Is the Alliant Cashback Visa still worth it?

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Earning miles and points is a lot of fun and I really enjoy using them for experiences I wouldn’t ordinarily buy. But I don’t use miles and points for everything. Sometimes I pay the cash rate. Or I rent a car. I often eat. All of those things require cash — and so having a great cash back card is a key to a sound miles & points strategy. My response to that need has been the Alliant Cashback Visa Signature. However, an increase in that card’s annual fee has prompted me to ask: Is the Alliant Cashback Visa still worth it?

The Alliant Visa overview

The Alliant Cashback Visa Signature card offers a simple structure: earn 3% cash back everywhere for the first year, then 2.5% cash back everywhere after the first year. That’s a solid return and is my benchmark in terms of opportunity cost. More on that in a minute.

Alliant waives the annual fee for the first year. Until recently, the annual fee after the first year had been $59. However, a couple of days ago it was reported that the annual fee had increased. The fee is still waived in Year 1, but the landing page now indicates that the ongoing annual fee is now $99.

It’s worth noting that some people report approvals for this card being tough. Alliant’s target market for this card is those earning $100K per year or more, though anecdotally the ability to show $100K in assets may circumvent the income requirements

Opportunity cost benchmark

I mentioned above that the Alliant card is my personal opportunity cost benchmark.

Every time I make a purchase, I am essentially choosing between being given 2.5 pennies per dollar or some other reward. If I choose that “other reward”, I need to be sure that I’m making a good trade. If the “other reward” is 5x Ultimate Rewards points, it’s an easy trade. Those points are worth at least 5 pennies, so it’s a no-brainer. On the other hand, if I’m forgoing 2.5 pennies in favor of 1 IHG Rewards point, that’d be a horrible trade. I can often buy IHG points for half a cent each, so taking the 2.5 pennies per dollar is a much better choice as that could buy as many as 5 IHG Rewards points.

That has led me to largely use the Alliant card as the “everywhere else” card, good for those purchases that would not otherwise earn a valuable bonus. It’s a solid card for that purpose with its uncapped 3%-back structure for the first year and I’d argue is the best cash back offering on the market in year one. At 2.5% in future years, it still sounds like a sure winner over options earning 2% cash back. And it certainly can be. But its margin of victory in that race isn’t as wide as it looks.

Alliant first year vs Freedom first year

Again, the Alliant Cashback Visa is great for the first year. If you’re considering the Chase Freedom Unlimited “3x everywhere” offer (see this post for more) and you have no plans to pair that with a premium Chase card for transfers/higher value, you should probably drop that plan in favor of the Alliant card if you can get it. That’s because, unlike the Freedom Unlimited, your 3% earning power is not capped with the Alliant card. Don’t get overly excited about that: Alliant has been known to frown on obvious manufactured spending techniques (Simon Malls, online sites selling Visa gift cards, etc) by zeroing out rewards on some of those purchases and warning people or shutting down accounts. Large purchases on their own don’t seem to trigger shut down but rather large purchases from the most obvious places (at least in my anecdotal experience).

I’ve said before that I think the Freedom Unlimited 3x offer only makes sense for big spenders (since those who spend less would be better off with other Chase cards that offer a similar amount of bonus points with much less spend).

But is the Freedom Unlimited really a good choice for big spenders? Considering the Alliant card more carefully has me questioning that. Chase Ultimate Rewards can obviously be used for much more value than 1 cent per point, but let’s for a moment consider it as it is marketed (as a cash back card). After $20K in purchases in the first year, you would earn the equivalent of $600. The Alliant card would earn the same return on that spend.

Additional spend in the first year on the Freedom Unlimited card earns 1.5% cash back, whereas you would continue to earn 3% on the Alliant card through the end of your first year.

If you spend $30,000 on either card, these would be your earnings:

  • Freedom Unlimited: $750 (3% on first $20K = $600 plus 1.5% on the next $10K = $150)
  • Alliant Cashback Visa: $900 (3% on $30K = $900)

As you can see, the Alliant card would yield $150 more. Of course, the Alliant card will come out ahead on any amount of spend that is greater than $20K.

If you’re a really heavy spender, the gap makes it even more likely that you’re better off with Alliant. For example, let’s imagine you spent $60,000 in the first year. Your earnings on each card:

  • Freedom Unlimited: $1,200 /120K Ultimate Rewards points ($20K x 3% = $600) + ($40K x 1.5% = $600)
  • Alliant Cashback Visa: $1,800 ($60K x 3%)

At the risk of making this confusing, let’s consider the Freedom Unlimited earnings in terms of Ultimate Rewards points this time — $60K in spend would earn 120K Ultimate Rewards points. If you have the Chase Sapphire Reserve card, you could transfer those points to the Sapphire Reserve and then use them to book $1,800 in travel through the Chase portal. That’s good, but you could alternatively earn $1,800 cash with Alliant on the same spend and use that money to book travel anywhere you want — or to buy dinner, a Muji suitcase, or just save up for a rainy day. I do clearly understand that 120K Ultimate Rewards points could buy you more than $1,800 in travel if you master the transfer partners and use them well. But my point is that truly heavy spenders aren’t definitely better off with the Freedom Unlimited in year 1.

But what about Year 2? Real world earnings

That’s all well and good, but the impetus for this post wasn’t actually to compare the Alliant Cashback Visa with the Freedom Unlimited. What set me out to write about the Alliant card was the increase in annual fee.

That’s because cash back cards with annual fees are misleading. Your return will never quite match what is being advertised because of that fee — with enough spend, you can get infinitely closer to 2.5%, but never quite reach it.

Thus a 2.5% cash back card with an annual fee is not actually half a percent better than a 2%-back card with no fee.

At the $59 annual fee, the break-even point with a no-fee 2% card was $12,000 per year. Here’s how that works out:

  • $12,000 spent on a 2% cash back card = $240 back
  • $12,000 spent on the Alliant card in year 2 (2.5% back) = $300 back – $59 annual fee = $241

In other words, if you spent any less than $12,000 per year on the Alliant card (after the first year), you would actually earn less than you would with a 2%-back card. Any more than $12,000 in purchases and you’re ahead.

Now that the fee has increased to $99, the break-even point is $20,000 per year in purchases.

  • $20,000 spent on a 2% cash back card = $400 back
  • $20,000 spent on the Alliant card in year 2 (2.5% back) = $500 – $99 annual fee = $401

That’s a lot of spend to commit to the Alliant card year after year just to break even with a no-fee card.

But big spenders do better, right? They do….but is it enough better?

Let’s say you spend $40K per year. You’ll certainly do better with the Alliant card:

  • $40,000 spent on a 2% cash back card = $800
  • $40,000 spent on the Alliant card in year 2 (2.5% back) = $1,000 – $99 annual fee = $901

An extra hundred bucks is great — but more interesting to me is considering the actual return. Getting back $901 on $40,000 spend is a return of 2.25%. That’s certainly a good rate — but you have to spend forty grand to get it. Thirty grand spent and you’re only getting 2.17%.

As noted above, you’ll never quite get to 2.5% because of the fee, though you’ll get infinitely closer. I was curious as to how much you would have to spend to get the hundredths digit to the point where we’d ordinarily round up — how much spend does it take to get a return of 2.45% on the Alliant card in year 2? The answer: $198,000.

  • $198,000 spent at 2.5% = $4,950 back – $99 annual fee = $4,851 back
  • $4,851 ÷ $198,000 = 2.45%

That’s a heck of a lot of spend. If you spend more or less per year, adjust up or down. The fact is that it takes a lot of spend to out pace 2% by a meaningful amount.

So will I cancel the Alliant card?

All that explored, it would seem to follow that I’d want to cancel the Alliant card. After all, I need to commit a lot of spend to that one card to make it make sense. Note that I do not yet know if/when existing cardholders will be subject to the new $99 fee. But assuming we eventually are, the equation certainly gets complicated.

In my personal case, I’ll likely keep it for at least another year. I currently have some regular monthly bills that are not in bonus categories and thus make for a decent use of the Alliant card. I’ve already been charged the annual fee for this year (at the old $59 rate) and so I know I will come out ahead over a 2% card this year. If Alliant does indeed raise the annual fee for existing cardholders, I’ll need to seriously reconsider. A simple 2% back card like the Citi Double Cash or Fidelity Rewards Visa would produce easy no-brainer cash back that doesn’t require me to run equations and focus $X in spend while also freeing up spend to be put towards new card welcome offers.

Unfortunately, I think the annual fee increase on this card makes the long-term value proposition much more questionable and turns it into more of a pump-and-dump card that is good for its first year offer. That’s too bad as I like Alliant and like this card. But the math just doesn’t work in its favor for most customers in the long term.

More importantly, my 2.5% opportunity cost benchmark is clearly unfair. Realistically, I’d need to consider how much I actually spend on the card and determine my actual rate of return. For most of us carrying the card, that’s probably better than 2% — but my opportunity cost when spending on other cards definitely isn’t quite 2.5% after all.

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