The Brancatelli File
BY JOE BRANCATELLI
March 10, 2005 -- Now here's a truly awful idea: Charging your tax payments to a credit card just so you can earn frequent-flyer miles.
We talked about the putative value of frequent-flyer miles a few weeks ago. But that discussion centered on the value of miles relative to your ability to claim airline seats. So many of you commented on your calculations, strategies, horror tales and lucky breaks--my favorite: California to Germany first class on Lufthansa at a restricted award level, a value of about 10 cents a mile--that I felt it important to discuss some other key issues surrounding the hard-dollar costs and benefits of miles.
And with just a few weeks to tax day, we might as well start with this crackpot idea of generating miles by charging your taxes to a credit card tied to your favorite frequent-flyer program. It is the painful and pluperfect example of why you should never, ever change your buying and spending patterns just to earn a few miles.
By now you've surely received one or three or ten of these tax promotions stuffed into your frequent-flyer statement or pushed into your E-mail. And the pitch seems seductive enough: The Internal Revenue Service now allows you to charge your tax tab, so why not charge it to your frequent-flyer card and get all those miles?
Let's say you tidy up your Form 1040 in the next few days and realize that you owe a nice, round $25,000 to the federal government. Charging that tax bill to the frequent-flyer credit card of your choice will get you 25,000 miles. That earns you one of those restricted domestic coach tickets we discussed a few weeks back. And that ticket can be worth as little as $200 these days. Even in the best-case scenario, that restricted ticket might be worth about $500.
But do you know what that 25,000 miles will cost you? At least $622 and maybe as much as $2,500.
That's because Official Payments Corp., the company that processes credit card charges for the IRS, imposes a "convenience fee" of 2.49 percent. That's $622.50 just for the privilege of paying by credit card. If you're the type of traveler (read: a smart one) who pays your credit card bills the moment that they arrive, that's the extent of your exposure. You've just made a miserable deal by paying $622 to earn miles worth about $200 or, at best, $500.
But the deal gets positively Dickensian if you're one of those folks who rolls over and pays interest on your credit card charges. Most frequent-flyer cards carry an interest rate of at least 13.99 percent interest. So pay that $25,000 tax tab off in just one year and you're going to pay $1,934.72 in interest. Add the Official Payments fee and you have just foolishly paid $2,557.22 for those 25,000 miles.
Another bad mileage gambit worth discussing is using the points you earn from American Express or Diners Club for any of the merchandise they offer in their glossy program guides. If you think frequent-flyer miles are worth very little, you should see how little an American Express Membership Rewards or Diners Club Rewards point is worth if you cash it for anything but frequent-flyer miles.
Here's one startling example. Amex is offering the Bose Lifestyle 38 DVD Entertainment System for 300,000 points. It's a wonderful system for music buffs and Bose, a company that almost never discounts, charges $2,995. Give or take a fraction, that's a value of 1 cent per Amex Reward point.
But transfer those self-same 300,000 Amex points to, say, Continental Airlines, and you can generate substantially more value. The 300,000 points translate into 300,000 Continental OnePass miles and those miles can be turned into a pair of first-class unrestricted tickets to Hawaii. The value of those tickets? A cool $4,864.88 based on a departure next week or the equivalent of 1.6 cents a mile. Fees to transfer the miles to Continental and for claiming those free tickets on such short notice knock a few hundredths of a cent off the calculation, but you get the idea.
Generally speaking, you can't win if you change your buying patterns to earn miles. And you can never win the game if you use your credit card miles for merchandise instead of unrestricted, high-value premium-class travel.
All that said, however, and despite my distaste for doing anything out of the ordinary to earn miles, an interesting promotion did tumble into my E-mail this week. United Airlines wants to give me 25,000 Mileage Plus miles if I join the airline's Ameniti Luxury Travel Club. The annual fee: $295.
Now that's an intriguing offer. To get 25,000 miles by flying--the equivalent of five transcontinental roundtrips--I'd probably pay about $1,500 if I plan ahead and get lucky and $2,000 if I'm not at the top of my game. So $295 for a membership in the club seems pretty good.
Do I really want to be a member of Ameniti? Well, to be honest, not really. The benefits are lame: free companion tickets on full-fare tickets, which is a really lousy deal; Gold Elite status in Starwood Preferred Guest, which I already hold; and a bunch of marginally useful upgrade offers.
But there are some mitigating factors. New Ameniti club members get free wine, beer or coffee that United says is worth $60-$80. That's bunk. I'll say the benefit is worth perhaps $30. New members also get a year of Conde Nast Traveler, a magazine that I need to monitor but I'm loathe to buy. That's worth $12. New Ameniti club members also get two Red Carpet Club passes. I don't belong to the Red Carpet Club because United makes most of the lounges available via my Priority Pass membership. Still, a few key clubs aren't in Priority Pass, so I can see using the passes. I value them at $30. So that's about $70 worth of value, which reduces the membership cost of Amenity to $225.
I might pay $225 for 25,000 miles. Maybe.
This column originally appeared at JoeSentMe.com.
Copyright © 1993-2005 by Joe Brancatelli. All rights reserved.