The biggest difference between travel credit cards and other rewards cards is how points can be redeemed. The best travel cards with no annual fee typically offer two types of redemptions:
- Statement credit redemptions. Points or miles are redeemed to “erase” travel purchases from your statement.
- Travel portal redemptions. Points or miles are redeemed through the issuer’s portal.
Depending on how you like to book travel, you may have a preference for one method over another.
Many people prefer statement credit redemptions over portal-based travel cards for several reasons. They’re the most flexible method since you can use your rewards to cover any kind of purchase that codes as travel, from bookings through Expedia to local bed and breakfasts and renting a car. This also means travel statement credits are better for saving money on everyday expenses, like a subway ride or an Uber or Lyft. You don’t necessarily have to plan a big vacation to take advantage of them.
Finally, if you tend to be an excellent bargain hunter, you can take advantage of big travel discounts to book travel with your credit card, then double-dip by using your statement credits to erase the purchase.
On the other hand, travel portal cards often earn more lucrative rewards, if you know how to use them wisely. Travel portal cards have a few unique advantages:
- Pay with points or miles. Using a bank’s travel portal enables you to skip a step and redeem your points or miles for a travel purchase immediately. A statement credit travel card requires you to book a trip with the card and request a credit later.
- Variable points and miles valuation. Statement credits assign a fixed value to each point or mile you earn, but travel portal redemptions can value points at a different rate. This can be good and bad, as some redemptions might value your points at a higher rate than the advertised rate, while others might value rewards at a lower rate. For example, a hotel room through a card travel portal might cost $200 per night, whereas you might be able to book the room directly with a discount for $150 per night. In this case, your points or miles would go further by booking directly and requesting a statement credit for the purchase.
If getting a big new cardholder bonus and high ongoing rewards on every $1 spent sounds too good to be true, it isn’t. However, there are some things to avoid to make sure you’re making the most of your card.
- Don’t carry a balance from month to month. Balances you carry on a credit card can accrue interest at 18% or more per year, so carrying a balance will mean that interest charges pile up faster than the rewards you earn. When the bill arrives, pay your “statement balance” amount on time and in full to avoid fees or interest charges. As a rule of thumb, rewards you earn on your spending are generally equal to one to two months of interest charges.
- Avoid redeeming points or miles for cash. Points or miles you earn with travel cards are generally worth less when redeemed for cash. If you are not certain you will be able to redeem your points for travel because of a busy work schedule or because you have few travel expenses, then a cash back credit card will offer more value than a travel credit card. As a rule of thumb, points or miles that are redeemable for $0.01 each for travel may be worth as little as $0.005 to $0.007 each when redeemed for cash.
If you avoid these two major pitfalls, you can earn high rewards with a travel credit card and redeem your rewards for the highest possible valuation, without paying a dime in fees or interest along the way.
View more information: https://www.fool.com/the-ascent/credit-cards/best-travel-cards-no-annual-fee/