Is churning an effective way of saving money?

Question

I often hear about people who practice "churning" - they take advantage of various promotional offers on credit cards by rapidly applying to many credit cards and closing them as soon as the benefits are done. Supposedly one can save a lot of money or get valuable things for free this way. (churning can actually be used for many different things, but here I'm specifically asking about credit cards)

When I did research for my actual credit card, I noticed that there are indeed many promotional offers you can get. They seem to fall into the major categories of:

• Cash back points for an effective discount of 1-5% on all purchases
• Discounts on shopping and services like hotels
• Flight miles and similar service credit for things like Uber
• For very up-market cards, free services like airport lounge access, travel agent, concierge, road assistance

However, on looking closely I always found that you can't really get any significant benefit out of these:

• The cash back is never very large. Some like to argue that even 1% on many purchases adds up, but 1% is 1%. In some special circumstances you can end up getting around 5%, and if you budget just right you end up saving a few hundred dollars a year (the points are usually capped as well). Which isn't small, but also not a huge sum.
• The individual discounts are rarely useful, since they are often things you wouldn't buy anyway. Even if they're the kind of product you want, chances they're overpriced even with the discount, so you could find better alternatives for less. I don't recall ever seeing a truly good deal from a credit card that is something I actually want at the time, and even if it happened it is clearly so rare as to be insignificant in the long run.
• The miles and credit either come with hefty annual fees, or require you to use the service a lot to claim the credit. So you never get, say, $100 a year of free Uber rides - you get maybe $100 of free rides after you've already spent $1000 on them that year. Similarly with plane tickets, you usually have to spend a large sum on tickets that year to get your free plane ticket, or pay a very large annual fee.
• These free services always come with steep annual fees and you would probably be better off just getting a cheaper card and paying for them normally.

So it seems like you can't really get much out of these credit card promotions, and people who claim to be prolific "churners" must be going to a lot of effort to save pennies. I can see how if you're lucky enough to have your normal shopping habits match your credit card you can benefit significantly. But based on the pattern I've seen, if you're such a person you'd benefit even more from changing your shopping habits.

Is it ever possible to derive some kind of tangible financial benefit from a credit card that is not trivial compared to the money you spend with that card (including fees)? Are there any examples of this, either from credit cards currently available or that were available in the past, and are not due to outright fraud or bank error?

Answer 1

I think you are misinterpreting what churning is. As you have stated it is to "take advantage of promotional offers" (emphasis mine). That is, offers that go above and beyond the normal card rewards of a few percent cash back, or similar marginal rewards.

I just checked and American Express is offering $150 or $200 (depending where you look) cash back with their Blue Cash Everyday card if you spend $1000 in the first 3 months. That is 15% or 20% cash back on your first $1000 spent. If you are trying to gain benefit by credit card churning you would sign up for this card, spend $1000, or just a tiny bit more, and never use the card ever again. Eventually the company will close the card, or you can cancel it after any signup bonus imposed time limits have lapsed. You cycle through a bunch of these offers each year and can make a few thousand dollars, assuming you haven't spent money you wouldn't otherwise have spent. It does come with a slight hit to your credit score, if that is something you care about.

Answer 2

The purpose of "credit card churning" is not for the single digit percentage rebates on purchases.

Many credit cards offer a sizable bonus if you spend "X" dollars in "Y" months. The best offer that I have seen (and done) is $200 if you spend $500 in 3 months. Many lists of offers are available with a google search along with bank bonuses as well. For example, Chase Bank just brought back a $600 bonus if you deposit $15k in a money market account and $25 in a checking account, both for 3 months. There are some additional details but that's the gist of it.

I have 3 insurance bills per year which I can charge, each exceeding $500. If bonus cards are available, I open 3 per year and take whatever bonus they offer. Add a couple of bank rebates and it's easily $1,000 to $1,500 per year. I keep the cards until I find a new card and then close one for every one that I open. There's a small temporary hit to my 800+ credit score but I couldn't care less about that since I have no need for credit nor will I ever.

I help to support a disabled cousin and her blind husband so if the credit card companies and banks want to give me free money and make a small dent in that endeavor, three cheers for them! Apart from the 5 minutes it takes to fill out the application, the only other effort needed is to carry a different piece of plastic in my wallet.

Answer 3

As far as the cash back is concerned - The cash is a fixed percent and therefore will be different depending on your normal monthly spending. 20 years ago, I got a 2% cash back card that deposited to a 529 college savings account. With no other deposits, and including the 20 years of market returns, the account has just over $42K today. It will pay for the last 3 semesters of her college. The card has no annual fee.

If there are no cards that match up to your spending or lifestyle, it's ok to ignore this and move on. As Bob noted, there are bills I get such as insurance, that add up fast, and running the expense through a card for cash back makes sense. Even my charitable donations are more easily paid via card (and many charities will tell you they have a high cost to handle a check and prefer a card payment) and getting another $300 back in addition to the tax saving is worth it.

(The title question references churning, but you asked about general cash-back as well, and that's what I addressed.)

Answer 4

Often, the most profitable cards to churn are those that do have annual fees. Those cards typically offer larger bonuses that more than offset the fee (at least for the first year).

For example, the Arrival+ is currently offering 70,000 miles as a welcome bonus which is worth ~$700. Even if you were to keep the card for several years, the larger bonus pays for $89 annual fee (waived first year) for several years. Many churners will product change to a no annual fee card after the first year or close the account to avoid paying the fees.

A more complex example is the Sapphire Reserve. The bonus is currently 50,000 points although there are occasionally higher offers. The card has a $450 fee but offers $300 in statement credits each year to be applied against travel expenses. 50,000 points is worth $500 as cash, but $750 or more when used for travel. As a result, a cardholder who is able to make use of the travel benefits can receive outsized value by applying for the card (450 - 300 - 750 = $600 profit the first year, more than you would typically get for applying for a card without an annual fee)

Point earning rates and cashback aren't typically big part of deciding whether to apply for the card. Keep in mind that one would need to spend $10,000 to get $100 back multiplied by each 1% incremental earning rate. Since there are a number of fee-free 2+% cashback cards, a card that earns 3% is worth $100 per $10,000 after opportunity cost. Even a 5% card is only worth $300 extra per $10,000 and typically comes with annual caps.

Given the amount of spending required ($10,000 in spending easily meets the requirements for 2-3 welcome offers that can be worth $500+ apiece), many churners prefer to apply their spending toward new cards with bonuses rather than continuing to spend on existing cards.