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Study: Intro Bonus Offers for Travel Rewards Cards Nearly Triple in 10 Years

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Travel rewards aren’t just for frequent fliers anymore, as credit card issuers ramp up intro bonus rewards on travel credit cards.

New research by MagnifyMoney found that the average introductory bonus on a travel rewards credit card in 2018 is now 40,556 points, more than double the average bonus in 2008 (16,050 points) and up from 34,327 points five years ago.

 

Credit card companies have long used introductory bonus offers as a way to lure potential customers into getting their travel-related cards. And in an increasingly competitive space, those reward offerings have steadily increased.

“More and more cards are offering travel rewards without being tied to one airline,” said Brian Karimzad, vice president of research at LendingTree, the parent company of MagnifyMoney. “We wanted to see what that competition has done to intro bonuses.”

MagnifyMoney looked at more than 90 intro bonus point offers from each of the five largest credit card issuers for personal credit cards in five-year increments, February 2018, 2013 and 2008. Some issuers targeted offers to consumers via email, direct mail or site login but those weren’t included in this study.

Key findings:

  • These bonuses come at a steep cost to consumers. The average annual fee on a card with a bonus offer is $120, up 62% from $74 in 2008.
  • Airline miles offers more than doubled to 38,438 miles from 15,500 miles on average in 2008.
  • Cards with travel rewards you can use as cash on any airline have the highest growth rate – with bonuses tripling over the last 10 years, from 10,000 points to 30,455 points.
 

2008

2013

2018

10 year change

Average introductory bonus points

16,050

34,327

40,556

2.5x

Airline branded

15,500

30,556

37,059

2.4x

Hotel branded

21,250

48,000

60,000

2.8x

Transferable points

15,000

30,000

37,143

2.5x

Cash for travel

10,000

11,875

30,455

3.0x

Average annual fee

$74

$89

$120

62%

What’s driving these changes?

Competition among banks and airlines is heating up as miles have become bigger business over the last 10 years, which is likely feeding the rise in lucrative intro bonus offers. A tipping point may have been reached on Sept. 14, 2005, when Delta Air Lines filed for Chapter 11 bankruptcy protection. As part of its filing, American Express agreed to provide Delta with $350 million of secured financing. This was on top of a $100 million loan and the pre-payment of $500 million for SkyMiles executed on Oct. 25, 2004.

And in 2008, Delta signed a multi-year extension with American Express and sold $1 billion in SkyMiles to the card company in lieu of cash payments. These deal showed how miles could add to a carrier’s bottom line.

It’s hard to get firm numbers on revenue earned by airlines and hotels under their credit card deals, since they aren’t separated as line items in their financial reports. Delta showed a slide in its December 2014 investor relations presentation that valued its new multi-year contract with American Express at $2 billion. American Airlines announced new deals with Barclays and Citi on July 16, 2016, that it valued at $800 million by 2018.

So it’s clear that reward offerings are a key factor in drumming up new consumer interest and are adding to the bottom line of both airlines and card companies.

“Airlines are earning upwards of 50 percent of [income] from selling miles to a credit card company, which we believe is a great business to be in,” wrote Joseph DeNardi, a senior airline analyst with Baltimore-based Stifel Financial Corp., on March 20, 2017.

In turn, credit cards use these points and miles to lure new customers with intro bonus offers that allow them to cash in quickly for things like flights and hotel rooms. Here are just a few examples:

On Dec. 5, 2017, Marriott International announced it had inked new deals with JPMorgan Chase and American Express for Marriott Rewards and Ritz-Carlton Rewards Visa credit cards, and the Starwood Preferred Guest credit cards.

Marriott also announced new co-brand products coming later in 2018, including super-premium consumer and small business co-branded products from American Express, and mass consumer and premium consumer co-branded products from JPMorgan Chase.

In 2014, Delta Air Lines announced a multiyear extension of its co-branded credit cards with American Express, and a spokeswoman says that deal is still in place, although she declined to share further details. In its 2017 annual earnings release, American Express cited its strategic co-brand agreement with Marriott and its announcement of a suite of new co-brand cards with Hilton as a bright spot during the year.

Southwest Airlines Chief Revenue Officer Andrew Watterson said in a Skift interview that credit cards are “core to the airline business,” noting that his carrier’s planned service to Hawaii is partly driven by potential customers interested in using the carrier’s Rapid Rewards points for free flights to the island.

That’s a long way away from what the airline credit card space looked like in 2008. Ten years ago, an IdeaWorks study found that airlines were generating more than $4 billion a year in revenue. Back then, rewards were pretty basic, where miles and points were accumulated on appointed cards and revenue was generated from loyalty program customers.

But then Chase raised the bar when it introduced its Chase Sapphire Preferred® Card card in 2009 and the Chase Sapphire Reserve® in 2016, targeting more affluent customers who wanted more perks and benefits. That included access to its Chase Ultimate Rewards® website, where cardmembers use their points to book travel, transfer points to airline and hotel loyalty programs, buy gift cards and merchandise and get cash back. Chase Sapphire Reserve® members get 1.5 cents toward travel for every point, while it’s 1.25 cents per point for Chase Sapphire Preferred® Card.

This created more competition among card companies like American Express, Bank of America and Citi, which have unveiled new products and more intro bonus programs to keep up.

The information related to the Chase Sapphire Preferred® Card and the Chase Sapphire Reserve® has been collected by MagnifyMoney and has not been reviewed or provided by the issuer of this card prior to publication.

The bottom line

Not all points are created equally. You could earn the same number of miles on one card as points on another card but each can carry very different redemption values. For example, 50,000 United miles could get you two round-trip domestic coach tickets worth $700 or more if you’re flexible, while 50,000 Hilton points might not be enough to cover a full night at a $400 per night big city hotel. In general, hotel points tend to give you less reward value per point than airline miles, while cash for travel points tend to be worth at least one cent each, so 10,000 points gets you at least $100 in travel rewards.

Cards that offer cash for any travel purchase give people who don’t want to mess with miles — but want to save on travel — a way to get more value from their spending than many straight cashback cards.

With hotel-branded cards, you can use bonus points for travel or transfer them into airline miles with their respective partners, which helps boost miles in a loyalty program to use for things like free flights and seat upgrades. Some airline-branded credit cards not only offer intro bonus miles, but also the chance to earn qualifying miles that count toward that all-important elite status. And travel-branded cards offer websites where you can get bonus points to use toward travel.

Sometimes the chance to get higher bonus points may not be worth it, due to a high annual fee or higher spending needed to get them. Cards with high bonus points coupled with lower annual fees and/or spending could be a better fit.

 

The study is good news for frequent travelers who are finding it more difficult to earn rewards by racking up miles alone. Banks are realizing that some people are frustrated with their airline miles and the rules for using them, said Karimzad.

“The airlines have made it harder to earn miles by flying in recent years,” he said. “Many of them now award miles based on the price of your ticket, instead of how far you fly, making sticking with a single airline mile program less lucrative for people who aren’t heavy business travelers.”

Cards that offer cash for any travel purchase give people who don’t want to mess with miles — but want to save on travel — a way to get more value from their spending than many straight cashback cards, he added.

These days, 50,000 miles is the new 25,000, said Karimzad. “As offers and competition have increased, the bar for going through the trouble of applying for a card has gone up, and consumers should be looking for offers that get them more value than the 25,000 miles of years ago,” he said. “Transferable point cards are the most flexible because you can use the points like cash for travel, or convert the points into real airline miles, so a big bonus on a transferable point card is a great place to start.”

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Benét J. Wilson
Benét J. Wilson |

Benét J. Wilson is a writer at MagnifyMoney. You can email Benét J. at benet@magnifymoney.com

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2019 Fed Meeting Predictions — No More Rate Hikes Until 2020

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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The March Fed meeting put the kibosh on more rate hikes in 2019. With FOMC policy on pause, market interest rates should hold steady (or even decline in some cases) for financial products you use every day. Read on for our predictions for each upcoming Fed meeting and updates on what went down at the most recent conclaves.

What happened at the March Fed meeting

The Federal Reserve signaled no rate hikes this year, and the possibility of only one increase in 2020. The Fed has pivoted pretty rapidly from its hawkish stance in 2018 to a more dovish outlook as it puts policy on ice. This change in tone grows directly from the FOMC’s observation of slowing growth in economic activity, namely household spending and business investment. The Fed also noted that employment gains have plateaued along with the unemployment rate, which nevertheless remains at very low levels.

So the federal funds rate looks to remain at 2.25% to 2.50% for a year or more, and the FOMC highlighted that this is the not-too-hot, not-too-cold level that for now best serves its dual mandate to “foster maximum employment and price stability.”

The Fed also released its Summary of Economic Projections (SEP). The March SEP indicated a median projected federal funds rate of 2.6% for 2020, which is why everybody is discussing the possibility of at least one, small increase next year.

For those who were really hoping for at least one more rate hike, all is not lost — Tendayi Kapfidze, LendingTree chief economist, believes we shouldn’t take March’s decision too gravely. “There are special factors that suggest the economy could reaccelerate,” he says. “The government shutdown threw a wrench into things, slowing some activity and distorting how we measure the economy.” He also remarks that since the financial crisis, data in the first quarter has continued to come in weak, still leaving room for everything to reaccelerate in the second and third quarters. He points to the already strong labor market as a plus.

Fed economic forecasts hint at a possible rate cut by the end of 2019. Just as the Fed projects a slightly higher federal funds rate in 2020, it also posted a projected 2.4% for 2019. Note that this projected rate falls below the upper end of the current rate corridor of 2.5%. This means the doves may want to see a possible rate cut if improvements in the economic outlook don’t materialize by mid-year.

When asked about this potential rate cut, Fed Chair Jerome Powell emphasized the Committee’s current positive outlook, while also emphasizing that it remains mindful of potential risks. Still, he maintained that “the data are not currently sending a signal that we need to move in one direction or another.” He also remarked that since it’s still early in the year, they have limited and mixed data to consult.

Kapfidze offers a more concretely positive outlook, noting that the chances of a rate cut are pretty slim. “To get a rate cut, you’d have to have sustained growth below 2%. There would have to be further weakness in the economy, like if trade deals get messier, to warrant a rate cut.”

The Fed downgraded its economic outlook for 2019 for the second time in recent months. In line with Kapfidze’s predictions, we did see a weaker economic outlook coming out of this month’s Fed meeting. The median GDP forecast for 2019 and 2020 decreased from December projections, while it remained the same for 2021 and beyond. This comes hand in hand with the decreased fed funds rate projections.

The FOMC increased their unemployment projections, which Kapfidze found surprising because the labor market has been so strong. “Maybe they believe that those numbers indicate a deceleration,” he said, “but really, it has to be consistent considering the other changes that they made.”

Why the Fed March meeting is important for you

It’s easy to let all of this monetary policy talk go in one ear and out the other. But what the Fed does or doesn’t change has an impact on your daily life. Without a rate hike since December, we’re already starting to see mortgage rates fall. This is helpful not only for those who want to buy a home, but also for those who bought homes at last year’s highs to refinance.

As for personal loans and credit cards, we may still see these rates continue to increase, just at a slower rate. These rates have little chance of decreasing because lenders may take the current weaker economic data as a sign that the economy is going to be more risky.

Deposit accounts will feel the opposite effects as banks may start to cut savings account rates. At best, banks will keep their rates where they are for now, until more evidence for a rate cut arises.

Our March Fed meeting predictions

There’s little chance of a rate hike this time around. In a policy speech on March 8, Fed Chair Jerome Powell reinforced the FOMC’s patient approach when considering any changes to the current policy, indicating he saw “nothing in the outlook demanding an immediate policy response and particularly given muted inflation pressures.”

This is no different from what we heard back in January, when the Fed took a breather after its December rate hike. There was no change to the federal funds rate at that meeting, and Powell had stressed that the FOMC would be exercising patience throughout 2019, waiting for signs of risk from economic data before making any further policy changes.

Further strengthening the case for rates on hold, the reliably hawkish Boston Fed President Eric Rosengren cited several reasons that “justify a pause in the recent monetary tightening cycle,” in a policy speech on March 5. His big tell was citing the lack of immediate signs of strengthening inflation, which remains around the Fed’s target rate of 2%.

Even though there had been some speculation of a first quarter hike at the March Fed meeting, LendingTree chief economist Tendayi Kapfidze reminds us that the Fed remains, as ever, data-dependent. “The latest data has been on the weaker side, with the exception of wage inflation,” he says.

The economic forecast may be weaker than December’s. The Fed will release their longer-range economic predictions after the March meeting. These projections should include adjustments in the outlook for GDP, unemployment and inflation. The Fed will also provide its forecast for future federal funds rates.

Kapfidze expects we’ll see a weaker forecast this time around than what we saw in December. “I except the GDP forecast to go down, and the federal funds rate expectations to go down.” This follows a December report that posted lower numbers than the September projections.

Despite flagging economic projections, Rosengren offered a steady outlook in his speech. “My view is that the most likely outcome for 2019 is relatively healthy U.S. economic growth,” he said, again attributing this to “inflation very close to Fed policymakers’ 2 percent target and a U.S. labor market that continues to tighten somewhat.”

The Fed’s economic predictions offer clues to its future policy decisions. In September, the Fed projected a 2019 federal funds rate of 3.1%. That number dropped to 2.9% in the December report. With the current rate at 2.25% to 2.5%, there’s still room for more hikes this year. Keep in mind, however, that, the March meeting may narrow projections for the rest of 2019.

As for Kapfidze, he thinks we’ll see a rate hike in the second half of the year. “If wage inflation continues to increase and it trickles more into the economy, the Fed could choose to raise rates due to that risk.”

However, as of March 12, markets see the odds of a rate hike this year at zero, while the odds of a federal funds cut has risen to around 20%, based the Fed Fund futures.

Upcoming Fed meeting dates:

Here is the FOMC’s calendar of scheduled meetings for 2019. Each entry is tentative until confirmed at the meeting proceeding it. For past meetings, click on the dates below to catch up on our pre-game forecast and after-action report.

Our January Fed meeting predictions

Don’t expect a rate hike. The FOMC ended the year with yet another rate hike, raising the federal funds rate from 2.25 to 2.5%. It was the committee’s fourth increase of 2018, which began with a rate of just 1.5%.

But the January Fed meeting will likely be an increase-free one. Tendayi Kapfidze, chief economist at LendingTree, the parent company of MagnifyMoney, said the probability of a rate hike is “basically zero.”

Kapfidze’s assessment is twofold. First, he noted that the Fed typically announces rate increases during the third month of each quarter, not the first. This means a hike announcement would be much more likely during the FOMC’s March 19-20 meeting, rather than in January.

Perhaps more importantly, Kapfidze said there’s been too much market flux for the FOMC to make a new decision on the federal funds rate. He predicts the Fed will likely wait for more evidence before it considers another rate hike.

“I think a lot of it is a reaction to market volatility, and therefore that’s lowered the expectations for federal fund hikes,” Kapfidze said.

But if a rate hike is so unlikely, what should consumers expect from the January Fed meeting? Here are three things to keep an eye on.

#1 The frequency of rate hikes moving forward

It’s unclear when the next increase will occur, but the FOMC’s post-meeting statement could give a clearer picture of how often rate hikes might occur in the future.

The Fed released its latest economic projections last month, which predicted the federal funds rate would likely reach 2.9% by the end of 2019. This figure was a decline from its September 2018 projections, which placed that figure at 3.1%.

As a result, many analysts — Kapfidze included — are forecasting a slower year for rate hikes than in 2018. Kapfdize said some analysts are predicting zero increases, or even a rate decrease, but he believes that may be too conservative.

“I still think the underlying economic data supports at least two rate hikes, maybe even three,” Kapfidze said.

Kapfidze’s outlook falls more in line with the Fed’s current projections, as it would mean two rate hikes of 0.25% at some point this year. There could be more clarity after the January meeting, as the FOMC’s accompanying statement will help indicate whether the Fed’s monetary policy has changed since December.

#2 An economic forecast for 2019

The FOMC’s post-meeting statement always includes a brief assessment of the economy, and this month’s comments will provide a helpful first look at the outlook for 2019.

Consumers will have to wait until March for the Fed’s full projections — those are only updated after every other meeting — but the FOMC will follow its January gathering with its usual press release. This statement normally provides insight into the state of household spending, inflation, the unemployment rate and GDP growth, as well as a prediction of how quickly the economy will grow in the coming months.

At last month’s Fed meeting, the committee found that household spending was continuing to increase, unemployment was remaining low and overall inflation remained near 2%. Kapfidze expects January’s forecast to be fairly similar, as recent market fluctuations might make it difficult for the FOMC to predict any major changes.

Read more: What the Fed Rate Hike Means for Your Investments

“I wouldn’t expect any significant change in the tone compared to December,” Kapfidze said. “I think they’ll want to see a little more data come in, and a little more time pass.”

At the very least, the statement will let consumers know if the Fed is taking a patient approach to its analysis, a decision that may help indicate just how volatile the FOMC considers the economy to be.

#3 A response to the government shutdown

The big mystery entering January’s Fed meeting is the partial government shutdown. While Kapfidze said the FOMC’s outlook should be similar to December, he also warned that things could change quickly if Congress and President Trump can’t agree on a spending bill soon.

“The longer it goes on, and the more contentious it gets, the less confidence consumers have — the less confidence business have. And a lot of that could translate to increased financial market volatility,” Kapfidze said.

Kapfidze added that the longer the government stays closed, the more likely the FOMC is to react with a change in monetary policy. During the October 2013 shutdown, for example, the Fed’s Board of Governors released a statement encouraging banks and credit unions to allow consumers a chance at renegotiating debt payments, such as mortgages, student loans and credit cards.

“The agencies encourage financial institutions to consider prudent workout arrangements that increase the potential for creditworthy borrowers to meet their obligations,” the 2013 statement said.

What happened at the January Fed meeting:

No rate hike for now

In its first meeting of 2019, the Federal Open Market Committee announced it was keeping the federal fund rate at 2.25% to 2.5%, therefore not raising the rates, as widely predicted. This decision follows much speculation surrounding the economy after the Fed rate hike in December 2018, which was the fourth rate hike last year. In its press release, the FOMC cited the near-ideal inflation rate of 2%, strong job growth and low unemployment as reasons for leaving the rate unchanged.

In the post-meeting press conference, Federal Reserve Chairman Jerome Powell confirmed that the committee feels that its current policy is appropriate and will adopt a “wait-and-see approach” in regards to future policy changes.

Read more: How Fed Rate Hikes Change Borrowing and Savings Rates

Impact of government shutdown is yet to be seen

The FOMC’s official statement did not address the government shutdown in detail, although it was discussed briefly in the press conference that followed. Powell said he believes that any GDP lost due to the shutdown will be regained in the second quarter, providing there isn’t another shutdown. Any permanent effect would come from another shutdown, but he did not answer how a shutdown might change future policy.

What the January meeting bodes for the rest of the year

Don’t expect more rate hikes. As for what this decision might signal for the future, Powell maintains that the committee is “data dependent”. This data includes labor market conditions, inflation pressures and expectations and price stability. He stressed that they will remain patient while continuing to look at financial developments both abroad and at home. These factors will help determine when a rate adjustment would be appropriate, if at all. When asked whether a rate change would mean an increase or a decrease, he emphasized again the use of this data for clarification on any changes. Still, the Fed did predict in December that the federal funds rate could reach 2.9% by the end of this year, indicating a positive change rather than a negative one.

CD’s might start looking better. For conservative savers wondering whether or not it’s worth it to tie up funds in CDs and risk missing out on future rate hikes – long-term CDs are looking like a safer and safer bet, according to Ken Tumin, founder of DepositAccounts.com, another LendingTree-owned site. Post-Fed meeting, Tumin wrote in his outlook, “I can’t say for sure, but it’s beginning to look more likely that we have already passed the rate peak of this cycle. It may be time to start moving money into long-term CDs.”

Look out for March. Depending on who you ask, the FOMC’s inaction was to be expected. As Tendayi Kapfidze, LendingTree’s chief economist, noted [below], if there is going to be a rate increase this quarter, it will be announced in the FOMC’s March meeting. We will also have to wait for the March meeting to get the Fed’s full economic projections. For now, its statement confirms that household spending is still on an incline, inflation remains under control and unemployment is low. It also notes that growth of business fixed investment has slowed down from last year. As for inflation, market-based measures have decreased in recent months, but survey-based measures of longer-term inflation expectations haven’t changed much.

 

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Learn more: What is the Federal Open Market Committee?

The FOMC is one of two monetary policy-controlling bodies within the Federal Reserve. While the Fed’s Board of Governors oversees the discount rate and reserve requirements, the FOMC is responsible for open market operations, which are defined as the purchase and sale of securities by a central bank.

Most importantly, the committee controls the federal funds rate, which is the interest rate at which banks and credit unions can lend reserve balances to other banks and credit unions.

The committee has eight scheduled meetings each year, during which its members assess the current economic environment and make decisions about national monetary policy — including whether it will institute new rate hikes.

A look back at 2018

Before the FOMC gathers this January, it’s worth understanding what the Fed did in 2018, and how those decisions might affect future policy.

The year 2018 was the Fed’s most aggressive rate-raising year in a decade. The FOMC’s four rate hikes were the most since the 2008 Financial Crisis, after the funds rate stayed at nearly zero for seven years. This approach was largely based on the the FOMC’s economic projections, which found that from 2017 to 2018 GDP grew, unemployment declined and inflation its Fed-preferred rate of 2%.

In addition to the rate hikes, the FOMC also continued to implement its balance sheet normalization program, through which the Fed is aiming to reduce its securities holdings.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Dillon Thompson
Dillon Thompson |

Dillon Thompson is a writer at MagnifyMoney. You can email Dillon here

Lauren Perez
Lauren Perez |

Lauren Perez is a writer at MagnifyMoney. You can email Lauren here

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