Is this credit card sign-up bonus worth it? | Credit card
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Credit card sign-up bonuses can offer hundreds of dollars — and sometimes over $1,000 — of value to new cardholders, usually after meeting a minimum spending requirement. But it’s not always easy to know if a welcome bonus or a limited-time sign-up offer is really worth it.
If you’re considering applying for a credit card to take advantage of their sign-up bonus, here are a few things to consider.
Different ways to earn credit card sign-up bonuses
Start by understanding how credit card companies structure their sign-up bonus requirements.
There are generally four ways to earn a credit card sign-up bonus:
- Standard Spending Requirement: Typical credit card sign-up bonuses give you a lump sum of cash, points, or miles when you meet a minimum spending requirement, often within three months of opening your account.
- Single Spend Requirement: In some cases, a card may give you a bonus after making your first purchase with it. An example of this rare option is the AAdvantage Aviator Red World Elite Mastercard, which offers 60,000 bonus miles when you make your first purchase and pay the card’s $99 annual fee within 90 days.
- Expenditure requirement per tier: With this type of bonus, you can earn the bonus in increments based on your spend, instead of all at once. For example, the World of Hyatt credit card offers 30,000 bonus points when you spend $3,000 in the first three months. After that, you can earn up to 30,000 additional bonus points by earning two bonus points per dollar spent in the first six months.
- Account opening: Store credit cards, in particular, can give you a bonus when you open a new account.
With each of these income structures, consider your spending habits. If you can meet a sign-up bonus requirement without changing your spend, the card might be right for you, as long as the bonus itself is worth it to you.
“Consumers should be sure to take advantage of sign-up bonuses responsibly,” says Russell Nelson, credit card product manager at Navy Federal Credit Union. “You shouldn’t keep swiping your card or charging more than you normally would just to earn extra points and cash back.”
If you think you might need to spend more than you normally would to earn the bonus, consider a card with a lower spending requirement.
How to compare different types of credit card sign-up bonuses
Here is a quick guide on how to evaluate the bonuses you come across.
Points and Miles
Cashback sign-up bonuses are easy to understand because they are represented in dollars. But if you’re considering a travel credit card that offers points or miles, it gets more complicated. Here are some things to consider:
- Type of rewards program: General travel rewards programs usually offer fixed values based on the type of redemption. For example, you can get 1 cent per point or mile if you redeem for travel or just 0.5 cents per point or mile for cash back redemptions. Depending on how you plan to use your points, these redemption rates can guide you. With hotel and airline programs, point and mile values are more dynamic, varying based on travel dates, destination, cash price and other factors.
- Partner Options: Some rewards programs partner with multiple airline and hotel brands, which could potentially give you access to better redemption options. On the contrary, they give you more flexibility. That said, you’ll want to check transfer rates. Unless it’s a one-to-one ratio, it’s usually not worth it.
- Average Cash Values: With airline and hotel loyalty programs, your redemption rate will vary each time you use your points, but travel experts have used data to find average values based on typical redemptions. For example, World of Hyatt points are worth an average of 2.1 cents each, according to a US News study. Compare that to 0.5 cents per point for the Hilton Honors program. So if you receive 150,000 bonus points from Hilton, that’s a value of about $750. And if you get an offer of 60,000 bonus points from Hyatt, that’s worth about $1,260.
In summary, it is essential that you avoid comparing sign-up bonuses at face value. Explore the rewards program to understand how flexible your rewards will be and what value you actually get.
More recently, some hotel credit cards offer hotel night certificates instead of points. With the Marriott Bonvoy Boundless credit card, for example, you can get three free nights, worth up to 50,000 points each, for a maximum total value of 150,000 points.
That’s not a bad total — Marriott Bonvoy points are worth 1.1 cents each, according to US News research, giving you a value of $1,650. But there are some issues with the way the bonus is structured.
For starters, you only get three nights, which might not be huge if you don’t travel often. But if you’re a budget traveler, you can stretch a 150,000 point bonus over multiple extra nights by staying at cheaper hotels.
Second, if you use one of your certificates on a property that charges less than 50,000 points per night, you lose the difference. This means that the value of the bonus depends on your research skills and the properties available at your destination.
Finally, the three free night certificates expire 12 months after they are issued, which means you need to plan a trip quickly to avoid losing them. Marriott points, on the other hand, only expire after 24 months of inactivity on your account, which is easily avoided by periodically using the card.
All in all, this type of sign-up bonus is usually not worth it.
Discount or gift card
Store credit cards often offer a discount on your purchase or a gift card if you open a credit card at checkout.
These types of bonuses can be attractive because they offer instant gratification. And if you shop at that retailer regularly, getting the card may be worth it with or without a bonus, as you could benefit from future purchases.
But if you’re making your decision based on the bonus alone, those aren’t usually worth it, mainly because you can often get so much more value with a traditional credit card.
For example, if you spend $200 on clothes and get a 20% off offer with the Gap Inc. Visa card, that’s a $40 off. But if you apply for the Wells Fargo Active Cash card instead, you’ll get $200 after spending $1,000 in the first three months.
Bonus cash back
Some cards may offer a cash back bonus on certain purchases, with or without a lump sum bonus. For example, the Discover it Miles card is all the miles you earn during your first 12 months with the card. The card offers 1.5 miles per dollar on an ongoing basis, so you’ll earn an additional 1.5 miles per dollar on all charges during that first year. These miles you can convert to cash.
In contrast, Chase Freedom Unlimited offers $200 after spending $500 in the first three months, plus 5% cash back on up to $6,000 spent at gas stations in the first year.
With either option, run a few numbers to determine if it’s right for you. With Discover it Miles, for example, spending $12,000 in the first year would earn you $180 in additional rewards. That’s less than you can get with the Bank of America Travel Rewards credit card, which offers a similar rewards rate and 25,000 bonus points (worth $250) if you spend $1,000 during the course. of the first 90 days. But if you spend $20,000 in that first year on the Discover it Miles card, you’ll earn $300 in bonus rewards.
With the Freedom Unlimited card, the cash back portion of the bonus is worth up to $240 – you get an additional 4% on top of what you would normally earn on these purchases – and you get a $200 bonus on top of that when you reach the $500 spend threshold.
Of course, you only get $240 if you max out that gas spend, so you’ll have to consider how much you actually spend at gas stations each month to get an idea of how much you’ll actually earn.
“If a bonus requires spending that you wouldn’t typically incur, you’ll probably want to reconsider,” says Jason Gaughan, head of unsecured products at Bank of America.
Consider the long-term value of a credit card
It’s easy to get caught up in the upfront bonuses offered by credit cards, but it’s more important to focus on the value a card offers in the long run. “The best card is one with a rewards structure that matches your current budget and spending habits,” says Gaughan, “because that will allow you to reap the rewards offered by the card more efficiently.”
In addition to comparing bonuses, consider reward rates, redemption options, benefits, fees, interest rates, and other features that may affect you in the long run.
If you’re considering a travel credit card, Nelson also recommends looking for one that offers similar value for cash redemptions. “Storing points for a big trip is great, but it’s great to have the flexibility to redeem them for cash in case of unexpected household expenses,” he adds.