Friday, July 13, 2012

When to avoid "miles" credit cards

Executive Summary
For most people, the answer is "always."

Nearly everyone who utilizes credit cards is hopefully receiving some type of reward, whether it's cash, points, miles, or even charitable donations to their favorite cause or alma mater.  A common exception might be people who carry large balances on their credit cards, where, for instance, paying low or no interest while carrying a balance is a reward in of itself.  (Low interest cards don’t typically have great rewards programs.)

When it comes time to pick out a new credit card, there are a lot of options, but there’s also a lot of fine print.  When looking at cash back cards, for example, in addition to the % cash you get per transaction, you need to consider thresholds (the advertised % doesn’t kick in until you spend X), caps (the cash back stops after you spend Y), tiers (high % cash back on some items, but most purchases are low or nothing), and redemption options (redeem in multiples of $10, $100, etc).  Likewise, for airline miles credit cards, you need to consider blackout dates, expiration, transferability, participating carriers, etc.

Reward Example Scenarios
Even before you look into the details, the bigger question is, “how can I get most value out of the reward program.”  Let’s consider 2 very popular rewards credit cards (both without an annual fee):

provides 5% cash back at gas stations, drugstores, and 
supermarkets and 1% cash back everywhere else

provides 1.25 miles for every $1 spent on any purchase

According to the US Bureau of Labor Statistics, the average U.S. household spends just over $48k per year.  Of that, about $24k can reasonably be charged to a credit card.*  (Of the $24k, about $10k is spent on gasoline, groceries, and at drugstores.)  Using these rough estimates, an individual would net $640 in cash using the Blue Cash card and 30,000 miles using the VentureOne card.

Valuing Miles
The next question is how to value the 30,000 miles.  There are a few different ways to do this.  One is to just assume $1 per 100 miles, which is more or less what the airlines themselves claim.  In this case, 30k miles would be worth only $300.  Another way to value the miles is to look at what it can get you.  Airlines like to say that 25k miles gets you a free roundtrip ticket within the U.S.  Therefore, 30k miles would be worth slightly more than an average roundtrip ticket, say $400?  Now, anyone who’s ever tried to redeem 25k miles for a roundtrip ticket knows that this is near impossible (and if they can find a ticket for 25k miles, then the cash value of the ticket is likely less than $400).  More often than not you need 38-50k miles to redeem a roundtrip ticket.  Regardless, even if using the $400 assumption, this is still considerably less than the $640 yielded by the Amex.

What if we opt for a Visa or MasterCard instead of an Amex.  If you used the
CapitalOne NoHassle Cash  card which yields 1% cash back on purchases, your cash back from the above scenario would be $300.  In this case, you’d seem to be at a slight loss relative to the VentureOne card; but again, you have to take into account the following:
  • the likelihood of redeeming a ticket with only 25k miles (vs 50k miles)
  • the legitimate hassle of dealing with the airlines
  • taxes and fees that you have to pay out of pocket (which can be substantial for international travel)
  • the illiquidity of having miles (i.e., great than you have 40k miles, but if you redeem a ticket for 25k miles, now you have 15k just sitting there unusable)
  • the inflexibility of having miles (i.e., if you had the cash, you could spend it on airfare, or anything else in the world)
  • you may likely lose the miles  if  when the airline files for bankruptcy
I'm pretty sure Miles don't have seniority in bankruptcy proceedings

Furthermore, I’m being as conservative as possible by using a 1% cash back assumption.  If you don’t want an Amex card, your best bet might be the Chase Freedom which offers 5% cash back on certain categories (the categories change every 3 months and rewards are capped) and 1% on everything else.

Airline Cards
I haven’t yet mentioned airline-branded cards, such as the Citi AAdvantage card (American Airlines) or the American Express Delta SkyMiles card.  Unless you travel a lot with the same airline, these are your worst bets.  A typical airline-branded card will provide 2 miles for each dollar spent buying tickets on their airline and 1 mile spent on everything else.  For all the reasons mentioned above, your cash-equivalent rewards will be less than a straight up cash back card.  Even if you do travel a lot with the same airline, then you should consider having that airline’s credit card and using it only for airfare purchases; everything else goes on your cash back card.

Just like any good investment portfolio, your credit card portfolio should be diversified.  A well-diversified, high-rewarding credit card portfolio may contain 4 cards and look something like this:
  • American Express Blue Cash for the majority of your purchases, especially those at gas stations, drugstores, and grocery stores.  Amex cards can have higher interest rates, so only opt in if you’ll pay off the balance in full each month.
  • Capital One No Hassle Cash card (Visa or MC) to be used at locations that don’t accept American Express
  • If you fly a lot with one or two airlines, branded credit cards for those airlines.  The Chase MileagePlus Explorer Card (United Airlines) is a good example, and the free checked bags can easily make up for the annual fee.  (In lieu of an airlines card, if you consistently stay at a hotel chain then a hotel-branded card works the same.)
  • A low interest credit card if you make large purchases from time to time, such as the U.S. Bank Platinum Visa
*The conclusions I’m making in this blog are unaffected by the actual credit card spend by U.S. families.  The reason I present the BLS statistics is simply to provide reasonable numbers in the example.

Sunday, May 13, 2012

The End of the U.S. Post Office, Part 3 of 3

In Part 1 of this series, I commented on the post office's bottom of the barrel customer service.  Then in Part 2, I wrote about how the USPS executes poorly on their core business.  Today I'm going to briefly comment on the post office's financial irresponsibility.

About 5 years ago, the USPS started selling "Forever" stamps.  For those who are not familiar with them, the Forever stamp is designed to cover any first class mail, regardless of future postage increases.  You can think of it as a voucher without an expiration date.  About 20 years ago, stamps cost 25 cents apiece.  By the end of 2012, equivalent first-class stamps will probably cost 50 cents.  Therefore, if you were able to buy a Forever stamp back then, your postage savings would amount to 50%.

"Forever" - basically false advertising

This is of course great for a consumer, but there are 2 fundamental problems:

  1. Most consumers are unlikely to purchase a sufficient amount of Forever stamps to actually realize a substantial savings.  Also, postage-heavy businesses could potentially benefit, but any self-respecting business (or individual for that matter) would know better than to "invest" in the Post Office (see Point 2).
  2. The Post Office is effectively issuing bonds/debt which it will never be able to pay back.  Such a liability is in fact the definition of a Ponzi scheme.
The Post Office itself admits its financial woes and bankruptcy is basically inevitable. So how financially and morally irresponsible it is for them to issue these Forever stamps.  This is basically a deceptive attempt by the USPS to make a quick buck now but delaying the responsibility of how they will honor the stamps.

Tuesday, February 14, 2012

The End of the U.S. Post Office, Part 2 of 3

The Adventures of Mail Forwarding

In Part 1 of my rant on the USPS, I raised a few examples of horrendous customer service.  One could easily argue that the USPS is not a customer-oriented or hospitality-based service.  Understood, but if not, they better be able to execute their services adequately.

During the 2 years I lived in the Raleigh-Durham area of North Carolina, I consistently received mail from the past half dozen residents of my house.  This was despite having a laminated card inside the mailbox stating the names of the current residents.  The mis-delivered mail I was receiving was “real” mail: tax notices, legal summons, collection demands, etc.  What are you supposed to do with this mail?  It doesn’t make sense to throw away, and I’m sure it’s illegal to open.  So whenever I went out to check the mail, I got in the habit of taking a pen and circling the recipients, writing DOES NOT LIVE HERE, and putting them back in the mailbox with the flag up.  Perhaps those pieces of mail were forwarded or returned to sender; regardless, I continued to receive mis-delivered mail.

So when it came time for me to move, I wanted to be prepared and not suffer the fate of my residential predecessors.   I purchased “premium” address forwarding, I attached a notice of my new address inside the mailbox, and I filed notices both online and in person at the local branch.

After moving to California and living here for 6 weeks, I still hadn’t received any mail.  I called the main Post Office number, and the customer service agent I spoke to sounded surprised and concerned.  He said that I would receive a call from the postmaster of that branch within 2-3 days, and he even provided me a case number.

After 5 days and not hearing anything , I called, provided the case number, and was told that my case was being investigated and that I'd receive a call within 2-3 days.

After a few more days, I tried again, and was literally told the same thing.  My mail finally started getting forwarded a couple months later; however, about half continued going to my North Carolina address (the people who moved in after us kindly forwarded us our mail).

I used to think that the branch in North Carolina was bad, but it seems that the former tenants in my apartment building in San Francisco are suffering the same fate.  Below is a picture of undeliverable mail in our mail room.  The postman apparently just leaves it for anyone's taking.

Just some pieces of mail on one of the nooks in one of the mail rooms in my apartment complex.

What I find ironic is that most banks and other companies concerned about privacy refuse to fax or email documents.  Instead they insist on mailing documents through the USPS.  I'm genuinely curious where they get that false sense of security.

Next, in Part 3: The Post Office’s Very Own Ponzi Scheme

Tuesday, February 7, 2012

The End of the U.S. Post Office, Part 1 of 3

I’m grateful that nowadays I rarely have to step foot into a Post Office.  With email and social networking, the only things I mail are packages and any official correspondence.  I have a great FedEx business discount, so nearly all parcel and express deliveries are cheaper than the USPS.  Even when I need to mail a letter or if the recipient has only a PO Box, I tend to use a Pitney Bowes machine or print out my own postage.

But every now and then, I do indeed have to step foot into a post office.  It’s not the worst thing (for that, we have the DMV), and it’s probably not even the next worst thing (which would probably be Navy PSD; for civilians who cannot relate to a PSD, imagine that your HR department was run like the DMV).  But all said, the USPS is pretty bad.

I had to mail a letter via “Certified Mail” last week, so I stepped foot into the local Brannan Street post office (2 stars on Yelp).  Despite it being the middle of the day, the counter windows were closed, and taped to the metal curtain was a sign that said, “Computer broke, try again tomorow.”

I want to be surprised, but how can I?  Everyone knows the US Post Office is a poorly run organization.  Surely, they can’t be blamed for all their problems; after all, everything they do requires an act of Congress.  But “Computer broke, try again tomorow”? 

I’m not sure when my disgust for the Post Office started, but it may have been as early as the 90's.  Around 1997 or 1998, I was mailing a large package via the USPS.  Everything was nicely packed, except I needed one piece of packing tape to secure it.  After waiting in line to purchase the postage, I asked the agent if she could tape it, and she said, “We don’t have tape here.”  (This is no surprise today, but at the time this was a huge shock.)  I asked, “What do you mean you don’t have tape – you’re the post office.”  She not so kindly said I could buy tape, and pointed me to the retail shelves.

Being the activist/complainer I am, I called the 800 number to file a suggestion/complaint that the Post Office wasn’t giving its customers tape.  The customer service agent I spoke to sounded surprised and concerned, and said that I would receive a call from the postmaster of that branch.

I actually did receive a call later that same day, but the conversation went nowhere: the call was from the SAME agent who refused me tape to begin with.

Again, let me emphasize that getting “free” tape at the Post Office is no surprise today.  Hell, you can’t even find a pen nowadays.

Next, in Part 2: The Adventures of Mail Forwarding

Wednesday, December 28, 2011

Don't worry, eBay Buyer Protection will protect you

If you've ever used eBay or PayPal, you're probably familiar with their heavily advertised buyer protection.  If not, here's the graphic advertisement which effectively sums it up:

It's easy to make things FREE when they don't actually exist.

The only problem is that, if you've ever tried to use this so-called buyer protection, you find out that there's really no buyer protection at all.  This post will be short because it's as simple as that: there is simply no buyer protection.  (By the way, same goes for sellers: there is no seller protection.  The only one protected is eBay.)  If you don't believe me, Google it.

As an informed consumer, one way to protect yourself is to always pay with a credit card instead of PayPal's e-check or ACH transfer.  All the major credit card companies are pretty good with protecting you from online purchases gone wrong.  Best part, it's free.

During the checkout process, PayPal can often be misleading, letting you think that you're paying with a credit card.  For example, it may say something like "AMEX *******1234 will be used if your bank account has insufficient funds."  So look out for the small font.

Thursday, November 10, 2011

Doubt of Business: 1, USA Jobs: 0

You have to celebrate the small wins, and I'll take credit for one this month.  I wrote a post in April about the federal government's official jobs website, calling out a major error in their applicant eligibility questionnaire.  Just this month, I'm happy to report a new release of the USA Jobs website.  Why it's taken so long and why they had to completely redesign the website for a simple change in list items is beyond me, but hey, it makes sense now:

Well, the wording is still confusing as hell, but at least the bullet points are structured correctly!

Thursday, November 3, 2011