Over the weekend, my wife and I found ourselves in a situation where we could generate a lot of spend at very low cost. That particular opportunity isn’t the subject of this post. Unfortunately, we didn’t have access to our entire portfolio of cards, so we looked for bandwidth where we could find it. We happened to have a Hilton Aspire card on us. Would it make sense to spend on that card to generate points at a cost near 0 with a high value use in mind? That led me to think a bit more about all of the Hilton cards through the lens of everyday spending versus earning cash back.
Having a high value use
Upon first assessment, the easy answer on the Aspire card in particular would seem to be “no way”. Hilton points are generally only worth about half a cent each, so earning 3 Hilton points is only worth a return of about 1.5 cents total — equivalent to earning about 1.5% back for every dollar spent. That’s a poor return for a rewards credit card. We’d be better off using a card that earns 2% cash back like the Citi Double Cash (which earns 1% when you purchase and 1% when you pay the bill) or Fidelity Rewards Visa, which earns 2% back. The go-to cash back card in my family is even better: the Alliant Cashback Visa earns 3% back the first year and 2.5% back in subsequent years (with a $59 ongoing annual fee). Earning 3 Hilton points looks like a bad deal by comparison.
But what if you have a great redemption value in mind?
This spring, we have a trip booked to Japan. Tokyo is an expensive city. For example, here are a couple of Hilton properties that are available during our dates:
At the time of writing, the Conrad’s rate converts to $934.26 per night. The Hilton Tokyo Odaiba works out to $583.51 per night. Those rates are before tax (the Conrad comes to about $1162 per night with tax and the Hilton Tokyo Odaiba rings it at $717 per night with taxes/fees). Compared to cash rates like that, the award points prices look pretty good:
Let’s for a moment ignore the fact that I’d never consider paying the cash rates at these properties and figure the “value per point” (put in parenthesis because I recognize this is inflated — that’s on purpose as you’ll see):
- Conrad Tokyo: $1,162 / 95,000 points per night = 1.22 cents per point
- Hilton Tokyo Odaiba: $717 / 60,000 points per night = 1.20 cents per point
Those values are well above our Reasonable Redemption Value for Hilton points (0.45 cents per point). Furthermore, they make the return on everyday spend on the Aspire card seem pretty darn good if those redemptions are my goal. After all, the Aspire card earns 3 points per dollar on everyday purchases — that looks like an effective ~3.6% back if I’m using the points for one of the above hotels….right?
Spending $10K on my Aspire card (just as an example) would get me 30K Hilton points — that’s half the points I’d need for a free night at the Hilton Tokyo Odaiba. Half of the $717 nightly total rate is $358.50. Again, that’s a return of nearly 3.6% on $10K spend.
But this is where you can fool yourself with “the game”. I need some Hilton points and I do have this strong redemption in mind. So for a split second, I considered spending on the Hilton card, figuring that I’m going to use the points at better than a cent each in value. But….
You’re better off using a cash back card and buying the points
Hilton frequently puts points on sale. The most recent sale ended 12/31/18, but they offered the same deal repeatedly last year: buy points “with a 100% bonus” — i.e. buy points for 0.5 cents per point.
We’re beyond Year 1 on our Alliant Cashback Visa, so we’re now only earning 2.5% cash back on the card (we’ve decided to keep it and spend enough on it to make it worth the fee). If we can often buy Hilton points at a rare of 0.5 cents each, that means our 2.5% cash back on the Alliant card is worth 5 Hilton points per dollar spent.
Put another way, if we spent $10,000 on the Alliant Cashback Visa at a return of 2.5% cash back, we’d get $250 back. If we then used that $250 to buy Hilton points when they are on sale for half a cent each, we could buy 50,000 Hilton points. Again, if we spent that much on everyday purchases with the Aspire card, we’d only earn 30,000 Hilton points. Suddenly, we’d have earned 83.3% of the points required for a free night — or “$597.50” in Hilton value if we want to fool ourselves by continuing to compare to the Hilton cash rates.
To clarify the math on that, I’m saying that I could:
- Spend $10K on the Alliant Cashback Visa, get $250 back (2.5%)
- Use my $250 to buy 50K Hilton points when they go on sale for half a cent each.
I can then use those 50K Hilton points toward a free night at the Hilton Tokyo Odaiba. Together with another 10K Hilton points, they’ll buy me “$717 in value” (the cash cost of the hotel room). The 50K points from my cash back therefore represents about $597.50 in value towards that room rate.
To be clear, I’m not saying that I’d be getting that much value. Again, I wouldn’t consider paying that cash rate. But my point is that in comparison to spending on the Hilton Aspire card, I’d get a lot more value out of spending on a cash back card and then using the cash to purchase the points. And that’s not the only alternative — Membership Rewards sometimes offers a transfer bonus to Hilton, which also offers opportunities to earn more Hilton points per dollar spent. It really wouldn’t make sense to use one of the Hilton credit cards for everyday spending.
Are there exceptions?
As is the case with any good rule, there have to be exceptions. When does it actually make sense to use the Hilton cards? Here are a few times that immediately come to mind when it makes sense to use your Hilton card:
- You are spending your resort or airline incidentals credits on the Aspire card. This should be clear. You obviously want to spend on those things which are reimbursed by the card.
- You are spending at a Hilton property. The Hilton credit cards earn a return that rivals most other cards within brand. Some will prefer to use the CSR or Prestige cards for 3x / 5x respectively, but I’d like the 12-14x on the Hilton Ascend or Aspire card within-brand. The no-fee Hilton Honors card only earns 7x at Hilton properties, which is much less compelling.
- You have received a targeted spending offer. Amex ran some great targeted spending offers last year. One that we received was to spend $200 at US supermarkets and receive 10,000 bonus Hilton points (since expired). A bonus like that makes sense.
- You are spending towards the annual free weekend night on the Ascend card. Read on for more on this.
In that final situation, you need to spend $15,000 to earn the free night (the Ascend card offers a free weekend night when you spend $15K in your cardmember year). To compare to the alternative, the Alliant Cashback card, you’d earn $375 cash back on $15K spend if you went the cash back route. That’s enough to buy 75,000 Hilton points when they go on sale.
Putting that $15K spend instead on the Hilton Ascend card will yield you a free night at almost any Hilton property in the world. You can get up to 95K value out of that. Additionally, you’ll have the points earned from spend — at least 45,000 points. The combination of a free night certificate + at least 45K points beats the cash back option if you have a halfway decent redemption in mind for the certificate. If you were able to do all $15K spend at US supermarkets with the Hilton Ascend, you’d) have your free weekend night certificate + 90K points (since the Ascend earns 6 points per dollar at US supermarkets. That just widens the gap over cash back.
I suspect many readers would assume that everyday purchases on the Hilton cards are a bad deal because of the low value of Hilton points. On the other hand, with a high-value redemption in mind, it might seem like spending at 3x for everyday purchases isn’t a bad deal. However, Hilton’s perpetual point sales make the value proposition of spending on their credit cards weak: Since Hilton often sells points for half a cent each, you’ll earn more Hilton points by focusing on a cash back card and then buying the points when you need them. You’ll further gain the flexibility of cash that you could use on anything else that is more important/valuable to you rather than being locked in to Hilton points. That’s a better deal.