Hotel cashback portal participation (it's complicated)

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I've recently had occasion to take a look at a few options for booking paid hotel reservations, and have come across a peculiar situation on several cashback portals. Today I want to share a few observations and offer some suggestions.

Booking portals penalize rewards-earning stays

I came across this issue because the Citi Dividend card (no longer available to new applicants) is offering 5% cashback (up to $300 cashback per calendar year) on airline reservations and Hilton stays during the third quarter of 2017. While I personally reached my cashback maximum in the second quarter (at drug stores) I thought some readers who don't manufacture spend might still be able to earn cashback during the third quarter on paid Hilton stays. After all, even if you have a Hilton Surpass card earning 12 points per dollar spent at Hilton properties, you'd have to consistently value Hilton points above 0.42 cents each to prefer the Hilton points.

With that in mind, I decided to take a look at some booking portals you could use to make your Hilton reservations, and discovered that the two portals offering the highest payouts included similar restrictions. In the case of BeFrugal, the payout is:

  • 7% Cash Back on Non-HHonors Rate Completed Stay
  • 6% Cash Back on HHonors Blue Rate Completed Stay
  • 2% Cash Back on HHonors Silver Rate Completed Stay
  • 1% Cash Back on HHonors Gold Or Diamond Rate Completed Stay

And in the cash of TopCashback:

  • 7% Confirmed Booking for Non HHonors Members and Blue Tier HHonors Members
  • 2% Confirmed Booking for Silver Tier HHonors Members
  • 1% Confirmed Booking for Gold and Diamond Tier HHonors Members

In other words, Hilton doesn't want to pay out big cashback rebates to customers to whom it's also paying out big Hilton Honors points rebates.

The reason this is necessary is because once you've clicked through the cashback portal, you land directly on the hotel's website, which means your stay is eligible for hotel rewards as well.

Knowing that some online travel agencies allow you to pay for hotel stays in person on arrival, my first thought was to work around this problem by using an online travel agency with its own rewards program. But the same problem pops up there!

BeFrugal offers to pay out on Hotels.com bookings at the following rates:

  • 9% Cash Back on Completed Hotel Stay - Not A Hotels.com Rewards Rate Customer
  • 3% Cash Back on Completed Hotel Stay - Hotels.com Rewards Rate Customer

In other words, you can earn 9% cash back without earning Hotels.com Rewards nights, or 3% cash back if you choose to earn Hotels.com Rewards nights.

TopCashback offers:

  • 9% Completed Stay without earning Hotels.com Rewards
  • 5% Completed Stay with earning Hotels.com Rewards

Since Hotels.com Rewards nights are worth "about" a 10% rebate, you're better off earning both cashback and Hotels.com rewards nights, if and only if you're sure you'll reach 10 Hotels.com Rewards nights and thus be eligible for a redemption.

Possible workarounds

In the case of online travel agencies, you can stack rewards by choosing the highest cashback portal payout that still earns the OTA's own rewards currency, choosing a rate that's paid in-person, and then paying with a credit card that offers the highest earning rate, like the Citi Dividend in the example I mentioned above. In the case of Hotels.com this might add up to a total rebate of something like 20%: 5% through TopCashback, 10% through Hotels.com, and 5% through the Citi Dividend.

If you want to take advantage of your status with a hotel chain, for example receiving room upgrades or breakfast, as well as earning points or elite-qualifying nights, you'll want to book through the cashback portal that offers the highest payouts on elite-qualifying stays. For example, the Upromise portal offers 5% cashback on Hilton stays and doesn't include restrictions on participation in Hilton Honors.

Finally, if you want to earn the highest payouts, don't need elite status benefits, and are willing to take a chance, you could try booking a paid stay through the highest-paying portal (BeFrugal or TopCashback in the case of Hilton) without logging into your hotel rewards account, and after your stay has completed and your cashback has posted request retroactive points from the hotel chain. Of course that means being unable to take advantage of rates exclusively available to Hilton Honors members.

Grocery store spend and the possibilities of loyalty-agnostic travel

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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.

How to feel about the Fidelity Rewards 2% cash back Visa Signature

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The Fidelity Investment Rewards American Express has long been popular in the travel hacking community. The reason is simple: transactions are processed on American Express's network, so it can be used to fund Serve prepaid cards, but the card isn't issued by American Express, so it earns rewards on those transactions. In other words, it's an easy "set it and forget it" way to earn $240 per year in cash back at absolutely no cost.

That co-branding relationship has ended, and Fidelity's cash back offering is now being branded as the Fidelity Rewards Visa Signature Card, which still has no annual fee and still earns 2% cash back everywhere, but is now issued by a US Bank subsidiary ("Elan Financial Services") on the Visa network. 

This is great news

There's been some handwringing over the impending loss of the ability to load Serve with a 2% cash back card, and it's true that some people find change harder than others. But there's no shortage of American Express cards issued by banks besides American Express. Just get one of those. The US Bank Flexperks Travel Rewards American Express is a good choice if you're going to use it for manufacturing spend in general, although I wouldn't get it exclusively for this purpose due to its $49 annual fee.

The really great news is that there will be a no-annual-fee 2% cash back card issued on the Visa network!

It's true that Citi offers their Double Cash card on the MasterCard network, which is fine for manufacturing cash back at brick-and-mortar locations. But being issued by Citi means using that card for online manufactured spend is often worse than useless: it's expensive! That's because Citi often codes online bank account funding transactions as cash advances, and charges their customers the corresponding hefty fees and interest charges.

Fidelity Rewards Visa Signature is the Arrival+ killer

I've had a Barclaycard Arrival+ for a few years now, and have kept it year after year for two reasons:

  • It's not issued by Citi;
  • It's not issued on the American Express network.

That meant it was my go-to card for manufacturing spend online. That's true even though they've sharply reduced many of the card's benefits, cutting the card's award rebate from 10% to 5% and raising the redemption threshold from $25 to $100.

But for new Fidelity Rewards Visa Signature cardholders, and after existing cardholders are transitioned to the Visa Signature product, there will be no reason to hold an Arrival+ (unless you're fully enamored with the card's "true" chip-and-PIN functionality).

That's because the Arrival+'s $89 annual fee is essentially a wager, and it's a wager stacked heavily in Barclaycard's favor: will you or will you not spend more than $85,000 per year on the card? It's not that that figure is impossible to hit; it's that every year you don't hit it, you're paying Barclaycard more in annual fees than you're receiving in rebated travel redemptions.

Conclusion

There are a few marginal edge cases where people have legitimate complaints about the loss of their Fidelity Investment Rewards American Express cards.

As exhaustively documented by Milenomics, it's possible to redeem 25,000 Worldpoints (the currency the American Express card technically earns) for flights costing up to $400. If you don't have a US Bank Flexperks Travel Rewards card, that's a pretty good deal, although as Milenomics makes clear, achieving that redemption value isn't trivial. But if you're good at searching out qualifying flights, you may be better off in the status quo.

Another corner case is if you have a strained relationship with US Bank. It's currently unclear what will happen to people who are not currently able to open US Bank credit accounts when their account information is transferred over to Elan Financial Services.

And finally, if you currently transfer your Worldpoints to or from your Fidelity linked account in order to maximize the value of your other Worldpoints-earning credit cards, you'll lose that ability and that value once the transition is complete.

But if you just use your 2% cash back American Express to earn 2% cash back on purchases everywhere, you should be excited to learn that "everywhere" is about to get a lot bigger.