Latest / Inflation and Your Money with Fexingo: Protecting Purchasing Power and Beating Inflation / How Inflation Is Quietly Eating Your Credit Card Rewards
Transcript
- Lucas: So you just got that new cashback card, and you're probably thinking — great, 2% back on everything, that's free money. But here's the catch: that money is losing value the second it hits your account if inflation is still running above 2%. Luna: Right, because 2% cashback doesn't feel like 2% if your dollar buys 3% less each year. But I think a lot of people don't realize that even the points they're hoarding for a big trip are shrinking in real terms. Lucas: Exactly. And it's not just cashback. Airlines and hotels have been quietly devaluing their points programs — raising the number of points needed for the same seat or room. Combine that with general inflation, and your stash of 100,000 miles might be worth 20% less this year than last. Luna: I remember when a domestic round-trip was 25,000 miles. Now it's often 40,000 or more. So where does the latest CPI data fit into this? We just got the June number — 332.6, down a bit from 333.98. Core CPI is basically flat at 336.1. Lucas: Right. Headline inflation is cooling, but it's still above the Fed's 2% target. The 10-year breakeven inflation rate is 2.26%, which tells you what the bond market expects over the next decade. So even if CPI moderates, we're still looking at prices rising 2% to 2.5% a year. That means your rewards need to grow at least that much just to stay flat. Luna: And most reward programs don't increase their payout rates with inflation. They actually do the opposite — they devalue. So it's a double hit: your points buy less, and the stuff you want to buy costs more. Lucas: Precisely. Let me give you a concrete example. Say you have a card that earns 1.5% cashback. If inflation runs at 2.3% annually, your real return on spending is negative 0.8%. You're losing ground. The only way to win is to redeem those rewards quickly, ideally as statement credits or into a high-yield savings account earning 3.6% or so — which is about where the Fed funds rate is right now. Luna: So you're saying don't let your rewards sit idle. Use them or lose them. Lucas: Exactly. And that's an important point — if you're sitting on a pile of points hoping to score a first-class ticket to Tokyo in three years, the math probably works against you. Airlines are notorious for dynamic pricing and devaluations. The best time to use miles is now, unless you have a specific near-term redemption in mind. Luna: That's a hard sell for the aspirational traveler. But I get it — inflation is a stealth tax on hoarding. By the way, speaking of not letting value sit idle — if these money conversations have helped you think about your own finances, you can support the show at buy me a coffee dot com slash fexingo. That's what keeps it ad-free and focused on practical advice. Lucas: Yeah, every little bit helps us keep doing this. And honestly, we want you to take action on your own money first. So let's talk about another trap: people who collect multiple credit card points and try to transfer them between programs. Luna: Oh, the points transfer game. It can work, but it's also a way to lose value if you're not careful. Lucas: Right. Say you transfer Chase Ultimate Rewards to Hyatt at a 1:1 ratio. That's often a great deal because Hyatt points are worth about 2 cents each. But if you transfer to a program that's been devalued — like some airline partners — you might be better off redeeming for cash back at 1.5 cents per point. The key is to know the cents per point value of each redemption. Luna: And that takes work. But you can find tools online that give you average valuations. The bottom line: if inflation is eating your rewards, you have to be more intentional. Lucas: Absolutely. Another strategy is to choose cards that offer fixed-value redemptions — like the Capital One Venture X or the Wells Fargo Autograph — where you can erase travel purchases at a flat rate. That way, inflation doesn't mess with the math. One point equals one cent, period. Luna: But even with fixed value, if the dollar weakens, your travel costs still go up. So you're just avoiding the devaluation trap, not inflation itself. Lucas: True. No credit card strategy can fully insulate you from inflation. But you can minimize the damage. The worst move is to ignore it and assume your pile of points will be worth the same next year. They almost certainly won't be. Luna: So what should the average listener do this week? Lucas: Check your points balances. If you have more than you can reasonably use in the next six months, consider cashing out or booking something now. If you're earning cashback, set up an automatic redemption to your bank account or use it to pay down your balance immediately. Don't let it accumulate. Luna: And if you're trying to choose a new card, pick one that matches your spending patterns and gives you a solid floor redemption. Avoid cards with complicated transfer schemes unless you're willing to track valuations. Lucas: Right. And remember, the Fed is keeping rates at 3.63% for now. That's a decent return on cash. So if you have the option to put your cashback into a high-yield savings account earning close to that, you're at least keeping up with inflation. Much better than letting it sit in a zero-interest rewards account. Luna: I've seen people let thousands of dollars in cashback sit for years. That's a real loss. Lucas: It's a missed opportunity. So to wrap up: inflation is quietly eating your credit card rewards, but you can fight back by using them quickly, focusing on fixed-value redemptions, and treating your rewards as part of your overall cash flow. Thanks for tuning in, and if this episode was helpful, consider supporting us at buy me a coffee dot com slash fexingo. Luna: We'll be back next week with another angle on protecting your purchasing power. Until then, spend smart.