Travel hacking – Discovery Credit Card

Been thinking about how South Africans can obtain great rewards and points for travel hacking using local options. One of the popular credit cards is from Discovery. Let’s see how effective the card is.

Conversion rate: 10 miles for R1 used to pay for standard price of flight or hotel. Flights are discounted by your vitality status up to 35%. Further discounts available through their Discovery Bank, which will be investigated one day should there be value in the banking platform.

Partners for flights: unfortunately you need to book with their international flight partners through Kulula hence limiting some of the cheapest flight options you may find through Googles flight search. Partners are Qantas, British Airways, Emirates and Kulula. These will get you to most destinations. Another restriction is that you need to book a return flight to SA or a flight originating from SA. No booking of a cheap flight elsewhere that doesnt include SA (like connections) , open jaw flights if you want to return via another city.

Lastly, can no longer convert miles to other providers like Avios or SAA so the ecosystem has become quite limited to what Kulula offers.

Hotels are limited to South Africa, problematic for overseas travel.

Earning miles: Standard rate is 1 mile for R15 spend, translates to 0.66% cash back which very slow. However some of their partners provide accelerated miles, if you are at Diamond level, you receive 10x the miles for your spend, tranating to a 6.66% conversion rate. Extensive list of partners, but effectively gettinf groceries from pick n Pay, fuel from BP or Shell, consumables from Clicks or Dischem, online shopping from Takealot, etc. Their site lists the full range but lots of options, just requires Diamond status for the benefits.

Cost: R432 annual fee for Miles.

Monthly credit card fee of R95.

Diamond status Vitality R259 per month.

Total annual fees: R4680 (R4284 if you use Gold instead of Platinum card).

Is it worth it?

If you were to buy a return ticket to London for R10k or New Zealand for R15k you could do reasonably well with this card. You’re limited to 2 international flights a year, and if we assume these two examples you’d get R25k worth of flights, pay 65% worth Miles (the 35% discount removes R8.75k from the initial price). The Miles required are 162500. At the ratio of 6.6% you require credit card spend of R240k across groceries, fuel, consumables and household items.

At that spend level then you’d be able to receive these two flights for the cost of R4.7k assuming you’re at Diamond level (not an insignificant achievement), but not really worth it if you only utilise the international flight benefit since you would have been paying for 3 years of Vitality fees already in order to achieve the Diamond status.

Overall, Vitality fees make this a steep, somewhat limited, but still a worthwhile option for travel hacking.

Net worth update July 2014

 

July was a good month.

Growth this month came from some cash back on tax return filing, savings towards shares and RAs – this pushed our savings rate to just under 65% this month. There was little growth in the market value of existing shares in July and the exchange rates were mostly flat.

Have managed to increase savings for the future due to finally switching to Discovery Insure and its excellent 50% cash back on fuel expenditure from BP (capped based on their points system, go read about it on their site if interested). So that’ll probably drop our expenses further with the aim of increasing this over time.

Also, made some changes on life policies to reduce the monthly expenses here slightly and hopefully switching to annual cash back rather than every 5 years. Based on our Discovery Vitality status we could get back to 50% of our premiums which always helps.

Reducing some costs (life insurance)

So been looking at making some changes to life insurance and car/home insurance in order to reduce some unnecessary costs.

A lot of great ideas for reducing this cost are explained in one of my favourite books, Living rich by spending smart

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that details one of the best ways to save cash is to increase excesses or to cancel unnecessary cover. Excesses can be increased since you have savings and are self-insuring. Insurance should only be obtained for catastrophic events.

Another site that explains this well is one of my favourite blogs, Mr Money Mustache:

In my case that would be death or disability of a significant earner, theft of all household contents, fire, or third-party liability on motor vehicles.I have also kept my comprehensive insurance for the vehicles, since they’re both still 2 years old and have value in the R200k range – so not quite ready to completely remove my own theft and collision insurance and self-insure. I could move up the excess to like R20-R50k and still be comfortably insured, while reducing premiums – or use Discovery insure’s excess funder. But that is an idea for another post.

For now, I’m reducing life insurance premiums by removing unnecessary cover (life cover and income cover for my spouse as we have more than enough savings and we are not dependent on her income). The extra cash will just go towards our own investments.

Every Rand saved has two benefits:

1. One rand of extra savings, which compounds rapidly over time,

2. One less rand of costs that needs to be replaced with investments. This equates to R12 per annum less costs, and at a 5% withdrawal/income rate a total of R240 less in savings required. The R500 savings on the life insurance per month would be the same as having an additional R120k in savings.

My life insurance is through Discovery Life, and together with high credit card spending through their credit card products, being on Gold for Vitality (just reached in April), and their health integrator products (through their medical aid) I have reduced the premiums quite significantly and reduced the increases. Their payback is awesome, so will be getting between 20%-50% back on my premiums after 5 years as well which further reduces how much I’m paying. I haven’t found anything else that comes close – the only option to further potentially reduce my premiums would be to switch to a life insurer that offers term insurance. DIscovery only does insurance that pays out at death, so you are guaranteed to get a capital amount, while term would expire at say age 65 at retirement. I think that I’ll probably cancel my life insurance long before that due to having enough savings to cover any life insurance payouts my dependents would actually get. Probably another 5 years or so.

Next up is reducing premiums on car and home insurance – looking at switching to Discovery Insure. With the paybacks on life cover (integrator product) as well as paybacks on fuel (required to be spent at BP) I might be able to cut the costs on this quite significantly. Will assess and see.