Starting from scratch: hotel stays

In yesterday's post I talked about how to develop a strategy for booking airline tickets that works for you. As I said then, "the options you have available today are restricted by the decisions you made in the past." For example, your ability to get approved for new American Express credit cards depends on the number of American Express credit cards you currently have (in general folks are restricted to 4 total American Express credit cards each).

Hotels are cheap, if you ignore loyalty

Yesterday I explained that airfares are cheap, if booked using cheaply acquired fixed-value points. The opposite is true of hotels: while you can redeem fixed-value points for hotels, you'll be redeeming them against the full retail price of the hotel room, which means you're virtually certain to overpay.

For example, it's possible to use a cashback portal like TopCashBack to click through to Hotels.com and earn 9% cash back from TopCashBack, plus 10% back in the form of a Hotels.com award night when you book and stay 10 nights through Hotels.com.

There are additional benefits to booking through an online travel agency: you'll be able to pay with the credit card of your choice, meaning you'll earn that credit card's reward points as well, while redeeming US Bank Flexpoints, Citi ThankYou Points, or Chase Ultimate Rewards points through their booking tools necessarily keeps you from earning credit card rewards on your reservations.

But the most important benefit of booking through an online travel agency, rather than a hotel chain's own website, is that it frees you to book the cheapest hotel available (that meets your other requirements like location and amenities)!

To see how this works, let's take the example of a weekend stay in Portland, OR, from May 20-22, 2016. Once I've filtered by 3-star hotels in the downtown neighborhood, I find that the cheapest Hilton property is $189 per night, the cheapest Marriott property is $213 per night, and the cheapest Starwood property is $269 per night, before taxes.

Now, clicking through TopCashBack and booking through Hotels.com will save you 19% off whichever property you choose. But being agnostic as to the chain you're staying with saves you even more: an additional 11.27% compared to being loyal to Marriott and an additional 29.7% compared to Starwood loyalty.

Loyalty programs: cheap, but loyal

Hotel loyalty programs can also bring down the cost of your stays from retail, but only under certain conditions.

The biggest problem with hotel loyalty programs is that if you're not saving money on every single stay (compared to the online travel agency method described above), then you're faced with the unpleasant choice of deciding between overpaying for a hotel stay within the loyalty program or saving money but earning online travel agency rewards too slowly to notice your savings, or, God forbid, even wind up seeing a message like this:

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Having said that, there are 3 principle ways to use hotel loyalty programs to consistently bring down the price of your stays:

• Wyndham Rewards. The Barclaycard Wyndham Rewards credit card earns 2 Wyndham Rewards points everywhere, and Wyndham has a huge global footprint. Since all Wyndham Rewards properties cost 15,000 Wyndham Rewards properties per night, if your hotel stays typically cost more than about $150 per night (or about $180 before accounting for cash back portal and online travel agency rewards), you'll save money manufacturing spend on the Wyndham Rewards credit card compared to a 2% cash back card.
• Hyatt Gold Passport. If your travel takes you primarily to the kinds of mid-size European cities or larger American cities served by Hyatt, then you can often save money by transferring Chase Ultimate Rewards points to Hyatt Gold Passport from a Sapphire Preferred or Ink Plus credit card, earned with a Chase Freedom Unlimited card. Compared to paying with cash back earned on a 2% cash back card, you need to get a consistent value of at least 1.59 cents per Hyatt Gold Passport point to break even, since cash back is worth roughly 19% more than face value when spent on hotels at Hotels.com.
• Hilton HHonors. The good thing about Hilton's program is that, like Wyndham, Hilton has a huge global footprint, so it's not unreasonable to expect you'll be able to find Hilton properties to accommodate you almost anywhere you travel. Since the Hilton HHonors Surpass American Express earns 6 HHonors points per dollar at supermarkets and gas stations, you'll need to consistently get about 0.4 cents per HHonors point in order to come out ahead compared to a 2% cash back card, with the cash back spent at an online travel agency like Hotels.com. The $189 room we found in Portland above would cost about $186 after discounts and taxes, or 50,000 HHonors points, giving a value of 0.37 cents per HHonors point — in other words, you'd be better off earning cash back and using it to make a Hotels.com reservation at the same hotel, which happens to be the cheapest option for the weekend I searched.

It's not unreasonable to suggest that the Club Carlson Premier Rewards credit card, which earns 5 Gold Points per dollar spent everywhere, might be a competitive option for manufacturing unbonused spend. But due to the heavy discount afforded when using cash to book stays through online travel agencies, you'd need to consistently get 0.48 cents per Gold Point on all your Club Carlson award stays to break even compared to cash. Club Carlson is simply not a program that affords that kind of value anymore: Hotel Hustle's average value found for Club Carlson is 0.41 cents per point, with a median value of 0.379 cents per point.

Conclusion

As you can see, just as I showed yesterday, the best approach to booking hotel stays as cheaply as possible will depend on your situation: the fixed cost of hotel award nights can be an argument in their favor if you typically travel to expensive cities during peak travel times, or it can be an argument against them if you're a flexible leisure traveler who travels when hotels are cheap in dollar terms, and can be made even cheaper using online travel agency rewards.

Tomorrow I'll conclude this series with a look at the prepaid and alternative banking products I would use differently if I were starting out from scratch.