What is double dipping and why should I care about it?

The Analogy

Imagine you stay at a hotel that gives you a free drink for every”day” you stay with them. So if you stay 1st-2nd January, you stayed one night or two days giving you two free drinks.

On the other hand, let’s say the hotel has a policy which states one free drink for every “night” you stay, then the same stay will only get you one free drink and not two.

Now here, the “day” policy represents a calendar year (starting 1 January and ending 31 December) while the “night” policy represents member year (start date of membership).

Member year could be 26 May 2019 (the day your credit card gets approved) until 25 May 2020 after which three next member year starts.

What are Annual fee cards?

Various banks offer different types of credit cards which may or may not have an annual fee associated with them.

Banks like American Express and CitiBank will issue cards and run their credits (will get into that later) as per the calendar year while Chase will follow the member year.

What credits are you talking about?

Cards like the AMEX Gold and Platinum offer $100 and $200 airline fee credit respectively every calendar year.

The cards have a $250 and $550 effective annual fee which is billed to you as per the member year (start of year one, then year two and so on).

The Chase Sapphire Reserve offers a $300 travel credit (not just restricted to air travel) but has an annual fee of $450. Both apply every member year.

So what does this mean for me?

Let’s take the AMEX Gold card for example. You get the card in May 2019 and soon use the $100 airline travel credit (recommended) by maybe buying airline gift cards. On January 2020 you are going to get another $100 airline travel credit as it follows the calendar year.

This is called double dipping.

For an annual fee of $250, you get $200 back so you effectively pay only $50 to keep the card (while reaping all of its benefits).

But the same does not work with the Chase CSR as they will provide you with new travel credit only after renewal by payment of the next annual fee.

What is marginal benefit and why is this important?

Let’s go back to the hotel free drink every day example. If you stay two days (one night) you got two free drinks, but if you stay for three days (two nights) you get only one additional drink bringing the average back down to one free drink per day (earlier you got 1.5 drinks per day).

This one additional drink added is the marginal benefit you get by stay one more night.

Naturally this principle doesn’t affect the night policy of drinks.

So you spend more but get only so little.

So what should I do with this knowledge?

Use it to your benefit of course! The AMEX Gold card offers 50,000 Membership Rewards points (which can be worth $1000 towards travel) on a spend of $2000 in three months with an annual fee of $250.

Just by following this simple hack, you can get back $200 of the annual fee.

Similarly for the AMEX Platinum card which offers $200 airline fee credit, you get back $400 of the $550 annual fee. And not to mention the $200 Uber credit you also get.

Ideally, keep the cards for one year and then call Amex to ask for a retention offer. Remember, closing your accounts may result in you losing the remaining MR points.

If you’re interested in applying for the gold/Platinum card, click here and select “View all Cards with a Referral Offer” to choose the card you want.

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