Today I want to talk about credit card rewards programs. This may seem like a strange topic for an investment manager to discuss, but bear with me a sec.
One of the more important reasons my clients employ my services is to maximize their eventual spending power at some future date (e.g. retirement), within the bounds of their investing risk tolerance. I attempt to do this by crafting a portfolio of assets that maximizes long-term returns at a level of risk that is appropriate for my client, all the while minimizing and delaying taxes as much as reasonably possible through tax sensitive asset location, tax loss harvesting, and infrequent trading.
But by far the biggest determinent of my clients' eventual spending power at some future date is not how well I do my job, but how my clients are able to save — more specifically, how aggressively and how early they are able to save, and thus invest. Getting a great but reasonably priced education, landing a series high paying jobs you love and you're good at, or spending less than you make are traditional pathways to pull this off, but by all means are not the only ways.
And this is where the mix of your credit cards comes in. By playing it right with your cards, you can save a few additional percentage points of your income. And when it comes time to spend the funds you've saved and invested, that same choice can increase your purchasing power by a few additional percentage points. It's all about the rewards and rebates that your credit card spending generates.
Up until a few years ago my partner and I were still using the same credit card we started with as a newly married couple in the 1990s. It was issued by the bank where we held our checking and savings accounts and it paid us back about 1% in cash and/or airline tickets. Sometime in the early 2000s we added another card to our wallets, this one to use while traveling overseas because it didn't charge a foreign transaction fees.
Maybe I wasn't paying attention; maybe I was too busy with my career and parenting; maybe I had been living overseas too long — but I totally missed out how generous many credit card reward programs had become. This all changed for me in 2017 when for some reason I opened up a mailed offer from American Express, enticing me to their Platinum card with an upfront offer of 100,000 AMEX Membership Rewards Points. Figuring that each point was worth about a cent, I figured the offer was worth about $1,000, I decided to do a little more research. That's when I went down the rabbit hole that is the world of credit card rewards programs. Over the next three years my partner and I jettisoned our two legacy cards and brought on three new cards.
Pro tip #1: With the benefit of hindsight, we should have held onto those legacy cards as they had extremely long credit histories and they didn't have an annual fee. I think cancelling them unnecessarily dinged our credit score, at least in the short term.
Our three new cards earn us between 3% and 6% back on all of our credit card spending, well above the 1% or so we used to earn. We do have pay a bit of attention about which card we use where, but it hasn't been onerous. Below are the three cards we chose and why they work for us, listed in increasing order of use. Your optimal mix of cards will likely be different from ours as it all comes down to your purchasing behavior — but perhaps one or two of these cards may also be a good fit for you. Note: Neither AlphaGlider nor I are affiliated with the issuers of these cards. We also don't receive any kickbacks from the issuers.
Pro tip #2: I hope it goes without saying that you should always pay off your monthly credit card bills in full. There are many cheaper ways to borrow than through your credit cards.
Apple Card (Mastercard)
Our Rebate: 3% in cash
Annual Fee: None
Foreign Transaction Fee: None
Bank: Goldman Sachs
Learn More ➤
This is a card for people deeply embedded in the Apple ecosystem — people like me :-). It gives you 3% back on everything you buy at Apple — hardware such as the iPhone, iPad, Mac, Watch, AirPods, HomePod, and software such as apps and subscriptions (e.g. Music, TV+, Arcade, iCloud storage, News+, Fitness+). It also gives you interest-free financing on most Apple hardware, with 6 month terms for AirPods and HomePod, 12 months for Mac and iPad, and 24 months for iPhone and Watch. As with taxes and hamburgers, it's better to pay for your Apple hardware tomorrow instead of today.
You get 3% cash back if you use your Apple Card with Apple Pay at select retailers such as Walgreens, T-Mobile, Uber/Uber Eats, Nike, Panera, and Exxon/Mobil, and 2% cash back at all other retailers with Apple Pay. You get 1% cash back if you use the Apple card in its physical (titanium alloy) form. But don't do that — use another, more lucrative card, instead.
Pro Tip #3: If you work at a school or if you or one of your children is in college, you can use the
Apple Education Store
which gives 5-10% discounts on most of Apple's hardware lineup (iPhone a notable exception) — no Apple Card required. But combined with Apple Card, the Apple Education Store gives you an 8-13% cash discount plus 6-24 months of interest-free financing. Think different
Amazon Prime Rewards Visa Signature (Chase)
Our Rebate: 5% cash credit to spend at Amazon
Annual Fee: None
Foreign Transaction Fee: None
Bank: Chase
Learn More ➤
If you or your partner are already an Amazon Prime member, then this card should be in your wallet. Prime members get a massive 5% back on anything they buy at Amazon and Whole Foods (which is owned by Amazon) when using this card. The 5% rebate comes in the form of a cash credit that you can use on future purchases at Amazon. Well over half of US households subscribe to Amazon Prime but I'm pretty sure that well under half of US households have this zero annual fee credit card. And that's a shame.
This card is also a solid earner when paying at restaurants, gas stations, and drugstores — generating 2% cash back. All other purchases generate 1% back, but you already know that you shouldn't do that.
At the time of this post (February 2021), Amazon Prime members who sign up for this card will receive a $70 Amazon gift card and 5% back on all of their non-Amazon/Whole Foods purchases for the first three months (up to $2,500 in purchases; so worth up to $125). However, you might see even more generous offers while logged into your Amazon account.
Pro Tip #4: Don't mess up while applying for this card like we did. Be sure that the person who applies for the card also holds the Amazon Prime subscription. If you don't, all purchases at Amazon and Whole Foods will only earn 3%. We eventually fixed this and we're now earning 5%.
American Express Platinum
Our Rebate: 5-6% payable in Membership Rewards points
Annual Fee: $550
Foreign Transaction Fee: None
Bank: American Express
Learn More ➤
So when we're not using our Apple Card at apple.com, and our Amazon Prime Rewards card at amazon.com, we use our Amex Platinum card. These purchases earn us one Membership Rewards point for each dollar we spend. Amex gives you a lot of options on how to use these points, but by far the most lucrative is to transfer them into your frequent flyer program. The credit card experts at The Points Guy (TPG) value each Membership Rewards point at 2 cents, but if you play it right with your frequent flyer transfers you can fetch up to 6 cents in value for each point (i.e. each dollar spent). What you don't want to do with your precious Membership Rewards points is to pay down your Amex bill or use them at retailers that accept them as payment as you'll only get 0.5 to 1 cent in value per point (i.e. a 0.5-1% rebate).
Oh, the places you’ll go!
We signed up for this card with the goal of purchasing two round-the-world business class tickets — a plan that unfortunately has been put on hold given the pandemic and all. We reckon we'll eventually get between a 5% and 6% rebate on our AMEX spending this way. As a point of reference, a TPG writer transferred 170,000 points into his ANA frequent flyer account and used them to purchase a 10-stop, 28,668 mile RTW business class ticket on Star Alliance airlines (he also had to pay $1,000 in fees and taxes). This ticket usually goes for $10,857, putting the point redemption value at 5.8% [($10,857-$1,000)/170,000 points/($1 spend/point)].
The $550 annual fee presents a bit of sticker shock, but the card's other generous benefits pretty much cover them, at least for us. We get $200/year in airline fee credits on the US airline of our choice (good for baggage fees and drinks on board), $15/month in Uber credits, access to airport lounges in many of the airports we frequent, a Global Entry membership every four years ($100 value), and gold status with Hilton, Marriott, Avis, Hertz, and National. We also get great deals using Amex Travel , Amex's solid travel booking website. We have been able to trim hundreds of dollars off our flights back home to New Zealand using Amex's International Airline Program . And all airline and hotel bookings on the site, as well as those made directly with the airlines and hotels earn five Membership Rewards points per dollar spent (thus a 10-30% rebate)!
As you've probably figured out by now, Amex Platinum benefits are very travel-centric, and thus have been pretty useless as of late. Amex realized this and was quick to add temporary benefits to justify the card's high annual fee, such as $20 monthly credits against both mobile phone and streaming service charges (up to $320 in 2020), $5 credits for each $10 or greater transaction you make with local small businesses (up to $100 before September 2020), $30 monthly credits against Paypal purchases backed up by the Platinum card for the first six months of 2021 (up to $180 in 2021), and up to $200 in credits for airline, hotel, and rental car bookings made on Amex Travel through 2021 (so maybe we'll get to use this in the second half of the year if the vaccines get the pandemic under control🤞).
If you're on the fence about whether Amex Platinum's Membership Rewards and various credit programs are worth the $550 annual fee, then Amex's "welcome offer" will likely tip the scale in the card's favor. Only available to new customers (my partner and I each had Amex cards back in college in the 80s, but evidently Amex's records don't go back that far), Amex will spot you 100,000 Membership Rewards points if you spend $5,000 on the card within six months (as of February 2021 when I published this). Amex will also give you 10 points for every dollar you spend on groceries and gas in those six months (up to $15,000 in spending). So let's say you and your partner spend $1,200/month on groceries and gas, that gives you another 72,000 points. These 172,000 points are enough to score you that RTW business class ticket mentioned above! Even if you "misuse" your points to pay down your Amex bill at the going rate of 0.6 cents/point, these 172,000 points would still be worth $1,032 to you — well in excess of the card's $550 annual fee.
This is the Amex Platinum “welcome bonus” you want.
Pro tip #5: If you go to Amex to sign up for the Platinum card and they are only offer you 75,000 points and no extra points on gas and groceries, try going to the sign-up page with a private browser (i.e. Chrome:File/New Incognito Window, Safari:File/New Private Window, Brave:File/New Private Window, Firefox:File/New Private Window). The key is to have a clean cache in your browser. If that still doesn't work, try refreshing the webpage or move to another device.
Pro tip #6: The annual fee covers only one Platinum card member. However, Amex will grant your partner an Amex Gold card with zero annual fee ($250/year value). Although the two of you will only get one statement, all spending on the gold card will only generate one Membership Rewards point per dollar spent. So make sure to use the Platinum card when booking those flights and hotels at Amex Travel.
Pro tip #7: If you're interested in the Amex Platinum card, also give the Chase Sapphire Reserve card a look. This card came on the scene in 2016 with Amex Platinum firmly in its crosshairs. This Chase card is the reason why Amex's welcome offer is so generous. Both cards target high spending travelers, but they each go about it differently. If you are a high spending traveler, then check out this TPG blogpost comparing the two cards to see which one works better for you.
Hopefully this post has got you thinking about your own spending patterns and how you may be able to expand your purchasing power by changing up your mix of credit cards. There are dozens and dozens of great credit rewards programs out there, so I encourage you to spend a little time looking into it. Don't leave money on the table. Besides, what's else are you going to do during this pandemic?
If you've got a favorite card or two, please share them and why they work for you in the comments section below.