Credit Card Surcharges versus Points

Discussion in 'Open Discussion' started by lewko, Aug 1, 2006.

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  1. lewko

    lewko Junior Member

    Jul 22, 2005
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    Have any of you two ever done any calculations on the question of acquiring mileage points versus paying credit card surcharges?

    I ask as a number of my big-ticket bills (rates, strata etc.) are now charging 1-3% for credit card payments versus EFT.

    The bastards.

    I get 1.5 points per dollar on Amex and 1 point per dollar on Visa.

    At say 16,000 Qantas points for a return trip to Melbourne versus say $250-300 cash for a cheapy ticket) and who knows for international flights,
    I am wondering at what point one should cop the surcharge or pay the old fashioned way.
     

  2. Flood these mongrels with a lot of paperwork and write cheques out to them for a while and let them work out the compliance costs of a paper system vs an electronic system. I find it most inconvenient where a creditor requires a cheque and will not set up an electronic facility. My landlord still requires payment by cheque and if I'm out of the country, I don't pay in advance. So does owners corp but there are discounts for early payment. We are in the 21st century and the sooner all people involved in the movement of money realise it the better.
     
  3. I still like the convenience of CC payment and will continue to do so unless the surcharges become too great:!:
     
  4. NM

    NM
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    I would never use my CC points for a QF award fight between SYD and MEL. I use my QF FF points (however earned) for upgrades which cost me between 25,000 and 60,000 points. So if 25,000 points requires $16,667 spend on my Amex, then for billers that charge a 2% surcharge, I would be paying an extra $333. So my upgrade from business class to first class from HKG-MEL would cost me a max of $333 if all 25,000 QF FF points were earned from billers charging a 2% surcharge.

    Similarly, an upgrade from business to first class on MEL-LHR would cost me 60,000 QF FF points, which would incur surcharge costs of up to $800 if using Amex Rewards Maximiser and paying a 2% surcharge on all purchases.

    But thankfully my Amex spending is such that less than 5% of my spend on that card incurs any surcharges, so my extra costs for such upgrades would be more like $16 to $40, which I see as pretty good value.

    For a SYD-MEL return trip I would just purchase the cheapest paid fare I can find (that earns AA miles of course :p). My minimum flight rewards are things like BNE-PER or BNE-AKL.
     
  5. one9

    one9 Active Member

    Sep 14, 2005
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    I think Australian banks greatly need to increase the ATM card daily withdrawal limit.

    I never pay with a credit card if there is a surcharge unless it is going to be inconvenient by another payment method. Normally I would use EFTPOS card, but it has a $1000 daily limit.

    Points are worth far less than 1 cent each, so I would definately not consider paying a 1% surcharge.

    When people pay using credit cards at my business, we must pay a 0.08% (and a whopping 2.5% for Amex) surcharge. We get a bill for thousands of dollars each month. If people paid by ATM card, it would cost less than $100. So I can see it being reasonable to charge a surcharge. But as Visa/Mastercard is less than 1%, we don't charge a surcharge as this is similar to the administrative hassle of cheques and cash.
     
  6. NM

    NM
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    That depends on what you use them for. The price difference between Business and First class between say MEL and LHR is a lot more than 1% of 60,000 points it costs for the upgrade. Same for HKG-MEL upgrade being 25,000 points.

    But if you use them short QF domestic flight awards, then you are right. But I don't use my points for those.
     
  7. one9

    one9 Active Member

    Sep 14, 2005
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    I think a lot of people compare points like you, and I believe it is a mistake.

    It is easy to compare the cost difference of an upgrade and the amount of points required and then to try and value the points.

    But, what you are forgetting is that the upgrade is not guaranteed. So you need to take into account, the cost of uncertainty, the cost of mucking around, the cost of not getting points for the higher fare etc.

    There are many more costs to consider when using points to purchase a ticket. Costs such as uncertainity, the cost of having less dates to chose from, the extra cost if you decide to stay an extra night etc to make your flights work, the cost of inconvenience if you have an earlier or later flight in the day then you would prefer, the cost of often not being able to chose which airline the flight is on, the cost of not getting points, and I believe many people forget to take into account the costs of taxes.

    You can not buy an award ticket from Qantas. A ticket (eg economy ticket) that you buy from Qantas is far superior to an award economy ticket with Qantas. As such the credit card company etc. pays far less for the points that you would if paying by cash, as they buy a less superior ticket.

    When I first started valuing points, I valued them at somewhere between 1 and 3 cents. Since then I have redeemed a few first class flights and some business class flights. However I now value the points at less than half a cent each. I have around 2 million points, and am earning them faster than I can use them. I wish there was a Visa/Mastercard in Australia that could transfer to AA.
     
  8. oz_mark

    oz_mark Enthusiast

    Jun 30, 2002
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    Quite an interesting post, but I think it is natural that people will try to value points and compare the value that they get from the different options available for using those points.

    What I am intrigued about, is what you mean by an award ticket being lesser than a normal ticket? What do you actually mean by this?
     
  9. NM

    NM
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    I am not forgetting these things. I am most certainly aware of the uncertainty. That is why I did not claim the points value was the difference in the fare cost, but use it a point of reference for my comparison. I think spending a small amount extra to have the points available for a shot at an upgrade is still better value than 1c per point. I never put a real monetary value on my points, but look at what I can realistically gain from from.

    I use them for upgrades because as a Platinum QF FF member I have a good chance of successfully clearing the waitlist. In fact I have only once not received an upgrade for which I was waitlisted, and that was during the BA catering strike when BA cancelled some flights to Australia so my SIN-BNE flight was overflowing with re-routed BA passengers with their J passengers very unhappy in the QF Y cabin. So an upgrade on that flight was unsurprisingly refused.

    So while I hold decent status with QF FF (and lifetime gold should be good for that), I am happy to spend a little extra at time to earn points to use for upgrades.
    Oh, I am so very much aware of the cost of taxes. That is why I now use my AA miles for QF award flights and use my QF FF points for long-haul international upgrades. The best value use of my earning programs by far.
    Indeed. But that does not mean I cannot get value from my points. My last redemption (using AA miles on QF flights) would have been over $7000 worth at the current published rates. I in no way imply that my AA miles were worth 7000/105000 as I would never have paid for 3 business class seats if not using points. In fact, that trip would not have even been planned if it was not for the availability of the AA miles to do it. So I guess you could say the whole exercise is really costing me a lot of money, being $148.43 in taxes, plus the NZ departure tax which will be paid at the airport, plus a passport for my daughter, plus car hire for a few days, etc etc. But I still see it as very good value considering those AA miles were earned on one 3-week ATW trip.
    That is where we differ. I don't put a monetary value on my points. When I make a redemption, I look at the transaction in isolation and make a value judgement as to whether I want to spend the points/miles for the reward. I can't redeem the points or miles for cash, so they have no cash value to me. But in nearly all cases where I have redeemed QF FF points, I believe I have received significantly better than 1c per point in value.

    I would never buy points for the sake of buying points. But if a credit card transaction is going to cost me a little more, I will make a value call at the time as to whether or not I am wiling to pay the extra for the convenience of using the credit card and for the extra points/miles. For example, I do play my Telstra bill using my Amex card. But I think that is the only bill I have been charged a surcharge for using my Amex card in the last 12 months or so.
     
  10. dajop

    dajop Senior Member

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    Tend to agree with NM on this one. But it is an individual calculation. Usually, I won't pay more than 1.5% for accruing points, but if I am a few short will pay more.

    The other factor is the "marginal" value of points - for example if you're 8000 pts short of getting a really good award - or upgrade - those 8000 points are probably worth much more than if you were just to use them for a one way MEL-SYD (which would make them worthless anyway, given the taxes & fuel fines that must be paid with award bookings).
     
  11. one9

    one9 Active Member

    Sep 14, 2005
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    Yes, you have some good points. I think I have become a little negative about Qantas points recently, as I have used NAB Amex points through Harvery World Travel, which makes getting any flight easy. But at the end of the day, there is still value to get from Qantas points providing you use them when you can get value and convenience, and not always when you fly.
     
  12. Mal

    Mal Enthusiast

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    Have you asked your bank if you can increase it? I'm pretty sure most banks are flexible on how much you can withdraw a day if you ask. (Personally I'm fairly happy with my $xxx daily limit. Most things go straight on the CC so rarely need large sums of cash (or if I do, they come out via a bank cheque)
     
  13. one9

    one9 Active Member

    Sep 14, 2005
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    Some banks will increase the daily limit. For big purchases I use credit card, except for a few smaller places who have a credit card surcharge. And it is these small places who often won't take a cheque.

    National bank which is my business bank, has a strict $1000 daily withdrawal limit for EFT transactions per card. They won't increase it. They gave me 3 cards, but I can't carry them around all the time unless I know I am going to buy something.

    My personal account with Commonwealth has a $2000 daily limit which is more reasonable. My Citibank online savings account gave me a card with a $3000 daily limit which was good, and I used this card when I was overseas. But now they have introduced a 2.5% (??) currency conversion fee for withdrawing overseas from a savings account, which is too high. And with other negative changes to the account, I am thinking of ditching them.

    The issue is, usually my big purchases are for business, and I need to use National Bank, as this is by business bank. Luckily most places dont charge a surcharge for credit card or will take cheque or we have an account. I avoid the smaller places that making payment hard where I can.
     
  14. serfty

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    Nov 16, 2004
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    Value of Points is as Value of points does for one's use.

    Consider the following for Qantas flights:

    1) MEL-SYD:

    Award in WHY: 8,000 QFF points with AUD51 in +++.

    Award in J: 16,000 QFF points with AUD51 in +++.

    Cheapest normal paid fare (N class): $64 + $57(+++); a total of $121.

    Normal Business class Fare: $348 + $86(+++), a total of $434. (GST adds the $29 here)

    Upgrade Discount WHY -> J: 8,000 QFF points

    2) MEL-HKG

    Award in WHY: 30,000 QFF points with AUD137 in +++.

    Award in J: 60,000 QFF points with AUD137 in +++.

    Discount WHY, (one Way): $1,154 + $137+++, Total $1,291

    Normal WHJ, (one Way): $4,016+ $137+++, Total $4,153.

    Upgrade Discount WHY -> J: 40,000 QFF points

    (Note that there are real variance in availability for the above examples, let's assume all awards are 11 months in advance with good availability and the upgrades will be granted. Variances to these assumptions may incur a somewhat differing evaluation).

    Summary in next post ...
     
  15. serfty

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    #15 serfty, Aug 1, 2006
    Last edited: Aug 1, 2006
    MEL-SYD:

    For an award flight, 8K QFF points would save you $70 in Coach as against paid N class; that's $0.00875 per QFF point or below 1¢ each.

    16K QFF points would save $383 for a Business fare, or $0.0239375 per point or about 2.4¢ each.

    For an upgrade, 8K QFF points would save $313, that is $0.039125 or about 4¢ each.

    MEL-HKG:

    For an award flight, 30K QFF points would save you $1,154 in Coach for a one way flight; that's $0.03867 per QFF point or below 4¢ each.

    60K QFF points would save $4,016 for a Business fare, or $0.06693 per point or about 6.7¢ each.

    For an upgrade, 40K QFF points would save $2,862, that is $0.07155 or over 7¢ each.
    ______________________________________________________

    Now, here's a personal example....

    I currently have a return fare booked for MEL-HKG-MEL in upgradeable discount WHY. Cost was under $1,300; even that out at $650 each way. If requested upgrades for each leg at 40K points each come through, at that rate I would save $3366 per leg and each point would be effectively worth $0.08415 or over 8.4¢ each.

    Now the point was made in a previous that these upgrades often do not come through. I am confident that one will as it sas been showing U2 for a week or more and the flight is in ~3 weeks;that's 2 award Business availability which implies an expected light load in J, hence a greater chance of award upgrades ... it's aloso showingT9/X9 so little chance of an op up). The other flight is showing D9 so I have a good chance there.
     
  16. JohnK

    JohnK Veteran Member

    Mar 22, 2005
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    Good comparisons used Ross.

    We can see where the most benefits are derived but I am just as happy using points for award tickets SYD-SE Asia when needing to position myself there for further travel.
     
  17. one9

    one9 Active Member

    Sep 14, 2005
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    But the thing that you may not be taking into account is that you don't have a 100% guarantee that you will get the upgrade. You may be 95% sure that you will get it. If this is the case, you have to put a cost to that 5% uncertainty. Especially if you are having a bad day on the day of your flight, and if you had of known that you werent going to get it further in advance, you would have purchased a business seat instead.
     
  18. Kiwi Flyer

    Kiwi Flyer Senior Member

    Sep 24, 2004
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    I would be pretty disappointed if I could only get 1 cent per mile value from QFF points. Fortunately so far I have gotten far more value than that.

    Uncertainty in value can be reduced by redeeming awards rather than attempting upgrades. It can't be eliminated entirely because of cost of making changes, and also if award is in premium cabin maybe you would have gotten op-up anyway.
     
  19. Here we have a difference in philosophy about the use of credit cards and the use of cash. Credit cards in themselves are not money, but are used to borrow money which eventually must be repaid. Debit cards or EFTPOS transactions are actually money and when they are used, you are running down your savings. My operating account is a portfolio account based on my mortgages. The more I have in my account (ie the less I have borrowed against my properties) the less interest I pay. So we (me and my lovely wife, Beverly) live off our credit cards, trying to maintain as high a balance as possible in the operating account. At the end of the statement period, we pay the CC balance out in full. During that month, by using credit we have paid less interest on our mortgages. Our use of credit is therefore determined by our lifestyle and needs. We usually do not buy anything we would not be prepared to pay cash for. If a purchase attracts a surcharge, then so be it. In the busy world of today the time cost of making a transaction can often be greater than the financial cost. Of course, if if a surcharge is excessive then we look for another way to pay the charge. The accumulation of points is a secondary but important consideration. So our use of credit cards is mainly driven by the need to maintain (and not use cash)
     
  20. serfty

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    I did put a disclaimer with an assumption that all upgrades would be granted in my post #14 here.

    Note that like award bookings, domestic upgrades are granted or not at the time of the request. Most regular users of this forum would check and know it would happen at the time of requesting.

    As for international upgrades, by carefully choosing flights, dates and time anyone can ensure a better than even chance. As a QF WP I have much more than that.

    Let's discount international upgrades from any analysis here. This simply means the best value for QFF awards is in the area of International Business class bookings. (cf MEL-HKG @6.7¢ value per point)

    No way you'll find me redeeming any points for Domestic flights these days (1¢ value per point indeed!) . One of the few ways this could change is if Qantas are forced to incorporate Fuel Fines into their point award costs without raising the point levels required. Is that going to Happen? I think NADA! :rolleyes:
     
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