By Sean McQuay
T
ravel credit cards used to be a lot less complicated -- and a lot less useful.
If you carried a credit card co-branded with the name of an airline or hotel chain, you earned miles or points that you could redeem with that airline or hotel, and only that airline or hotel. And if you had a general travel credit card, you could redeem through the issuer's reward platform, and only with carriers on that platform.
Nowadays, issuers give cardholders an array of redemption options. Co-branded cards and travel cards with reward platforms are still options, but a whole new class of general travel cards allow you to redeem your rewards with any airline or any hotel. You can also redeem rewards for other travel costs, such as bus passes, taxi fares, campground stays -- even circus tickets and visits to fortunetellers -- depending on the card.
Perhaps this trend toward versatility is a sign of post-recession pragmatism. Last year, cash-back rewards -- my favorite type of rewards -- were found to be the most popular and appealing to consumers, according to a report from the American Bankers Association. In contrast, a separate study from J.D. Power found that airline miles were the most popular type of credit card reward in 2007; the Great Recession started late that year.
Or maybe banks just realized that most consumers liked the idea of traveling, but didn't actually do it often: A quarterly average of only 10% of U.S. households reported spending money on airline fares in 2014, according to data from the Bureau of Labor Statistics.
This trend toward versatility is a win for many consumers, who now have more travel redemption options than ever. Flexibility is the new luxury.
More practical travel credit cards
After the recession, as travel spending dropped in the U.S., major banks began offering general travel credit cards that paid out in the form of a travel statement credit -- that is, credit that could be redeemed for a broad range of travel purchases, such as car rentals, timeshares and ferries. These cards worked a little differently from the traditional co-branded cards and reward platform travel cards: You could make any travel purchase you wanted, and as long as it fell under certain categories, you could redeem your rewards toward the cost, usually getting a redemption value of 1 cent per point. In essence, these are specialized cash-back cards.
2010 saw the release of the Capital One Venture, which let cardholders earn a flat 2 miles per dollar spent, redeemable against any travel expenses charged to their cards. It comes with an annual fee of $59, waived the first year. The miles could be used on purchases categorized as "airlines, hotels, rail lines, car rental agencies, limousine services, bus lines, cruise lines, taxi cabs, travel agents and time shares," according to the bank's website.
In subsequent years, several issuers began releasing similarly flexible cards. Unlike traditional travel cards, these let cardholders:
Shop through bargain airline aggregators. Instead of purchasing airline tickets through a certain airline, you compare prices and look for the best deals available on sites like Expedia or Orbitz. In most cases, your travel rewards will still cover the cost.
Avoid blackout dates and limited availability. Most airlines release only a set number of award seats that can be bought with credit card rewards on any given day. Booking outside a loyalty program makes it much easier to find seats grouped together.
Use rewards for more types of travel expenses. Some travel statement credit cards let you redeem your rewards for taxi rides, timeshares and car rentals. Traditional travel cards generally don't offer these redemptions.
For the budget traveler or the person who goes on a family vacation once a year, these flexible travel cards offer an economical way to pay for trips, without the hassle of dealing with airline restrictions or loyalty program devaluations.
Among these cards, the Venture still offers one of the highest rewards rates on the market. Here are a few other standouts:
Barclaycard Arrival Plus: Earn an unlimited 2 miles per dollar spent, and get a 5% miles bonus toward your next redemption when you redeem. The annual fee is $89, waived the first year. Travel statement credit can cover expenses from "airlines, hotels, motels, timeshares, campgrounds, car rental agencies, cruise lines, travel agencies, discount travel sites, trains, buses, taxis, limousines and ferries," according to the issuer's website.
Discover it Miles: Earn an unlimited 1.5 miles per dollar spent. The annual fee is $0. Travel statement credit can cover "airline tickets, hotel rooms, car rentals, travel agents, online travel sites and commuter transportation," according to Discover's terms.
BankAmericard Travel Rewards credit card: Earn an unlimited 1.5 points per dollar spent. The annual fee is $0. Travel statement credit can cover "airlines, hotels, motels, timeshares, trailer parks, motor home and recreational vehicle rentals, campgrounds, car rental agencies, cruise lines, travel agencies, tour operators and real estate agents, operators of passenger trains, buses, taxis, limousines, ferries, boat rentals, tourist attractions and exhibits like art galleries, amusement parks, carnivals, circuses, aquariums, zoos and the like," according to the Bank of America's website.
» COMPARE:NerdWallet's best travel credit cards
In the future, a seamless redemption process?
Giving consumers more travel redemption choices is important, but it's not the only sign that rewards are getting more flexible. In the future, the redemption process itself will likely become more seamless across various payment situations. Consumers might soon be able to pay merchants with points or miles, rather than redeeming rewards though an issuer. We're already seeing signs that these new redemption systems are on their way.
A recently published patent application from American Express outlined a system in which cardholders could redeem points with online merchants through third-party digital wallets or merchant aggregators. Such a system, if it were to be carried out, could potentially let consumers pay with points at almost any online merchant. Other issuers, including Citi and Discover, are also working on systems that would make rewards almost as versatile as money. These processes could make rewards -- especially travel rewards -- more relevant to cardholders and almost effortless to redeem.
Finding the right match
In the past few years, the line between travel and cash-back credit cards has blurred. And for consumers who want to earmark rewards for travel, but aren't frequent fliers, or don't want to deal with the restrictions of loyalty programs or traditional reward platforms, that's a welcome change.
But one thing remains clear: Travel credit cards are still best for people who travel, at least occasionally. If you want to redeem your rewards against road trips, family vacations or even commuting costs, a flexible travel credit card, maybe one that pays out in a travel statement credit, could be a good match for you. As for consumers, like me, who mostly use rewards to cover groceries, student loans and rent, cash-back cards remain the more practical choice.
Sean McQuay is a credit cards expert at NerdWallet. A former strategist with Visa, McQuay now helps consumers use their credit cards more effectively. If you have a question about credit, shoot him an email at asksean@nerdwallet.com. The answer might show up in a future column.
Photo courtesy of NerdWallet.
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