Best Reward / Cash Back Credit Cards

[3c3]

@Honkinggoose

Out of curiosity, why does anyone do a a pull?

Same day transfers at Fidelity. Last time I could not even set up ACH at the other bank.

[kilimar]

Soo… for the US Bank 4% card … can you transfer Roth-IRA $250k VTSAX from Vanguard to US Bank without having to convert to something else? I tried browsing the USB website but there doesn’t seem to be any details on what you can actually invest… Also, the $250k Roth-IRA should meet all the criteria to earn 4% and avoid various monthly fees, correct? And US Smartly Bank Savings account with $25? Am I missing anything?

[scripta]

I have no personal experience, just the comments I read on DoC and reddit.

You only need $100K to meet the criteria for 4%. According to reddit you only need $100K to waive the IRA annual fee, but the link below says it’s $250k to waive annual fee. I suspect there’s bank-side IRA accounts that only need $100K to waive, and brokerage-side accounts that need $250K to waive. Or maybe they just haven’t updated the brokerage pages to line up with this new Smartly Rewards structures.

You shouldn’t have to convert VTSAX, but they do charge a $25 fee for trading some mutual funds:

Brokerage Fees | U.S. Bancorp Investments

You could switch to VTI first, as the first 100 trades per year are free for stocks and ETFs (which, according to the page above, might also require the Smartly Checking account, otherwise it’s $4.95). Those fees are from the late '90s - early '00s, ridiculous. It’d be cheaper to only move the funds you have no intention of trading.

For dividend reinvestment, you might have to call to turn it on.

The Savings account only requires $25 to open, you don’t need to keep any money in it. It might need activity to prevent from being closed due to inactivity. I’d probably redeem the CC rewards through the checking and/or savings accounts or set up an external push and pull for a few bucks if you don’t intend to use these accounts.

[scripta]

Came across this fascinating article that is most relevant to this thread:

Anatomy of a credit card rewards program

Emphasis added:

@bitsaboutmoney

To highlight something which is routinely surprising for non-specialists: interchange fees are not constant and fixed. They are set based on quite a few factors (gibbering madness intensifies) but, most prominently, based on the rank of card product you use. The more a card product is pitched to socioeconomically well-off people, the more expensive interchange is. Credit card issuers explicitly and directly charge the rest of the economy for the work involved in recruiting the most desirable customers.

I knew that it costs more to accept a Visa Infinite than a Visa Signature, but I didn’t realize it was even more dynamic than that.

The site is full of interesting bits about money.

[jesselivermore]

@scripta

Came across this fascinating article that is most relevant to this thread:

Anatomy of a credit card rewards program

Emphasis added:

@bitsaboutmoney

To highlight something which is routinely surprising for non-specialists: interchange fees are not constant and fixed. They are set based on quite a few factors (gibbering madness intensifies) but, most prominently, based on the rank of card product you use. The more a card product is pitched to socioeconomically well-off people, the more expensive interchange is. Credit card issuers explicitly and directly charge the rest of the economy for the work involved in recruiting the most desirable customers.

I knew that it costs more to accept a Visa Infinite than a Visa Signature, but I didn’t realize it was even more dynamic than that.

The site is full of interesting bits about money.

I thought they made most of their money on interest? This is where I like usury rates , so I can get my rewards and pay my balance in full.

[Shandril]

Do merchants have a choice of which tier of cards to accept? I don’t think so as it would break the illusion that fees are fixed I guess.

But I also did not realize the fees were that different depending on the type of business. No wonder the card issuers track purchase categories even if rewards are flat across all spend categories.

So what happens say when you use your Fidelity VISA Signature for purchases in Europe? Does the merchant get charged the higher interchange fee? Who pays for the 0% foreign transaction fee + 2% cashback?

[_TJ]

Elan Bank absorbs it, I assume.

[scripta]

@jesselivermore

I thought they made most of their money on interest?

According to this for 2020, it’s about 43% from interest and 29% from interchange. The rest is from cash advance fees, annual fees, and penalty fees.

The article I linked explains that they make money on interest from the poorer / lower FICO score customers. The cards offered to them have none or little rewards and lower interchange fees, because those customers are more likely to carry a balance and pay interest. On the higher end of the FICO score almost all customers pay the balance off in full, so the money is made on the difference between interchange fees and rewards.

[scripta]

@Shandril

So what happens say when you use your Fidelity VISA Signature for purchases in Europe? Does the merchant get charged the higher interchange fee? Who pays for the 0% foreign transaction fee + 2% cashback?

@_TJ

Elan Bank absorbs it, I assume.

That would be my guess also (well, probably Elan and Fidelity). They couldn’t charge the merchant a higher fee, because European interchange rules should apply. My understanding is that a foreign transaction fee is a pure money-maker – they shouldn’t lose money on a 0% fee, they just don’t make any. The 2% cash back in this case is the case of rewards (probably) costing more than the collected revenue. They’ll make it up in volume of the US transactions of all customers.

[sullim4]

Oh yeah, I’ve looked at the whole interchange by card tier thing out of curiosity a while ago. Knock yourself out - the matrix is huge. The tl/dr is that it depends on MCC (merchant code) as well as card type. This one is for Visa:

visa-usa-interchange-reimbursement-fees.pdf

[barrytuneup]

As a former auto diagnostic repair shop owner (25 years ago) I use Discover to process my CCards from customers. Back then Disc set me up with the terminals and all the stuff needed. Disc charged me 1.6%, Visa and MC were 2.2 and Amex was about 3.8%. I am sure they have gone up since by a lot. But I never paid a swipe fee back them. When I sold the biz, I became an NYPD officer and rose through the ranks. No need to worry about this crap. Then I retired about 4 years ago, before all the crap started.

[scripta]

Business owner to cop is a strange career progression

[barrytuneup]

I had heart problems and needed a free medical insurance deal. Sold the biz, took the test…No premiums to pay either. NYC did and still pays all premiums for retirees. We have a plan called GHI for medical for NYPD employees. Premium free.Plus they reimburse my wife and my Medicare monthly premiums. Who does that?It’s paid yearly for both every April. About 4500, going on 4 years now.

[glitch99]

@scripta

Business owner to cop is a strange career progression

@barrytuneup

I had heart problems and needed a free medical insurance deal.

Biz owner to cop-with-a-heart-problem is even stranger.

[scripta]

This thread seems appropriate for this “strongly worded letter” (not a ruling) just published by CFPB:

Consumer Financial Protection Circular 2024-07: Design, marketing, and...

I found the whole thing to be interesting, but here’s a summary:

@CFPB

This circular provides some examples where covered persons that offer, provide, or operate credit card rewards programs, and their service providers, may violate the prohibition against unfair, deceptive, and abusive acts or practices, where: (1) the redemption values of rewards that consumers have already earned or purchased are devalued; (2) consumers’ receipt of rewards is revoked, canceled, or prevented based on buried or vague conditions, such as criteria disclosed only in fine print or up to the operator’s discretion; or (3) consumers have reward points deducted from their balance without receiving the corresponding benefit of the rewards, including due to technical failures when redeeming rewards points on merchant partners’ systems.

@CFPB

The following are illustrative examples of potentially unfair rewards program practices:

• Revoking or canceling rewards based on vague catch-all language in program terms, such as “gaming” or “abuse.” This can be especially problematic when those terms are also subject to the rewards program operator’s discretion.
• Revoking previously earned rewards based on policies that tie revocation to actions that are not within the consumer’s control and do not constitute fraud or misconduct by the consumer, like an issuer unilaterally closing an account.
• Promotional “sign-up” offers that are denied based on hidden conditions that consumers were not reasonably aware of, such as “churning” conditions that restrict how frequently a consumer can earn sign-up rewards, time periods to earn rewards that are effectively shortened by the hidden and unavoidable period of time needed to receive and activate a card, or promotional offers that are unavailable for applicants through certain channels.

I’m hoping this will be good news for churners. All issuers should do what Amex does now – in my case they warn me if I don’t qualify for the advertised SUB before processing the application. With CapOne people say if you’re approved, you’ll get the SUB even if you’re technically violating their churning rules. Don’t know how it works with other issuers since I follow the “known” rules and actually read the fine print.

This should also be good news for “team travel”, as it should slow down or stop the obvious point devaluations by hotels and airlines.

[glitch99]

@scripta

This should also be good news for “team travel”, as it should slow down or stop the obvious point devaluations by hotels and airlines.

Or they will add experation timeframes (or more firm experations) on points when earned. If you earn enough points for a free hotel night in 2024, you’ll need to use in 2024 instead of sitting on it and redeeming that night at 2027 values.

[Shandril]

@scripta

This should also be good news for “team travel”, as it should slow down or stop the obvious point devaluations by hotels and airlines.

I’m not sure how enforceable all of this is.

Most airlines have shifted to dynamic point/mile costs for award travel. Without devaluing redemption values, they can charge any number of points they want for any flight, the least desirable flights being the cheapest in terms of points/miles. Sure they may be “forced” to keep the redemption of a JFK to CDG flight to 30k miles but that flight will have 2+ stops, cost $250 in airport fees and take 23 hours, and won’t include checked-in luggage or seat selection. Of course they’ll also offer the 7.5 hr nonstop for 75k miles with seat selection and checked-luggage fees included…

Same thing for hotel nights, point costs are already dynamic even within defined hotel tiers. And free nights already have expiration dates (within a year usually) and often have exclusion dates. Maybe the exclusion dates could disappear and simply be replaced with exorbitant point values. Overall I don’t expect much change.

It’ll be interesting to see how the anti-churning measures evolve though. Like scripta mentioned, they could just display your eligibility status before you submit your application and that’ll be it. That’d be a nice change but I doubt the good ol’ days of constant churning will be back. If they did, expect the SUBs to plunge in value. We’ll see if it forces AMEX to change their once-per-lifetime bonus rules. They don’t exactly hide their rules.

More importantly, we’ll see in what form the CFPB survives in the new year. I’d expect many of its rulings being dropped by the new administration regardless of popularity.

[scripta]

@Shandril

I’m not sure how enforceable all of this is.

The switch to dynamic pricing was a bait-and-switch – we all lost value and they all broke their initial promises. Not sure if anyone litigated or will litigate this, but this memo does suggest, in my non-lawyer opinion, that it may have been a violation of the CFPA.

But now that they’ve all switched and assuming this is the reality going forward, dynamic pricing itself is not a problem as long as the dollar-value of the points remains constant. For example, if each point is worth $0.01, then it had better always be $0.01. If a plane ticket or hotel costs $200, then it had better also cost 20K points, and if the same ticket or hotel changes to $185, then it’d better change to 18.5K points. This can be easily enforced if, for example, the point-cost of a ticket increases while the dollar-cost of the same ticket does not. The document explicitly mentions that all companies assign a dollar-value for each point because it’s an asset on the books, financial statements, etc. It should be possible for a financial regulator (or court) to check if that dollar-value deflated over time.

Some examples that come to mind are Hilton Honors points. They used to be worth way more than they are now. Same for SWA RapidRewards – they used to be closer to 1.7c, now they’re 1.3c. Delta’s SkyMiles are known as SkyPesos for a reason too, since they kept devaluing them. Then there’s USBAC, which devalued the rewards points by 25% in September, but at least they gave a ~6 months warning.

[Shandril]

For some like SWA, yeah the redemption values are pretty clearly linked to the price of the tickets.

But for many other companies, it is not.The exact dollar value of points/miles very much depends on redemption.

For this holiday season, I booked a domestic flight costing $181 on that day using 7k miles +$5.6 (2.5 c per mile). But when we went to Europe last year via the same airline, the flight costing $1478 was redeemed using 32k miles + $53 (4.4 c per mile). And these redemption rates also vary a lot in time as they get close to capacity. Now I picked these flights because the redemption value was decent obviously. But I could have booked much worse redemption values for other flights at different times or different itineraries.

So would the regulator prove that the dollar values are deliberately decreased? Maybe on aggregate if the changes are massive and sudden. Or maybe compared over several years to take care of fluctuation in actual award redemptions.

My fear is that if the regulator forces all of them to operate like SWA in terms of having very rigid dollar values to miles/points, it’ll be another opportunity to screw everyone over by companies using variable values currently.

[scripta]

Perhaps. But I think the companies have an incentive to make this outsized value available sometimes. There’s no problem when the customer gets better value than what was promised. The problem occurs when the customer can’t get what was promised. So if an airline ad for their credit card says that 25K miles is enough for a round-trip economy ticket anywhere in the USA, then it’d better be true. And if it’s not true, then they shouldn’t advertise it.