Cash or Points?

Hey there Money Saver! Welcome back to another week of How to Save A Buck, where we explore ways of saving money in personal finance, credit cards, and investing! Check out my archive here!

Recently, I faced a dilemma that many credit card holders encounter: the dreaded annual fee. My American Express Gold card charged me $325 for the year, and I wondered if keeping it was worth it. As a personal finance blogger with two decades of experience, I know how critical it is to weigh costs against benefits, especially with premium cards. So, I picked up the phone and called American Express Customer Service, ready to negotiate or, if needed, close my account.

(HINT: I was never going to close my account.)

Here’s what happened—and how I ultimately calculated which retention offer gave me the most value.

The Customer Service Call

I explained my situation to a representative: I questioned the value of my Amex Gold and debated whether I should cancel it altogether. The rep checked available offers for my account. Maybe they would offer an immediate $50 refund? Or maybe points?

First, she pointed out that I’d used around $250 in annual credits - from dining to travel credits. Yikes - not a good look for my argument! Since I’d already effectively offset $250 of the $325 fee, my “net” cost was closer to $75. Still, I wanted more from this conversation.

The Retention Offer: Points or Cash?

I pressed again, then remained silent. After a few minutes, she returned with two retention offers:

1. A $250 statement credit after spending $2,000 within the next 90 days.

2. 25,000 Membership Rewards points with the same $2,000 spending requirement.

Both were appealing. However, as someone familiar with the rewards structure, I knew the points could offer more value if redeemed strategically. With American Express, Membership Rewards points are especially valuable when transferred to travel partners like Delta, British Airways, or Singapore Airlines.

Cash vs. Points: Making the Calculation

To choose wisely, I needed to do the math. Here’s how I broke it down:

- Cash Offer ($250 Credit): This option is straightforward. After spending $2,000 in 90 days, I’d get a $250 statement credit, completely covering my $325 fee and giving me a $175 surplus. This option provided a clear financial win, especially if I wanted to keep things simple.

- Points Offer (25,000 Points): Amex Membership Rewards points are valued at around 1 cent each when redeemed directly for cash back, making these 25,000 points worth roughly $250—similar to the statement credit. However, points have a higher potential value when transferred to airline partners, often ranging from 1.5 to 2 cents per point, but sometimes more. This would mean my 25,000 points could be worth between $375 and $500 if I use them for travel. For example, if I leverage these points for a flight that sells for $750, I’d receive $0.03 per point, thus getting $750 in value vs. that $250 statement credit.

So, while both offers were generous, the 25,000 points could give me significantly more value if I transferred them to one of Amex’s travel partners and booked wisely.

The Choice: Points Over Cash

With these numbers in mind, I chose the points. Here’s why:

1. Greater Potential Value: If I redeem these points for flights, I stand to gain more than the $250 offered in cash.

2. Flexibility with Transfers: Amex’s transfer partners provide plenty of options, and I enjoy travel enough to make good use of these points.

3. Long-Term Value: By opting for points, I’m not just looking at the immediate benefit but also maximizing my card’s ongoing value. With frequent travel, I know I’ll get more mileage (literally) out of the points than the cash.

Key Takeaways for Cardholders

If you’re considering a retention offer and need to choose between cash and points, here’s what I recommend:

1. Do the Math: Calculate the cash offer’s exact value versus the point value, especially if you’re able to transfer points to high-value partners.

2. Evaluate Your Spending Habits: Think about whether you’ll actually use the points within the next year. If you rarely travel, cash might be the smarter choice.

3. Know Your Card’s Value: Review the credits and benefits you’ve used already, as I did, to see how much of the annual fee you’ve offset. This can help you determine if keeping the card is worth it.

While annual fees can be a pain, they can lead to unexpected rewards. By calling Amex, I turned my $325 fee into a valuable offer. It doesn’t always work though.

Whether you’re a travel buff or just looking to save, always make the call.

You never know unless you ask!

Save On,

Chris