Rewards programs: Grab ‘em or let ‘em fly?

Frequent flier miles seem to come with more and more financial transactions – credit card charges, long-distance phone calls, mutual fund investments, mortgage payments – so you’d think that half the U.S. is flying free these days.

Not so. While it’s true that there are now fewer blackout dates – times when you can’t use miles to buy a ticket – it doesn’t necessarily follow that getting a reward ticket is any easier. No one in the airline industry talks openly about mileage redemption rates, but it’s commonly believed that about half of all frequent flier miles go unused.

“The airlines have tweaked their yield management software that determines how many seats are available for frequent fliers,” says Tim Winship, who edits the Frequent Flier Crier. “So just because there are fewer blackout dates doesn’t mean it’s easier to get a ticket.”

In fact, airlines are supplying about the same number of seats for frequent fliers as they have in the past, but with all those miles stacked up in all those accounts, the competition for seats is fierce.

Worse, collecting all those frequent flier miles that you may not use may cost more than you think. For example, credit cards that let you collect points usually charge hefty fees. And you may be buying more and comparison-shopping less just to get miles.

How do you maximize your miles while knowing where to look for these surreptitious expenses?

The credit card conundrum. Many charge cards that allow you to collect miles come with sky-high fees, above-average annual percentage rates and onerous restrictions. For instance, American Express recently changed the contract on its cobranded Optima cards that it offers with Hilton Hotels and Delta Air Lines, cutting its payment window to 20 days and imposing a $29 penalty, plus interest, for late payments. “It’s outrageous,” says travel consultant Christopher McGinnis. “If you’re traveling on business, you’re not always going to get home in time to pay your bill.”

Unfortunately, you may not have a lot of choice if you want a credit card that lets you earn miles that you can add to your frequent-flier account. For example, Delta partners only with American Express, so you may have to switch to another airline’s frequent-flier program if you want to switch cards. (You can usually find out about airline affinity cards at the airline’s Web site, or check here.)

A number of cards let you accumulate miles on any airline, but you can’t commingle the miles earned by using such credit cards with miles in a frequent-flier program. One of the best multiple-airline cards is Capital One’s MilesOne program, which costs $19 a year.

Once you have the card, watch for hidden fees. One favorite mile collection strategy is to charge the down payment on a car. However, some car dealers now impose a surcharge of between $75 and $100 for using a credit card.

Long-distance come-ons. Sprint and MCI try to hook new long-distance customers by offering five frequent-flier miles for every dollar spent – if you’re willing to pay a monthly fee. At Sprint the opportunity to pile up miles on one of three different airlines will cost you $5.95 a month, and don’t opt for the optional calling card. Rates on that run as high as 59 cents per minute, plus a 99-cent per call surcharge.

MCI lets you choose from among 10 airlines’ frequent flier programs and is a little less pricey at $3.95 a month. The catch: it’s available only to new customers.

Realize, though, that neither of those calling programs is much of a bargain if you don’t pay a monthly fee for the long-distance service you already have.

When does it make sense to collect miles? When these hidden costs are eliminated. For example, if you’re shopping for an airline ticket and you find two identically priced flights, but one comes with a 500-point bonus, then by all means make a mileage grab.

Christopher Elliott is the author of Scammed: How to Save Your Money and Find Better Service in a World of Schemes, Swindles, and Shady Deals. Critics have called it “eye-opening” and “inspiring” — it’ll “grab your attention and won’t let go.” Order your copy now on Amazon, Barnes & Noble or iTunes.

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