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 |
| 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
