And The Tuna Says (in response to "A Good Offer?")

Dear GridMaster,

Master of the Excel spreadsheet, manipulator of numbers - You are wise and there is no need to be confused. My answer, as usual, is the same...

DO THE MATH!

To determine whether the PenFed Credit Union Rewards Card makes sense for you, there are two calculations you need to make. First, you must calculate your “earn rate”. Then, you must calculate your “burn rate”.

Your earn rate is easy – look at average % of money you spend in each of the categories (that’s ca-TE-go-ries to you and me), and calculate your weighted “earn rate”. To give you an example, I used my own situation over the past 3 months.

Here’s how it breaks down…

If I were to have a card with PedFed Credit Union, my earn rate would have looked like this over the past three months…

Pen Fed	Value	% of spend
supermarket	2.00%	18%
Gas	5.00%	10%
All other	1.25%	72%
Average	1.76%	100%

You can see that since I spent 18% of my purchases on groceries (which give 2% back), 10% of my purchases on gas (which give 5% back) and 72% on everything else (which gives 1.25% back), given my combination of spending categories over the last three months, I would have averaged 1.76% earn rate (i.e. 1.76% of my purchases are given back to me in points).

Contrast that to my current hotel rewards card…

Hotel rewards	Value	% of spend
supermarket	1.00%	18%
gas	1.00%	10%
hotel	5.00%	30%
all other	1.00%	42%
Average	2.20%	100%

With my hotel rewards, card, assuming the same % of spend in each category as above, with the separation of the 5% back on my hotel purchases, I end up averaging a 2.2% earn rate – a full 125% better than what I would have received if I had a card with PenFed. So, in other words, for me, the hotel rewards card I have is the better card strictly because of my lifestyle. But that’s me. Compare the PenFed card against a typical rewards card like Bank of America’s WorldPoints which offers 1 point per $ spend on everything, and you’ve got one stellar program – a full 176% better!

Now, I had to do some research on the redemptions side of the equation (i.e. the “burn rate”) and what I found is that the PenFed card appears to be rather competitive in terms of redemptions. For example, I can redeen 25,000 points to get a free airplane ticket in the contiguous 48 states – this is pretty typical of most card programs. Similarly, I could get a top-notch hotel room for less than 35,000 – which appears to be on-par with my own program. Merchandise, as with most other programs, translates to a poor redemption value. For example a $900 dishwasher can be had for 140,000 points - a pathetic $0.0064 per point exchange rate (remember you should be aiming for at least $0.01 per point!)

So, my dear friend – since you’re the master of the grid, you should be pretty good at finding the best card for yourself. It’s easy. Follow my lead above, and you’ll be able to determine what makes the most sense for you. If you’re not doing a lot of one particular thing, like staying in hotels or flying on major carriers, you may just very well benefit from a card like PenFed’s because it offers a great average earn rate. I appreciate your questions, and I welcome the opportunity to help. All you readers out there, just send us a note by way of comment on cardfish.blogspot.com and we can address your questions.

Happy Credit Card Shopping,

CardTuna

The Donator's Fallacy

Many of you altruistic, do-gooder types have found that you can make pain-free donations to your favorite charities such as your alma maters, animal rights groups, etc. just by enrolling in their credit card. Typically 1% of your purchases are then donated to your charity, and you never feel the pinch. It’s a brilliant and easy way to feel good about yourself and to give something back. But I have just one question for you…

ARE YOU AN IDIOT??

So, your parents spent thousands for you to get a great education at a top-notch university. Then you pay them back by showing them how stupid you can be. Why would you a) allow a multi-billion dollar corporation such as your bank get the tax deduction on YOUR money b) why would you donate less than you actually could? Or, in this materialist society of ours c) why would you forfeit the opportunity to get something for yourself (via credit card rewards)?

Let me illustrate this logic by way of a simple example…

Simon, a University of Higher Learning graduate, receives an offer in the mail for the UHL Rewards Credit Card. He learns that 1% of his purchases on the card will be donated to UHL. This makes Simon feel warm and fuzzy. He gets the card. He spends $25,000 on the card in the first year.

Simon’s bank turns around and donates $250 to UHL. The bank gets the tax deduction. Simon gets a notice that the donation was made. Simon feels warm and fuzzy.

Simon then bumps into CardTuna, I splash some salt water into his face and I force him to think about things. I point out to Simon that had he donated $250 of his own cash to UHL, he would have been able to take a deduction on the donation of about $75 (given his tax bracket). That means Simon would have really only been out of pocket only $175 on the $250 donation OR it means he could have actually donated $357 if he chose to be out of pocket $250 after his tax deduction. So, I force Simon to see that a) either HE or his alma mater are getting screwed and b) the big corporation wins.

I then rush Simon over to the nearest cross-cut shredder so he can chop his UHLRewards credit card to pieces. I advise Simon to apply for one of many credit cards that offer 1% cash back on purchases. He complies. In the next year, he takes the 1% cash back, donates it to UHL and pockets the $75 tax deduction. Now, Simon concludes that he wins, UHL gets the same benefit it would have with his now-destroyed UHLRewards card. Simon still feels warm and fuzzy, but he also feels like his UHL education was actually worth something.

Rock on Simon. Rock on.

CardTuna