed that you'll be redeeming your HHonors points during the "high" period at Category 4 – 10 properties. If you redeem at the lower end of the award bands, the points required and consequent required value per night will be lower. Second, I haven't taken into account the additional HHonors points you would earn on paid stays. That's a real shortcoming, but I can't think of an elegant way to capture it. You should feel free to adjust these rates based on your HHonors earning rate on paid stays.

Finally, remember that you receive HHonors Diamond elite status in any calendar year you spend $40,000 or more on the Surpass card, and you keep that status through the following membership year (i.e. in March 2 years in the future).

Here's are the points and bonused spend required for 1 and 5 night stays at each category of Hilton property:

And here's the value you'd need to get per night in order to justify manufacturing spend on the American Express Hilton HHonors Surpass card:

So is it worth manufacturing spend on the Surpass card? The sweet spot here appears to be category 5-6 properties, where you can get a night for less than $200, including tax, and possibly category 7 properties on stays which are multiples of exactly 5 nights.

Of course if you're intent on visiting a resort property like the Conrad Maldives Rangali Island, where your only options are to pay a cash rate or redeem points, you'll save easily $1,000 per night on a 5 night stay by redeeming manufactured HHonors points instead.

APR and APY are irrelevant concepts in the world of manufactured spend

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When lawmakers decide to crack down on payday lenders, they invariably cite the extortionate annual percentage rate, or APR, charged by those lenders. Wikipedia helpfully provides this example:

"For a $15 charge on a $100 14-day payday loan, the annual percentage rate is 391.34%."

You won't find a bigger defender of consumer rights and economic justice than your humble blogger, but I have to confess that I've grown increasingly uncomfortable with the concept of APR and APY (annual percentage yield) as applied to my own lifestyle.

The important thing to understand is that APR and APY aren't laws of nature: they're accounting identities that are based on the idea of compound interest: if the fees you pay, or interest you earn, is added to your original balance on a daily or monthly basis, then you'll end up paying (or earning) more over the course of a year than you will if you simply multiplied your first month's balance by 12 times the monthly interest rate paid (or earned).

How, then, to account for manufactured spend? Am I earning interest when I take out a "loan" for $1007.90, with a "rebate" of $20.16, then use the proceeds to pay off my loan during its 20-50 day grace period? If so, what's the relevant time period to extrapolate over the 12 month period required for APY calculations?

The Barclaycard Arrival World MasterCard allows immediate redemptions of earned miles, meaning the total turnaround time between earning and redemption might be as little as 3-4 days; using APY calculations I'd end up with something like 202%.

What I'm trying to say is that while this sounds like an epistemological question, it's actually the opposite: it's the question of how to account for certainty.

That's why I'm increasingly inclined to think about manufactured spend not as an investment, with concomitant risk and return, but as a job. It has a more or less guaranteed return depending on the time and skill you devote to it.

You should think about APR when deciding on a mortgage lender, and APY when deciding on a retirement fund, but when thinking about manufactured spend the much more important concepts are revenue and cost.

Personally, my rule of thumb for the bulk of my manufactured spend is that every individual transaction has to be worth it. Of course I run a lot of experiments for the sake of my readers —I redeemed 8,000 Ultimate Rewards points for a roundtrip to Philadelphia on Saturday, and I don't expect to turn on a profit on those points! But if I pay $17.68 for $44.76 in travel redemptions with a Barclaycard Arrival card, I'll call that a $27.08 profit without losing too much sleep over what time period it should be calculated over: a 60% discount on my paid travel is good enough for me, without claiming to have beaten the market with my brilliant "investments."

The sun also sets on US Bank Visa Buxx

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When I started this blog, the Wells Fargo Prepaid Card still allowed users to load up to $2,500 onto the card for a flat fee of $5. The card still exists, but as of May 1, 2013, has only been loadable using Wells Fargo-issued credit and debit cards, which I believe don't earn rewards on load transactions.

Meanwhile, the Nationwide and US Bank Visa Buxx cards have kept plugging along, allowing $1,000 and $2,000 in loads monthly using any Visa or MasterCard credit or debit card (although Citi-issued credit cards are notoriously at risk of cash advance fees).

Today I saw the news that US Bank is no longer allowing new online applications for their Visa Buxx card. I'm still able to log into my existing account, and haven't seen any indication that they'll be canceling existing card accounts, although at this point I'd say it's a near certainty that they'll be restricting loads to US Bank-issued credit and debit cards sometime in the next 12 months (check back February, 2015!).

I hope that all my readers have already signed up for a least one card account, so they won't be immediately affected by this change. And as always, remember the first two laws of travel hacking:

  1. Every deal dies eventually;
  2. There will always be more deals.

JH Preferred cash advances: your miles may vary

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One last post for tonight, after my epic (and successful!) quest to Philadelphia today.

I reported back on January 31 that the JH Preferred card had some limitations that some of my more enthusiastic blogger brethren had overlooked in their original reports. Namely, unlike their "direct" competitor, the HR Block Emerald card, JH Preferred doesn't allow ACH pulls from the account, which makes it simultaneously less convenient and more expensive.

After patiently loading my JH Preferred card up with $5,000 in Vanilla Reload Network reload cards, I ran into yet another limitation: my usually-completely-reliable local Bank of America branch was unable to process a cash advance for $4,995 (why $4,995? There's a $5 cash advance fee, and I don't have any interest in trying to rip $5 off from Bancorp).

I'm not willing to rule out user error on the part of the teller, but I do want to share my experience so my readers aren't unduly surprised if they're not able to liquidate their JH Preferred cards in one go. It may still be worth trying, if you have a bank branch willing to help, since there are a few reports of successful $5,000 cash advances in the relevant Flyertalk thread.

I was ultimately able to liquidate my $5,000 JH Preferred balance by making 3 Walmart PIN-based debit transactions, so don't despair if your cash advance attempts end up not being successful.

How much would it cost to live in a hotel?

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[Editor's note: as a reminder, I'll be blogging and tweeting all day today since I'm taking a 5 hour train to Philadelphia, then another train back tonight. Thank God for whiskey.]

I read a lot of "aspirational" travel blogs, but I personally take only a few aspirational trips per year. Last year over the summer I flew to Prague on Delta's new lie-flat BusinessElite product for 100,000 Skymiles (now 125,000 Skymiles), and of course over Christmas I flew on a paid Alaska Airlines first class ticket in order to secure one last year of Platinum Medallion status before I status match to Alaska's Mileage Plan.

For me, travel hacking is about saving money on flights I would take anyway, and making money by taking trips I wouldn't be able to otherwise afford.

That's why I've been following with interest Lucky's musings on hotel living. Lucky's an aspirational kind of guy, so he's talking about bouncing around the world's most beautiful locals being waited on hand and foot.

But he got me thinking: how much would it cost to live in a hotel year-round?

Club Carlson to the Rescue

Fortunately, this is wildly easy to calculate thanks to my lovingly-crafted point density charts. The obvious candidate for a hotel chain is Club Carlson, where Category 1 hotels cost just 9,000 Gold Points per night. Using a Club Carlson Premier Rewards Visa or Club Carlson Business Rewards Visa, you'll need to spend $1,800 to earn enough points for a night at a Category 1 property.

Of course, as a cardholder, you receive the last night free on all award stays of 2 or more nights, good for up to 100 free nights annually. That means you'll need to spend $1,800 on the card for every 2 nights you plan to stay — assuming you're able to book stays of exactly 2 nights.

In order to do so, you'll need a partner who also carries a Club Carlson Premier or Business Rewards Visa. You'll book alternating blocks of 2 nights each, paying a total of 135,000 Gold Points per 30 days.

That means between you and your partner you'll need to manufacture $27,000 in spend on the Club Carlson credit card each month. [Yes, there's an annual renewal bonus of 40,000 Gold Points, which takes care of 8 nights for each person, or about half a month between the two.]

Getting to $27,000

This is an almost laughably easy amount of spend to manufacture between 2 people. Here's how I'd do it, in ascending order of cost and using strictly "within the lines" techniques:

  • Amazon Payments, $1,000: one partner to the second partner; free.
  • TD Go, $6,000: $3,000 per person; load cost $6; liquidation cost $4.20; total cost $10.20.
  • Nationwide Visa Buxx, $2,000: $1,000 per person; load cost $8; liquidation cost $1.40; total cost $9.40.
  • US Bank Visa Buxx, $2,000: one partner as parent, one as teen; load cost $10; liquidation cost $1.40; total cost $11.40.
  • Bluebird, $10,000: 2 Bluebirds; load cost $79; free liquidation; total cost $79.
  • PayPal, $6,000: 2 personal accounts with linked PayPal Personal Debit Cards; load cost $47.40; liquidation cost $4.20; total cost $51.60.
  • Club Carlson Premier Rewards annual fees: $150 ($12.50 per month).

30 days in a Category 1 Club Carlson property, with accomplice: $174.10.

But Which Hotel?

Interesting exercise? Sure. But we still have to figure out which Category 1 Club Carlson property to move into!

Fortunately Club Carlson makes it easy to find properties by Category. Here's the list of all the Category 1 properties in the world we have to consider.

Home or Abroad?

The first question you should ask is whether you want to manufacture this spend on an ongoing basis, or stockpile 1.62 million Gold Points before you move in. On the one hand, the former gives you more flexibility if Club Carlson undergoes the long-awaited devaluation of their award chart. On the other hand, it requires you to pick a property that's convenient to your manufactured spend techniques, which rules out any overseas properties.

Since Gold Points reservations are easily cancelable, you don't actually have to decide this in advance, since you can move out after literally any 2-night reservation. A lot cheaper than breaking a lease, in my experience!

Stateside Options

I looked into all 10 US Category 1 properties [editor's note: it's a long train ride], and here's what I found:

  • Country Inn & Suites By Carlson, Saraland, AL: CVS, Walmart
  • Park Inn Fresno, Fresno, CA: CVS, Walmart
  • Country Inn & Suites By Carlson, Jacksonville, FL: CVS, Walmart
  • Country Inn & Suites By Carlson, LaGrange, GA: CVS, Walmart
  • Country Inn & Suites By Carlson, Norcross, GA: CVS, Walmart
  • Country Inn & Suites Greenfield, Greenfield, IN: CVS, Walmart
  • Radisson Hotel Indianapolis Airport, Indianapolis, IN: CVS, Walmart
  • Country Inn & Suites By Carlson Tulsa Central, Tulsa, OK: CVS, Walmart
  • Country Inn & Suites By Carlson, Cookeville, TN: CVS, Walmart
  • Park Inn By Radisson Dallas Love Field, Dallas, TX: CVS, Walmart

So based on my research, I'd say these are all outstanding options, if you want a taste of Southern living (or airport-adjacent living).

Options Abroad

As they say, read the whole thing, but a few properties jumped out at me from the list of Category 1 properties.

5 Eastern European capitals:

  • Park Inn Sofia (Bulgaria)
  • Park Inn Central Tallinn (Estonia)
  • Park Inn Budapest (Hungary)
  • Radisson Blu Beke Hotel, Budapest (Hungary)
  • Park Inn by Radisson Vilnius North (Lithuania)
  • Park Inn Danube, Bratislava (Slovakia)

One beachfront-ish property:

  • Radisson Hotel Hacienda (Cancun, Mexico)

And one place in Costa Rica. Island living!

  • Country Inn & Suites By Carlson, San Jose (Ciudad Cariari, Costa Rica)

Now you know everything I know. See you in Cancun?

The Delta Platinum American Express annual fee is going up because it has always been too low

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You may have heard that for Delta Platinum American Express applications received after May 1, 2014, the card will carry a $195 annual fee, rather than the current $150 annual fee. I'm not going to tell you that's some kind of good thing, but it's obvious why it's happening: under the right conditions, the card offers one of the best value propositions in the miles and points space.

For this analysis, I will assume the cardholder spends exactly $25,000 or $50,000 on the card, since those are the spend thresholds that unlock this card's real value.

Companion Ticket

Each year you renew the card, you'll earn a domestic companion ticket. According to the terms and conditions, redeeming the ticket costs "from $22.00 to $68.00 for itineraries with two to four flight segments" for taxes, fees, surcharges and so on.

The companion ticket is non-mileage-earning, but if it's redeemed for a flight that costs over $300 or $400, this benefit alone easily pays for the card's annual fee, whether it's $150 or $195.

Nothing's Free

I got into a discussion with a colleague yesterday about the Southwest Companion Pass. I said that I was glad I'd found a gas station that was willing to play along, so I could get a 75%+ discount on paid airfare by using my US Bank Flexperks Travel Rewards card. He replied that he wasn't interested, since he doesn't pay for his airfare, by which he meant that he manufactures spend on his Chase Southwest Visa cards, then redeems his points for travel using his Southwest Companion Pass.

I had to break it to him that while he was enjoying a very healthy discount on his travel, it wasn't free: every dollar he spent on his Southwest Visa cards could be spent on a 2% or 2.22% cash back card. That foregone cash back was the price he was paying for his family's travel: $110,000 in spend would earn $2,200 – $2,442 in cash back or Barclaycard Arrival travel redemptions.

Let's apply the same logic to the Delta Platinum American Express. After spending $50,000 on the card, a cardholder will have foregone $1,000 – $1,110 in cash back or Arrival redemptions, plus either the annual fee (vs. a $0 annual fee, 2% cash back card) or the difference in annual fees (vs. the $89 annual fee, 2.22% Barclaycard Arrival). That brings the total cost to $1,195 – $1,216. We can call that $1,200.

What does that $1,200 buy you?

Bonus Skymiles

First of all, you'll receive 70,000 redeemable Skymiles, which (as an American Express cardholder) can be redeemed for $700 in Delta airfare (non-mileage-earning in Economy class, mileage-earning in First, Business and BusinessElite classes). Obviously the points can be redeemed for more value than that on premium cabin international travel, but that's the minimum value of the miles.

Bonus Medallion Qualification Miles

At this point the cardholder will still be $500 in the hole. However, at the same $50,000 spend threshold, they'll also have earned 20,000 Medallion Qualification Miles (and be exempt from Medallion Qualification Dollar requirements); they'll pay 2.5 cents per Medallion Qualification Mile.

Is it worth it?

2.5 cents per elite qualifying mile can be absurdly cheap or absurdly expensive: it depends on your travel goals.

I believe the two situations where it's absurdly cheap are if you need the Medallion Qualification Miles to reach Platinum or Diamond Medallion status, or plan to roll over extra Medallion Qualification Miles in order to achieve Platinum or Diamond in a future program year.

While there is one big benefit of reaching Gold Medallion instead of Silver Medallion (100% bonus Skymiles instead of 25% on paid flights), if you're not going to reach Platinum Medallion you shouldn't be crediting your flights to Delta in the first place: you should be crediting them to Alaska's Mileage Plan, where you can redeem your miles for Delta and American Airlines flights.

That's because only at the Platinum Medallion level can you change and redeposit awards for free, which is absolutely essential to redeeming your Skymiles for "Saver" level awards.

Finally, the Platinum and Diamond Medallion Choice Benefits are each worth $200 or more, which strengthens the value proposition of this card — if and only if it helps you make it to Platinum or Diamond Medallion.

Weekend roundup: "the things I do for you" edition

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Here's my weekend roundup of random stuff that's been building up in my RSS feed:

It's always sunny on the train to Philadelphia

I'll be blogging and tweeting all day tomorrow since I'll be spending 11 hours on Amtrak down to Philadelphia and back, in order to get my hands on a Momentum prepaid debit card. I've been meaning to do this for literally months, but you may have heard that the weather on the East coast has not been particularly cooperative lately.

Expect a full report in the coming weeks.

What do PreCash (Evolve Money)'s patents claim?

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Ever since my conversation with Alex last week, I've been pondering one thing he said in particular:

"We’ve built out our system in a way that allows us to deliver bill payments cheaper than absolutely any other person, any other company, in this country. And we have patents around that process, so we’re the only ones who can do those things. It allows us, where other companies and banks, it costs them, so the bank will usually pay somewhere between $50 and $60 a year per every customer who uses their online bill pay service, on average, for us the cost is significantly less."

What patents, and what process?

Believe it or not, in a former life I was an aspiring lawyer and have always loved digging into the minutiae of these things, so I visited the US Patent and Trademark Office's website to see what I could see. By searching for "precash," Evolve Money's parent company, I found 6 patents which are registered to Mssrs. Randy Templeton, Matt Callanan, and David Resnick:

"David Resnick (Resnick) was the founder of PreNet (previously known as PreCash) and a member of its board of directors. In 2001, to recapitalize PreNet, Resnick sold his PreNet stock to KCI for $3.165 million. KCI distributed the stock to investors."

As I dug into the 6 patents, my first reactions was, "these guys are jokers." It appears that the inventors were claiming to have invented the storage of value. There was a lot of language like this:

"With this approach, the end-user stores value on the end-user's account and the end-user account is decremented when the end-user actually purchases or uses the particular good or service."

In other words they were claiming to have invented "currency:" the end user has a thing of value they exchange for goods and services at the time of purchase or use.

Then when I got to the 5th patent I was blown away. It appears to me that the process patented by PreCash is something like the process used by Square Cash, whereby a charge to one debit card is treated as a refund to another debit card. As patent #8086530 states:

"The present invention leverages the existing financial network that is used around the world for credit card transactions, but it uses that existing system "backwards" in that payments are received, rather than credit extended, at the merchant point-of-sale. Interfacing to the existing world-wide network, e.g. VisaNet or another card association network, in this new way allows payments to be received at any of literally millions of merchant locations that are coupled to the network, thus providing extraordinary convenience for the end-user. The payments are posted to an intermediary account maintained on the centralized payment system."

Patent trolls have been in the news a lot lately, but if, and it's a big "if," these folks actually were the first ones to realize that merchant payment terminals could be used to route payments backwards through the payment network, then they're heroes.

Alternatively, they might just be patent trolls. What say you?