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The Better Deal: Cash Back or Miles Credit Cards?


Upon becoming a business traveler, I got a no-annual fee airline miles rewards card, but I sometimes wonder if cash rewards are the better way to go. Here’s a quick and dirty face-off between cash back credit cards and no-annual fee miles cards.

The no-annual fee point is important. Proprietary airline cards (Delta SkyMiles, American AAdvantage, etc.) charge lofty annual fees.

Of course, they do offer perks like double miles on purchases or additional free tickets annually. These may make sense for hard-core travelers who charge $5k or more each month; they can recoup their annual fees in free travel pretty quickly.

For the rest of us, fee-free air miles credit cards like the PremierPass, Amex Blue Sky, Discover Miles, and others let you rack up generic points that can either be converted – usually 1 for 1 – into miles with most airlines, or used to book reward travel directly through a third party site like Expedia.

Earning Miles

After earning miles with any credit card, you need at least 25,000 points to get even the most restricted domestic round-trip ticket. Assuming that same ticket would cost about $300 cash – each point is worth about 1.2 cents. So for every $1,000 spent, you earn $12 towards a flight.

Earning Cash Back

Standard cash back credit cards offer 1% cash back, so for every $1,000 you spend, you earn $10. However, many cash back credit cards have ways you can earn more than 1%.

For example, the Chase Freedom card gives you up to 1% cash back on every dollar spent plus 5% on up to $1,500 of purchases in select categories.

The Verdict

It seems to me that a cash back card is the better way to go.

Which brings me to a final reminder about credit card offers. Typically, the better the rewards program, the higher the APR and fees. The Chase Freedom card has a great cash back program, but a high APR. So this is not a card for anybody who might even think about carrying a balance. All the others mentioned in this articles have more reasonable APRs under 15%. But remember, if you are carrying a balance, even a small one, and even occasionally, rewards are meaningless. You are still paying your credit card more than it is paying you.

Do you carry a cash rewards or mileage rewards credit card? Are you happy with it?

About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.

Comments

  1. Great analysis!

    The Amex Sky Blue is also quite good. 1.3 cents on the dollar cash back that can be applied to any travel related spend.

  2. Perfectly answers my Googled question…thanks! :)

  3. Christian says:

    Ditto to the above, this was exactly what I was looking for. Cash back –> the way to go.