With the rise in popularity of cash rewards credit cards like the Capital One Quicksilver Card, Chase Freedom or Discover it Card that give you actual cash back in the form of a check or statement credit, you might wonder: Why would anyone choose a miles credit card instead?
I asked Money Under 30 Facebook followers to chime in on the question of miles versus cash rewards, and the response was 75 percent in favor of cash.
Surprised? I’m not. After all, cash is cash. It doesn’t expire, and there are no blackout dates.
But here’s a secret: Sometimes, the miles you get for the same amount of spending can be worth more than the straight cash back. It all depends on how you use them.
A penny a mile, or more?
Traditionally, credit card points have been worth, on average, a penny a piece.
Some “point-based” rewards credit cards make you spend more points to get cash or a cash equivalent rewards (e.g., a Visa gift card) than to get branded gift cards or merchandise, lessening the points’ value. No thanks.
The value of credit card “miles” is a mixed bag. Can you snag an award ticket for 25,000 miles that’s worth $300 or more? Perhaps, although it’s not easy, and the majority of tickets you’ll find for so few miles may cost less than $200 in cash. If, however, you use miles to travel internationally—or, in first class seats—credit card miles can actually be worth $0.05 or more a piece.
Then again, at the end of the day, cash is cash. You know what you’re going to get.
When do miles credit cards make sense?
Many credit cards use advertising that gets you excited about a free vacations; after all, saving up miles for a beach trip is a lot more exciting that redeeming your cash back for $50 statement credits. They’re using marketing to invoke our travel fantasies.
Assuming cash back and miles are worth the same, it can be rewarding to bank miles for a vacation. But:
- It takes a long time to earn enough for free travel!
- The value of a mile all depends on how you decide to cash it in…for most people, miles are only worth about a penny.
- In which case you could choose a credit card that gives you a penny or more back in cash for every $1 spent.
If you are a miles guy or gal, relax, I’m not trashing the concept of credit card miles. There are places that earning miles make sense. Primarily: If you take frequent international flights and/or you like the luxury of flying first class (at least when it’s free).
Whatever do I mean?
The fact is, frequent flyer miles (including credit card miles) are worth much more per mile when redeemed for long-haul flights and business or first class seats. Take a look:
If you simply redeem frequent flyer miles for a domestic ticket that normally would only cost a couple hundred bucks, the results are terrible — you get less than a penny per mile! Worse that if you just earned 1 percent cash back.
But look what happens when you cash in miles for a more expensive ticket. The value per mile goes up to a penny and a half or even 3 cents if you save them up for a trip across the Pacific in business class. (Depending on the route and schedule, these seats can sell for $10K or more).
Airline credit cards
I carry both general cash back credit cards and a Delta American Express card, but I don’t carry that card for the miles it earns.
If you fly frequently enough on one particular airline (most likely for work), then carrying that airline’s branded credit card may make sense, even if you pay an annual fee. For me, using this card and flying Delta a few times a year gets me into their lowest level of elite status, meaning I score free first class upgrades when available. It comes with free checked bags and a free companion ticket once a year — perks that are easily worth more than the annual fee.
Here’s a look at a few of the leading U.S. Airline credit cards and their perks:
|Airline/Credit Card||Fee||Perks (In Addition to Miles Earned)|
|Platinum Delta SkyMiles® Card||$150||Free checked bag, accelerated elite status, annual companion ticket.|
|United MileagePlus® Explorer Card||$95||First checked bag is free for you and a companion when you fly United flights, up to a $50 value.|
|Citi® AAdvantage® Visa||$95||1st checked bag is free for up to 4 travelers; priority boarding.|
|U.S. Airways MasterCard||$89||Priority check-in & boarding, free lounge access, accelerated elite status.|
Universal miles rewards credit cards
If you’ve never been a frequent traveler and don’t understand why anybody would pay $150 a year for a chance to get “elite status” faster, no worries…but these cards probably aren’t for you.
If you STILL want to earn miles for your dream vacation, however, then a universal travel rewards credit card is right for you. Some of these cards are available without annual fees but still help you accumulate travel miles faster. Take these cards into consideration:
- American Express Blue Sky
- Barclaycard Arrival
- Capital One Venture (Read our review*)
- Discover it Miles (Read our review*)
What about you? What rewards do you chase? If you’re loyal to a mileage credit card…why? Are their perks you get (besides cash or miles) that make you loyal to a particular card?