The value of Starwoods SPG points part 1
NOTE: I’ve decided to split this into two posts. Part 1 of my response is long enough as it is. The second part of my response will address the calculations made in Chua’s second post “Travel Cards Part II”.
My friend Chua over at THINKchua.com and I share common interests such as traveling, biking, and most importantly knowing that Minneapolis is really the better city to live in. Recently, we have been discussing credit cards and rewards programs that would be best for travelers. If you’ve spent any amount of time on TimsAdventures.com you would see that I heavily favor the Starwoods Preferred Guest Program (SPG) as my rewards program of choice. I’ve discussed how I am using the SPG program to save up for an around the world award ticket and why I carry the SPG Amex and the Schwab Visa card as my primary cards. My articles on developing credit card rewards strategies have even been linked by Dan, a Canadian travel blogger, from Two Go Round The World.com.
My friend has a different perspective on the SPG credit card and has raised some interesting points in his posts on travel credit cards. His first post regarding travel credit cards raised some interesting points which I plan to address in my post. Chua’s second post provided some “back-of-the-napkin” math and also clarified some misinterpretation of his first post. In our email exchanges on the subject of rewards points, I have stated that I will present of the value SPG points and redeeming them in other ways besides hotel stays. I will also provide comments on Chua’s calculations that were listed in the second post.
Something to remember about Credit Card Rewards…
Before I begin addressing specific points raised by Chua, I think it is important for you to step back and think about what you want to get out of your credit card rewards. Pointing back to my developing a credit rewards strategy post, the first step is to figure out your goal. It is entirely possible that the SPG American Express is not the best card for you if you have different goals. I want to re-iterate this point because I don’t believe there is a card that is best no matter what. I think it depends on your goals.
Addressing the points raised in Chua’s first post…
5 main points are brought up in the first post. I’m going to quote them directly from the site and provide a response. to each point.
1.The AMEX has a $45 annual fee, it is just waived the first year.
RESPONSE: There are actual several ways to mitigate the fee. First, you could cancel the personal card after the first year and apply for the small business version of the SPG American Express. You will not lose any of your accrued points by canceling the personal card. The small business version of the SPG American Express similar to the personal version of the card in that it has no annual fee and can earn 25,000 bonus points in the first year. Also, you don’t actually need to own a small business to apply for this card. You can claim to be a sole proprietorship and provide your social security number like any other credit card application. This at least two years of paying no annual fee. One other I have tried with success is to ask that the annual fee be waived. I actually did have a SPG business card. About a month before the annual was due, I decided to call in and close the account. It turns out that Amex wanted me to keep it open and offered me a $30 statement credit. Because I was going to close the account anyways, I took the statement credit and bought some SPG points with it. I originally asked for SPG points and they gave me a statement credit instead. When my personal SPG card comes up for renewal in about a month, I plan on asking SPG if they will waive the annual fee or provide me some bonus points for keeping the account open. Asking, especially in these tough economic times, can go a long ways. Finally, even if I have to pay, I find the $45 as a way of having access to multitude of airline award partners with the bonus of being able to use points for hotel stays too.
2.There are foreign currency transaction fees. If you were actually traveling, paying 3% on all credit card charges vastly undermines the “4.8% return” that someone calculated (challenges to the calculation later). This may be mitigated if you use the SPG card to save for travel, but travel with a different card.
RESPONSE: I wholeheartedly agree that foreign transaction fees are ridiculous. This is one of the reasons why I do carry the Schwab Visa card in my wallet. I would never use my Amex card overseas just to earn points. No matter what the points program, I don’t recommend using the card overseas if there is a foreign transaction fee. It doesn’t make sense to pay ridiculous fees just to earn points.
3.You need to accumulate points. Since there is no advertising saying differently, we can assume that this is like any rewards program, “terms and conditions are subject to changed at any time”, therefore you are working towards a target that can be moved away from you at any time. In all the time you are counting your eggs, they may never hatch, or become unattainable. You can do your part to put all your spending on it, save up, but not be able to get what you expected years down the line
RESPONSE: I think you said best when you mentioned, “terms and conditions are subject to change at any time”. I don’t see how this applies any differently to the Schwab card. Just as the Starwoods program can change so too can the terms and conditions of the Schwab visa card. What if Schwab said you had to keep your cash rewards in the brokerage account for a certain period of time before you were allowed to access the cash? What if Schwab started charging a foreign transaction fee for overseas purchases? In my opinion, you’re taking the same risks of the rewards program changing whether its a points based program or a cash back program. One of the reasons that I think Starwoods or Schwab isn’t going to eliminate or significantly change their programs is because of the competitive advantage of being able to differentiate their programs against competitiors. (For Stardwoods this would be companies like Marriot and Hilton, For Schwab, it’d be companies like Fidelity, E-Trade, etc).
A great example of a cash back program being devalued is the Chase Freedom card. I’m not going to get into specifics here, but the devaluation is discussed at CreditBoards.net. This is an example of Chase looking at the costs of the program instead of looking at the competitive advantages the program provided to Chase.
4.Starwoood hotels are almost exclusively in developed cities near major travel destinations (such as DisneyWorld), business centers, or destinations themselves (resorts). These are not in most of the interesting places to travel, I think you would have a hard time finding a Starwood hotel near monasteries in Tibet, in Tierra del Fuego, or lots of places in between.
RESPONSE: I will be using SPG points for award tickets on airlines, not for hotel stays. In fact, my belief is that the only way to receive the maximum value from SPG points is to redeem them for premium class airline tickets. While the argument might be made that I can’t use these points to get me to Tibet on the Airline partners of Starwoods, I can at least use the points to get me to Beijing, Shanghai, Hong Kong, and other major cities in China where I can take a cheap bus, train, or flight to Tibet after I’ve finished exploring the major cities. My use of SPG points will be a long term trip in the range of 6-12 months where I will have the ability to explore major cities and out of the way places.
5.Lock-in. The best part of traveling being free to choose. If you are using Starwood points as a savings account for travel, even as open minded as we all think we are in, there is an amount of lock-in that you will face that draws you towards places you are going to maximize the use of these points to save money. Say you have been traveling for months/years and you are keeping to a budget: should I go sandboarding in Ica, Peru or head north towards Lima? Well, in Lima you would get a free night’s stay…and then it begins, you miss out because you locked in your savings somewhere else.
RESPONSE: I’m not locked-in by any means. If you call having a choice of 25 airline partners of who to transfer points to being locked in, that is your opinion. Again, pointing back to my response in point #4, I am not using SPG points to stay at hotels. Instead I’m going to use them to obtain airline tickets so I can fly to different regions of the world. I acknowledge that I will still have to pay for transportation to the out of the way places, but you’d have to do that regardless even if you were using cash back.
Closing Remarks on Part 1 of the value of SPG points…
A few closing thoughts on Part 1…
1. Chua recommends sticking with a cash back card because “You get the money today, in cold hard cash, and you can use cold hard cash almost anywhere”. He recommends the Schwab Investfirst Visa Card, a card in which I carry in my wallet.
While I think the Schwab card is a great card because it has no foreign transaction fees and the 2% cash back, I think its also important to discuss the requirements of the Schwab card – something that hasn’t been done in any of my previous posts or in Chua’s posts. In order to get the 2% cash back into account, you must establish a Schwab One Brokerage account. Now, according to the terms of the card, a brokerage account is not required to apply for this card. However, if the card holder does not have the brokerage account, the card simply becomes another points earning card with a cash back redemption feature.
“Clients with a Schwab Bank Invest First Visa credit card are automatically enrolled in the Schwab Bank Invest First cash rewards program at no additional cost. Establishment or ownership of a Charles Schwab & Co. (“CS&Co.”) or Charles Schwab Bank (“Schwab Bank”) account (or other relationship with Schwab Bank or CS&Co.) is not required to obtain a Card or to be eligible to accumulate Points; however, a Schwab One® brokerage account is required to redeem Points in order to obtain the cash rewards offered under the Program.”
This card may not be right for people who don’t want to open or switch brokerage accounts, switch checking accounts (if you go with the InvestFirst checking product from Schwab), or may require the use of a local bank. Again, I think this just shows that the best ways to use and obtain credit card rewards are highly dependent on your goals and individual situations.
2. It was also discussed about paying cash for a flight for Zanzibar to Nairobi alluding to the fact that you wouldn’t be able to use points and the fact the airline took cash only. First, I wouldn’t recommend redeeming points for these flights. Again, I would use my SPG points to get me to major cities like Nairobi and then pay for my transportation to the out of the way areas. Also, the redemption value is not probably the greatest on a flight like this. Second, I actually checked into whether or not I could have used SPG points to get myself from Zanzibar, Tanzania to Nairobi, Kenya. The answer is Yes. I used the airfare search engine, Kayak.com It turns out that Kenya Airways, a partner of Northwest and Delta Airlines, flies between Zanzibar and Nairobi. According to the Northwest award chart, for travel from Africa to other regions of Africa will be 30,000 – 62,500 in coach. Now, if I wanted to and assuming I could find availability for 30,000 award level, I could transfer 25,000 SPG points and receive 30,000 NWA to let me book that ticket. This just shows the flexibility of the SPG program. Chua mentions the cost of using the internet, well the smart thing to do would be to book this award ticket before you left home. However, I understand the point about losing flexibility and you may want to not commit to a certain travel date. Again which is why I only would use my points to book air tickets to the major cities.
3. The calculation in post 1 is wrong. Chua says in order to get 25,000 NWA miles, you would need to spend $25,000 on the SPG card. This is inaccurate. One of the nice features of the SPG card is the 5,000 mile bonus SPG gives you when you transfer 20,000 points into the participating airlines. NWA happens to be a participating airline as well as other major carriers including international carriers. In order to obtain 25,000 NWA miles, one would only need to spend $20,000 on the SPG Amex. Using Chua’s #’s, this would raise the card to a 1.5% reward value ($300 flight from the post / $20,000 = 1.5%). Again, I don’t recommend using SPG points on domestic coach tickets. Most domestic tickets are around 300$ or less. If you use the points towards a premium class trip overseas for ticket that normally cost thousands of dollars, you get a better return. I’ve done the calculation in one of my previous posts but here it is again:
An Example Calculation
Business Class seat on NWA/DL to Taipei, Taiwan – $7167.02
Dollars to spend using average cash back rate of 2% to purchase this ticket – $358,351
Air miles required to get a saver class award ticket – 120,000 for a round trip
Starpoints required to redeem for NWA seat – 100,000
Cost for obtaining those 100,000 SPG points – A maxmium of $100,000
Return on 100,000 starpoints for a $7,167.02 premium seat – over 7%
4. This is in relation to the saving for a reward versus taking the cash right up front. Again, I just think it depends on your goals. I generally pay for personal travel in coach both domestic and international. I simply can’t afford a business class ticket and I won’t spend enough in a year to have enough cash back to buy that ticket either. For me, I’ve found a way to leverage the points programs of SPG, American express, and the airlines themselves to maximize my rewards. Cash back would probably be the simplest, but I wouldn’t get enough cash back to allow me to buy that business class ticket to Asia.