Thursday, September 30, 2010

The new American Express Rewards Card

One of my colleagues is deciding to buy a 5 year savings plan that costs $20,000 upfront. At the end of the 5th year, he will receive $1,000 and at the 10th year, he will get $25,000. In total, his yield is a miserly 3% (average).

This return is better than our 0.15% banks’ interest rate though.

The good thing about his savings plan is that one can pay using any credit card.

Since the new American express rewards card (ARC) advertisements can be seen anywhere, let me do a simple calculation to see if paying $20,000 using this card actually increases his yield.

ARC gives 100% points on spending for the 1st 90 days. Thus my friend will get 40,000 points upon paying his premium.

He spends $20,000 on a calendar year, thus entitled to 50% bonus points. This is another 10,000 points.

In total, he gets 50,000 points, which allows him to exchange for $250 of cash.

If he adds that up to his total endowment return, his average return is 3.125%.

My friend has a visa infinite card from StandChart. It gives him 2.5x reward points on spending. Thus spending $20,000 gives him 50,000 points. This again works out to a payout of $250 spending credit, similar to ARC.

Hypothetically, if he gets a card that gives him 10% cash back ($2,000) on his spending, he will get 4% return on his endowment plan. Unfortunately, there is no such plan at the moment.

If he uses the Manhattan Card, he will get a $300 rebate. If he pays the bill through NETS using his X tra saver card spread over 2 months, he gets a $100 rebate, a total of $400. This brings his endowment yield to 3.2%.

I am extremely impressed by ARC marketing. I seem to see if everywhere, on papers, buses and even MRT floors! However, there is really nothing much to shout about, considering the points are merely 1.25% cash back on spending (at most).

I almost applied for the card when I was at Ion Orchard, but a mental calculation made me realize that I am better off holding the current cards I have now.

I firmly believe that cashback credit cards are more superior products than points/miles accruing ones. Thus readers should note that points are merely gimmicks to entice spending.

Thursday, September 16, 2010

Best Credit Card in Singapore

This issue of stretch your dollars series is definitely worth a read for all who qualify for credit card applications.

My colleague and I went shopping for a car last week. He liked the car and decided to pay for the booking fee. As he didn’t have a credit card, I offered to pay for him. The booking fee costs $16,000 thus I have to split payment between 2 cards. The first card I used was the Manhattan Card. It gives me a cash rebate of 5% on spending, with a cap of $300 every quarter. Good choice, I just earned $300.

The 2nd card I used was an Xtra Saver Debit card by Standard Chartered Bank (SCB). As I have more than $6,000 in the account, I am eligible for a 2% cash rebate on my MasterCard transactions. Not bad, I will be getting $160 cash rebate.

As I rarely use my cards, SCB sent a mailer saying that I qualify for a 5% retail rebate, up to a cap of $50 for my purchases. Coincidentally, I earned another $50.

The Xtra Saver card gave me another 0.5% on NETS payment (cap at $50). Hence I will be using the Xtra Saver card to pay my Manhattan Card bill ($8,000). This gives me $40 cash back.

My total gain was $550, for helping my colleague out. He transferred the money back to me this morning.

I did not do my “homework” on which card to use before going shopping but when I came back and search the web on the “best credit card” to use for the $16,000 purchase, it turned out that no matter how many points you chalk up, the returns can hardly be as good as the above combination.

The best combination, perhaps is to use 3 different (holders of) Manhattan cards to clock a $800 rebate ($16,000x5%) plus paying 3 cards using Xtra Saver NETS ($80 rebate) which gives a grand total of $880.

However, it will be too much of a hassle to do that. Currently, even with American Express 100% bonus points or SCB Visa Infinite 2.5x points system, the total vouchers value will not be close to $300. Don't even bother about airmiles or POSB everyday card's 0.3% cash rebate.

Typically, credit card gives 0.5% rebates in voucher values on spending. For example if I spend $10,000 on the card, I can redeem around $50 of vouchers. Even with 3x points on spending, I can only get $150 of vouchers. This is a far cry from pure 5% cash rebates from Manhattan Card.

The only drawback for Manhattan Card is that it only gives 5% rebates when spending exceeds $3,000. But readers can consider using this card to pay your annual insurance premiums, wedding banquet or any other purchases that exceeds $3,000. Do not be fool by marketing gimmicks of 2x or 5x points. They are at most 1% to 2.5% rebates of your spending.