Tomorrow I’ll be listing the top current sign up bonuses for rewards credit cards. But what does it mean for a card to have a top bonus?
There are two equally valid ways to value a credit-card sign up bonus. The method that is appropriate for you depends mainly on how much you spend per year on credit cards.
Absolute Value Method: Calculate the total value of the sign up bonus in dollars. Rank the sign up bonus offers by their value in dollars.
Rebate Percentage Method: Calculate the total value of the sign up bonus in dollars. Divide the value by the spending requirement to unlock the sign up bonus. Rank the sign up bonus by the result of the division–the rebate percentage of the sign up bonus.
The absolute value method is the better method for big spenders. The rebate percentage method is better for small spenders. Let’s take a deeper look at the methods with some examples.
Which method for you?
The rebate percentage method is the better method for valuing credit card sign ups if the amount you spend on cards limits how many cards you can sign up for.
If, instead, you limit the number of cards you sign up for to preserve your credit score in the short term or your applications are only limited by how many new cards banks will approve, the absolute value method is right for you.
Why? If you’re like me and spend less than $50,000 per year on cards, that level of spending does not allow us to get all the great rewards cards. For instance, last week there were three cards that had minimum spending requirements that added up to $50k to clear them completely.
If I put all my spending towards clearing those three, I would miss out on every other card with a minimum spend for the whole year. Since my spending ability limits my cards, I need to get the cards with the highest rebate percentage. This includes cards without a minimum spend requirement and cards with a big sign up bonus for a small spend requirement.
If you’re a huge spender, or you’re limiting the cards you apply for in anticipation of getting a mortgage, you need to focus on signing up for the cards with the highest absolute value of bonuses.
We all–big spenders and small spenders–should focus on getting the highest total absolute value of all our cards combined. But small spenders need to use the rebate percentage to figure out which cards will achieve the highest total absolute value of all cards combined.
So use the appropriate method to rank the cards from biggest to smallest sign up bonuses.
People using the absolute value methodology would go down their list and sign up for the cards on top first. They would stop applying when they were limited by a need to keep a high credit score in the short term or by the limits of how many cards a bank will approve.
Small spenders need to populate their list with the rebate percentages (of each tranche of a multilevel sign up bonus) and the minimum spend.
Small spenders also apply top to bottom. But they are cut off where their spending ability cuts them off.
Recap
Today’s post talked about the two ways to value a credit card sign up bonus: by its absolute value or by its rebate percentage. Nobody can apply for every rewards card, so we all need to value sign up bonuses somehow to choose the best ones to get.
The goal of every applicant should be to maximize the total value of card sign up bonuses he gets. Big spenders or conservative appliers do that by applying for the cards with highest absolute value card bonus. Small spenders get there by focusing on the biggest rebate percentages.
This is important to understand because tomorrow I’ll be offering two lists of the best card sign up bonuses, and you’ll need to know which ones to focus on.
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Great post! This is a really useful framework for prioritizing credit card applications.
Have you looked into Morgan Stanley American Express Platinum Card ? It offers the almost the same benefit as a MB card except the benefits for Mercedes owners however Morgan Stanley allows a free additional card. Any other Platinum card charges $175 for up to 3 additional users. So in the case where you rather just have an additional user then MS makes more sense.
awesome post. it would be really impressive if you did this for more credit cards and rank them from best to worst!
coming soon to a blog page near you
regarding the Amex Platinum re-imbursement it works fine if it shows up as coming from the airline directly, but when you buy miles or even accessories from certain carriers like AA it shows up as coming from points.com and they won’t re-imburse you.
Running out of tomorrow!
“Tomorrow I’ll be listing the top current sign up bonuses for rewards credit cards.”
There’s always tomorrow! I think it’ll be up tomorrow afternoon Pacific time
Thanks,
I can see from your analysis that you would brilliant at poker. Keep it up!
analysis is a skill with good crossover value
So how, then, are we to value Chase Ink Bold (50k) and Ink Classic (25k) with lucrative 5x UR points on office purchases and the ability to use for Amex Prepaid cards to generate 5x returns for everything? Ink Bold comes with 50k UR points but a hefty $10k spend required in 3 mos; 1st yr fee waived, then $95; Classic, 25k UR and $5k spend in 3 mos with no annual fee. Which, if either, is the better deal using the rebate percentage method? Any thoughts?
They’re equal. Double the spending and double the bonus on the Bold cancel out.
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Reminds me of NPV vs IRR for those who have done some finance
This will be on the final exam
Great site!
I may be missing something, but shouldn’t the miles/points earned from the spend required to hit the signup bonus be included in your calculations above? Seems particularly relevant for the rebate percentage method.
For example, in a 1 point/$0.01 currency, if you have a $10,000 minimum spend requirement for a 50,000 point bonus, your methodology would show a 5% rebate percentage. However, in addition to the 50,000 point bonus, you’re also earning 10,000 points from the $10,000 in spending (assuming 1 point/$), so in reality your rebate percentage would be 6%.
Including this factor makes it easier to compare apples to apples between using a card to fulfill a minimum spend vs. a card without a signup bonus but with a good general spending rewards percentage.
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Thanks for the comparison structure but how do you value membership reward points at 1.8c/point and avios points at 1.7c/point?
Thanks
http://milevalue.com/how-much-are-avios-worth-the-value-of-british-airways-avios-part-1/
Membership Rewards are worth a bit more because they are flexible.
Any current bonuses for existing gold card holders who want to open up a business card
Hey Scott,
Does the Benz card still over the $200 of airline credit/year and the Global Access fee waived? I couldn’t find anywhere in the current offer those two perks.
Yes, those are benefits of all Platinum cards as far as I know.
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