Credit Cards

Why Hotel Credit Cards Are Better Than Most People Think

Hotel credit cards are the unsung hero of reward cards. They are often overlooked, especially when compared to their airline counterparts. We go over why consumers shouldn’t be so quick to dismiss these offers, and how they can provide some of the best value.

Every night close to 5 million travellers stay in hotel rooms. According to the American Hotel & Lodging Association, travellers spent around $176B on hotels in 2014. Despite that, the rewards offered by hotel credit cards seldom enter the discussion. Every conversation on credit cards tends to fixate on airline miles. There is no denying that hotel cards are far less popular among American consumers when compared to their mile-earning counterparts.

However, anyone looking to optimize their saving and earn the best rewards possible should not ignore this subset of credit cards.

An analysis of over 200 credit cards from the nation’s top banks revealed that hotel branded offers actually outperform airline and cash back credit cards in several key categories. The results should make anyone think twice before dismissing these as a viable option for earning travel rewards. In this guide, we’ll go over the areas where hotel credit cards provide the best returns and value for consumers.

Rewards Rate

The ‘rewards rate’ is a percentage that expresses the return a consumer gets for using a particular credit card to make purchases. For example, a card that gives 2% cash back would be said to have a 2% rewards rate. For airline and hotel cards, this figure is obtained by breaking down each mile and point down to a dollar value. When it comes to rewards rates, hotel credit cards provided the highest mean among the sample we examined. The average hotel credit card rewards rate stands at around 2.5% -- close to 0.5 percentage points higher than general travel reward credit cards.

For consumers, a better rewards rate means better long-term value. While bonuses may entice people to sign-up for a card, the rewards rate is what ultimately should decide whether you keep it or not. From that aspect, hotel credit cards are some of the most worthwhile for keeping around in your wallet.

Annual Fees

Traditionally, we expect to see high rewards rates offset by high annual fees. However, hotel credit cards break away from that convention. While they are by no means the least expensive – that honor goes to cash back cards – hotel credit cards are also not the most expensive. Instead, they fall somewhere in the middle, between airline and travel cards.

Some of the top-rated hotel credit cards come with annual fees in the neighborhood of $60 - $70. With lower annual fees, it’s a lot easier for consumers to make up for the fee, and begin turning a profit on their card.

Bonuses are a Mixed Bag

Hotel credit cards did not de-throne airline cards when it comes to sign-up bonuses. However, they were not far behind. If you can find a hotel credit card that offers one or two free nights at your favorite property, you’ll likely match the value of top miles cards. Unfortunately, when it comes to giving out bonuses based on reward points, hotel cards tend to fall flat.

You’ll likely need to do a little bit more research when searching for a hotel card with a good bonus that also lines up well with where you like to stay. Keep in mind, however, that in the long run, a fantastic rewards rate on a card can make up for a subpar bonus offer.

Why You Should Think Twice Before Applying for a Hotel Credit Card

The hotel industry is facing many new services and apps that have disrupted how they do business – namely Airbnb. For consumers, it can oftentimes be significantly cheaper to book a stay through an app rather than a hotel. If that describes how you like to travel and find lodging, then don’t let the promise of a bonus change that.

Note that apps like Airbnb may not code as a “travel purchase” with all credit cards. That means that even a generic travel rewards credit card may end up giving you poor returns. Luckily, booking travel this way is already producing savings for most people. In many cases, this savings can be a lot bigger than what you’d get through the use of a simple credit card.

Joe Resendiz

Joe Resendiz is a former investment banking analyst for Goldman Sachs, where he covered public sector and infrastructure financing. During his time on Wall Street, Joe worked closely with the debt capital markets team, which allowed him to gain unique insights into the credit market. Joe is currently a research analyst who covers credit cards and the payments industry. He earned a bachelor’s degree from the University of Texas at Austin, where he majored in finance.

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How We Calculate Rewards: ValuePenguin calculates the value of rewards by estimating the dollar value of any points, miles or bonuses earned using the card less any associated annual fees. These estimates here are ValuePenguin's alone, not those of the card issuer, and have not been reviewed, approved or otherwise endorsed by the credit card issuer.

Example of how we calculate the rewards rates: When redeemed for travel through Ultimate Rewards, Chase Sapphire Preferred points are worth $0.0125 each. The card awards 2 points on travel and dining and 1 point on everything else. Therefore, we say the card has a 2.5% rewards rate on dining and travel (2 x $0.0125) and a 1.25% rewards rate on everything else (1 x $0.0125).