Credit Card Trends: There's a Sign-Up Bonus Arms Race Going on Among Lenders

For this episode of Motley Fool Answers, hosts Robert Brokamp and Alison Southwick are joined by Austin Smith from our new personal finance-focused website, The Ascent. They discuss a trio of credit card trends that you should be aware of, and how you can make the most of them -- or avoid getting burned by them.

In this segment, they talk about trend No. 1: In recent years, lenders have seriously ramped up the rewards they're offering people for opening new accounts, so sticking with your tried-and-true plastic may be costing you a nice bonus. But picking which one is best for you to apply for is not 100% straightforward, so Austin has some tips.

A full transcript follows the video.

This video was recorded on July 10, 2018.

Alison Southwick: Today, we're going to tackle three credit card trends to watch out for and what you can do about them. Helping us is Austin Smith. He works on The Ascent. It's a new website that The Motley Fool has launched. Hey, Austin! Thanks for joining us!

Austin Smith: Hello! Thanks for having me!

Southwick: Before you get going into our topic at hand, can you tell us a little bit about The Ascent?

Smith: I would love to. I'm glad you asked. Everybody knows The Motley Fool's helped you invest better for years, but there's a lot of other personal finance decisions beyond investing that we feel like we can bring light to. We've launched The Ascent, which is a personal finance-focused site, helping you pick the best credit card, the best mortgage, the best savings account, the best insurance, you name it. We're going to review hundreds of products across all if these categories, bring a little bit of Foolishness to the table and provide our recommendations for which one is the best for your specific situation.

Southwick: All of this content is available for free?

Smith: Always. You can access it whenever you want at theascent.com.

Southwick: Alright, let's get into it. We're going to tackle a few trends in credit cards, and then you're going to tell our listeners what they can do to take advantage of that trend, or come out on the other side even wealthier and healthier and with shining credit ... I don't know. We'll see. I'm making a lot of promises for you. We'll see how you do.

Smith: It's a lot to live up to, but we like high expectations. Our tag line is "helping you live more richly," so I think we'll be able to fit that mold.

Southwick: Alright, here we go! What's the first trend?

Smith: We're seeing quite a bit of an enrollment arms race by the credit card issuers right now. JPMorgan kicked this off a few years ago with their Sapphire cards. They just started lavishing new card owners with massive benefits. It's resulted in this massive ramp among almost all of the issuers, where they're giving you more points, free hotel stays, free sign-up bonuses.

It used to be that, when you signed up for a new card, maybe you were getting $200-250 worth of benefits. JPMorgan dialed that all the way up to 11. You can get up to $625 worth of sign-up bonuses, all the way up to $725 or $750, depending on your category. They kicked off this arms race. All the other issuers are following suit. American Express is upping their sign-up bonuses, Discover is becoming extremely competitive with some 50,000 bonus point sign-up reward. Just lavishing new card owners when they register.

Southwick: If one of the trends is that people like us are getting tons of points and awesome benefits for signing up for new cards, I want to assume that the best way to take advantage of this trend is to sign up for new cards. Did I get it right?

Smith: That's a really good guess, but there's an even better version of it. While you might be looking at ten cards, and they might be showering you with 40,000 sign-up bonus points, the value of those points will value out differently based on the issuer and the card platform. What we've found in our analysis is that not all miles and bonus points are considered equal.

This is an instance where niche cards or particular cards will actually transfer better. What I mean is, if you look at Chase Sapphire Preferred -- which set the high-water mark in this category with their 50,000 sign-up bonus points -- if you can sign up for an airline, maybe a Frontier or a Southwest, you might only get 40,000 bonus points. That's still pretty rich, but because they transfer onto their own platform instead of just a platform where you can book with any airline, they're worth more per mile or per point. Those 50,000 on Chase might not be worth as much as a 40,000 on a Southwest card.

Our suggestion to play this trend is, if people are ramping up these sign-up bonuses, to actually go with a niche player like a Southwest card, a Frontier card, a Marriott Hotel card, because they transfer more richly within their own network, they're worth more. The standard transfer rate to consider is about $0.005-0.01 per point on a Chase platform. If you look at a Southwest or a Frontier, the transfer rate is about $0.01-0.03 of value per point. They end up being worth quite a bit more.

Southwick: You mentioned niche cards that are all travel-related. What if I'm not much of a traveler? What good are sign-up bonus points for me?

Smith: Typically, the math will still work out -- if you're looking at a sign-up bonus with a niche product where all of those bonus points stay within their own network, you're going to get a better rate transfer than trying to transfer those points to something that lets you book to any airline or any hotel. You just get a lower point value per point.

Robert Brokamp: Sometimes, you read articles about how to negotiate with companies. For example, if you have an annual fee with a card or something like that. I've occasionally read articles where they say you can call up and say, "I'm not interested in paying this fee anymore, I'm going to leave," and it can get waived. I don't know how accurate that is. But, do you know if these side benefits are anything you could negotiate for? Could you say, "I'm interested in this other card, but I'll stay with you if you give me some more points," or anything like that?

Smith: We haven't seen a lot of people get flexibility on the points. Granted, we haven't tried it or researched it ourselves. But, we have seen people get flexibilities on their annual fees on the cards, to your first point. I would just go for it on that measure, because that's something they can themselves more easily control. It's just waiving a fee.