April 13, 2019, 9:06 a.m. EDT

Capital One quietly changed some of its credit-card rewards — why you should care

It’s not an unusual move, and it exemplifies the pitfalls of some credit cards

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By Jacob Passy


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Keeping track of how your credit-card rewards program works can be a frustrating endeavor.

For some Capital One /zigman2/quotes/204480509/composite COF +7.45% credit-card holders, it’s gotten more expensive to turn rewards miles into gift cards.

At the end of March, Capital One quietly updated the number of rewards miles card holders need before they can trade them in for gift cards for certain popular retailers including Amazon /zigman2/quotes/210331248/composite AMZN -0.60% , Apple /zigman2/quotes/202934861/composite AAPL +0.48% , and Walmart /zigman2/quotes/207374728/composite WMT +0.52% . The change applied to Capital One’s mile-based cards: Venture, VentureOne, Spark Miles and Spark Miles Select.

The change is a reminder that all consumers, not just Capital One card holders, should tread carefully when dealing with credit card points. Experts say it’s important to keep a few key factors in mind: point values can change at any time, consumers need to pay attention to what they’re using points for, and card holders should consider whether a cash-back card makes more sense.

Previously, a single mile earned with these Capital One cards equated to 1 cent for all gift cards — meaning that card holders would need to accrue 1,000 miles to cash out for a $10 gift card for any retailer. Now, the pricing for certain retailers has changed, making the gift cards more expensive to redeem. To get a $10 gift card from these retailers, it now costs 1,250 miles. In other words, a single mile is worth 0.8 cents when redeeming these cards.

The list of retailers whose gift cards are now more expensive on a miles-basis include, among others:

  • Amazon

  • AMC Theatres /zigman2/quotes/200235402/composite AMC -17.27%  

  • Apple

  • Bed Bath & Beyond /zigman2/quotes/209801102/composite BBBY +1.84%  

  • BP /zigman2/quotes/207305210/composite BP -3.23%  

  • Chipotle /zigman2/quotes/200781108/composite CMG +6.19%  

  • Dunkin’ Donuts /zigman2/quotes/200947441/composite DNKN +0.53%  

  • Kohl’s /zigman2/quotes/210414114/composite KSS +13.16%  

  • Lowe’s /zigman2/quotes/205563664/composite LOW +2.24%  

  • Panera Bread

  • Starbucks /zigman2/quotes/207508890/composite SBUX +2.36%  

  • Target /zigman2/quotes/207799045/composite TGT -0.33%  

  • The Cheesecake Factory /zigman2/quotes/207909209/composite CAKE +10.82%  

  • The Home Depot /zigman2/quotes/208081807/composite HD +4.37%  

  • Uber

  • Walmart

Capital One did not announce the change widely. The company notified customers who had recently redeemed points for a gift card of the change in an email at the beginning of March, company spokeswoman Ceci King told MarketWatch. Capital One also posted a notice of the change on its rewards portal.

Read more: Ask these questions about your credit card — it could save you hundreds of dollars

Credit-card companies are always flipping the script — and consumers usually lose out

The fact that Capital One made a change like this somewhat abruptly — and with little fanfare — is not unusual, according to Matt Schulz, chief industry analyst at CompareCards /zigman2/quotes/204207971/composite TREE +10.61% .

“Card issuers tinker with their rewards all the time,” Schulz said. “For the most part those moves tend to make points less valuable.”

While current regulations require that credit-card issuers notify customers of “significant changes,” those rules don’t apply to rewards . And most card companies reserve the right to reconfigure their rewards programs in the terms and conditions consumers agree to when they sign up for the card.

Given the likelihood that changes will happen — and that they will reduce the value of points or miles earned — Schulz said consumers shouldn’t hoard points for very long. “They don’t tend to get more valuable over time, they tend to go in the other direction,” he said.

How Capital One’s cards compare when it comes to redeeming for gift cards

The industry standard is 1 cent per point or mile, as Capital One’s redemption rate used to be for all gift cards, said Ted Rossman, industry analyst with CreditCards.com.

But Capital One is far from alone in deviating from that. For instance, points are worth as little as 0.7 cents per point when redeeming for some gift cards through the Citi /zigman2/quotes/207741460/composite C +6.67%  ThankYou rewards portal.

In other cases, points or miles can be worth more than 1 cent each under limited-time offers. Currently, a slew of $25 gift cards to retailers like Express /zigman2/quotes/210459169/composite EXPR +14.34%  and Belk only cost 2,250 points through Chase’s Ultimate Rewards portal. (That equates to 1.1 cents per point.)

Nevertheless, consumers will usually want to think twice before converting their credit-card rewards points or miles into gift cards.

“Gift cards generally aren’t the best thing to redeem points for,” Schulz said. “So many of these points programs are geared around travel, airlines and hotels. A lot of times that’s what works best.”

Also see: Here’s everything Apple isn’t telling you about its new credit card

To that end, Capital One’s miles-based rewards programs clearly gear consumers toward using their accrued miles for travel-related purchases rather than things like gift cards. Each mile is worth 1 cent when used for the “travel eraser” feature, which helps cancel out past travel purchases, Rossman noted. Meanwhile, a mile is worth 0.5 cents when redeemed for cash back.

‘Gift cards generally aren’t the best thing to redeem points for.’

— Matt Schulz, chief industry analyst for CompareCards

“Capital One’s credit cards that earn miles are designed to be used for travel purchases or for transferring miles to airline partner,” King, the Capital One spokeswoman, said. “With this in mind, customers get the best value by redeeming for travel, however, the option for gift cards is still available to customers if they prefer that redemption option.”

Companies like Capital One, American Express /zigman2/quotes/203805826/composite AXP +3.43%  and Chase /zigman2/quotes/205971034/composite JPM +8.48%  also offer incentives from time to time that boost the value of rewards miles or points when used on travel even further, Rossman said. “If you know how to play the game and can be flexible with your travel plans, you could get 3, 4, 5 or perhaps even more cents per point or mile,” he said.

Getting the most value out of these points- or miles-based rewards programs involves a lot of math and homework on the consumer’s part though, Schulz warned. Consequently, consumers may want to think twice before signing up.

“The fact that points get devalued and tinkered with so often is a good reason why some people are better off with simple cash back cards,” Schulz said. “It’s simpler. It’s easier to understand. You don’t have to worry about the valuation.”

Shares of Capital One are up 13.6% year-to-date. Comparatively, the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +1.32%  is up 12.8% and the S&P 500 /zigman2/quotes/210599714/realtime SPX +1.39%  is up 15.4%.

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Jacob Passy is a personal-finance reporter for MarketWatch and is based in New York.

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