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How Much are Your Credit Card Miles Actually Worth?


In the world of personal finance, the couple hundred bucks a year you might earn from credit card rewards isn’t a big deal. I’ll bet you can find five ways to better optimize your finances.

Still, if you’re like me, you probably enjoy playing the game…”How much can I get back for stuff I’m already gonna buy?”

Obviously, this isn’t a game to play if you’re still struggling with credit card debt or balances.

For everybody else, you might be wondering, am I getting the most from my credit card rewards? Consider the different ways you can redeem credit card rewards — straight 1% cash back, points exchanged for gift cards, or travel points and frequent flyer miles.

Can you beat a penny?

When all is said and done, credit card points are worth, on average, a penny a piece.

Many traditional “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.

WHY MILES CREDIT CARDS EXIST

Since I started writing about personal finance nearly eight years ago, I’ve become fascinated by the well-oiled credit card marketing machine. (For example, did you know you might get an offer for a credit card offering a 0% intro APR for six months and 18% regular APR when you could apply for the EXACT SAME card online and get a 0% APR for 18 months and a 12% APR?) It happens all the time.

Years ago, the best credit cards were the ones with the lowest interest rates, longest grace periods, and lowest annual fees. Today, those features are still important, but the rewards a credit card offers plays a much bigger role in how we choose credit cards.

Unfortunately, many consumers (those who carry credit card balances) will choose credit cards based upon rewards when they should be looking at interest rates.

I have this theory that credit card companies created miles credit cards because the idea of a earning a “free” vacation is more titillating than simply getting cash back and, therefore, is apt to get us to spend more (in the name of chasing rewards) for miles that are actually worth less than the credit card would pay us in pure cash back. Take the miles credit card du jour, the Capital One Venture Card, with its ads starting the somehow endearing Vikings plowing their way through Las Vegas and a beach resort.

Capital One and other credit card issues are trying to sell you a credit card based upon the fantasy of a free vacation.

Sounds nice, doesn’t it?

Unfortunately, there are a few problems with this:

  • It takes a lot of rewards to earn a vacation, or a even a flight.
  • 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.

Even a few years ago, only a few credit cards offered cash rewards, now you have several options for strict cash back cards.

Among Money Under 30 readers, these cards are popular. I recently asked my Facebook fans to chime in on the question of miles versus cash rewards, and the response was about 75% in favor of cash. Here’s a peak:

Money Under 30's Facebook fans respond to my question---do you prefer credit card cash back or miles rewards?

Surprised? I’m not. After all, cash is cash. It doesn’t expire, and there are no blackout dates.

WHEN FREQUENT FLYER MILES DO MAKE SENSE

If you are a miles guy or gal, relax, I’m not trashing the concept of credit card miles altogether. 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:

What's a frequent flier mile worth?

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% 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).

WHEN AIRLINE CREDIT CARDS MAKE SENSE

I have both a cash back credit card (Chase Freedom) and an airline card (Delta SkyMiles American Express).

Why the Delta Amex?

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.

(If you’ve never been a frequently 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, however, then check out the non-airline specific travel rewards cards listed here. Some of these cards are available without annual fees but still help you accumulate travel miles faster.

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?

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Disclaimer: One way I’m able to support my blogging while helping you is to link to products I like and earn a referral commission if you sign up. I only link to products I trust. That said, you should know that if you click the links to these cards and ultimately apply for and are approved for that card, I may be paid for that. If you choose to support Money Under 30 in that way, thanks!

This content is not provided or commissioned by American Express. Opinions expressed here are author’s alone, not those of American Express, and have not been reviewed, approved or otherwise endorsed by American Express. This site may be compensated through American Express Affiliate Program.

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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. I always do cash.

    I use Discover and Capital One (the latter of which constantly tries to get me to switch to miles, and I constantly refuse)

    The Discover I only use for their periodic 5% cash back categories, up to the limit. I dislike the .25% prior to spending $3,000 in a year, I hate that you cannot get the rewards until $50 is accumulated, and I get better rewards with Capital One.

    I use the Capital One for all other purchases. It gives me 1% cash rewards + an annual 25% bonus on the rewards… Effectively 1.25% cash back. There is no minimum for redemption, and they also have periodic bonus cash back categories/stores etc.

    All of my cash rewards I move into a separate savings account. I haven’t decided what to do with it, but when I do, it will be nice to know the credit card companies paid for it.

  2. Delta Skypeso is the worst program among the U.S. airlines. The others have much better redemption rate if you have their miles to burn.

  3. I also always do cash. When I traveled for work airline cards were worth the miles but like you mentioned you have to be a high volume traveler to get the value for these cards.

    In my credit lifetime I have experience with Capital One, Mastercard, Discover, and American Express. Discover and American Express have FAR superior customer service, never mess up my bill or rewards balance, and have never compromised my account number.

    Capital One absolutely struggled with multiple address changes until I finally had to cancel the card and Mastercard compromised my account number and had to re issue the card 3 times in 1.5 years.

    Therefore, I think the “perks” of good business outweigh slight increases I could find in cash back from a provider besides America Express and Discover. However, I maintain my mastercard because it is widely accepted whereas some retailers do not accept Discover or American Express.

    • I’ve not had any issues with Capital One, but if I had, I’d do the same and use another card even if it was slightly lower rewards

  4. I happily pay the $95 annual fee for the Delta Skymiles Amex. With it, I get the first checked bag free (normally ~$25) for myself and anyone on my itinerary; so the card pays for itself with one round trip flight for two(2 checked bags each way). I also get a “buy 1 fare get a companion fare for $99″ coupon every year. My wife and I make at least 2 cross-country trips/year so the card is worth it to us. If you don’t travel often than I can’t see how the card would be worth it. There’s no way the average person could rack up 40,000 miles(the average mileage cost of a domestic trip) by spending alone.

  5. We used to be all about the cash back (Amex Costco card which gave 3% on gas and groceries, 2% on food and 1% on everything else), but we recently switched to a miles card instead. With our Amex card we were receiving $300-400 back each year, but we realized that with the Virgin America card, we could be getting at least one domestic flight a year, which was up to a $600+ value on the flights we frequent. Plus, there’s no annual fee, and Visa is more commonly accepted than Amex.

    We’re probably an uncommon case, but the miles card just worked out to a better deal for us, even without first class/international tickets.

  6. We don’t get the miles cards for the spending miles–we get them for the sign up bonuses! We usually get one each per year, on the same airline. Then we charge all our extra purchases for that year on there, getting another 10-15k each. Putting major home repairs or buying cars on them (and then paying it off immediately of course) helps rack up miles. We have gotten to go to Hawaii, Mexico, and even Brazil once for free, as well as lots of regular trips back to the Midwest.

    Also, most airlines will give you a free flight at 25k. Its easy to get the flight you want if you plan way ahead.

  7. Miles no doubt. I just booked two first class tickets to London with a retail price of 18k (9k each) for 250,000 miles on American. 7 cents a mile.

  8. I think Chase has the best cash back system, like it says in the article, 1% cash back, + 5% back for certain categories which change each quarter. But my card also gives me an additional .1% and 10 points per purchase. So even on little purchases, I get at least 10 cents back. Plus, if you open an account and start using it they give you $100 back.

    There might be a better card out there(available to everyone), but I haven’t seen it yet.

  9. athensguy says:

    I primarily use Cash Back cards. My primary card is the former Schwab Invest First Visa which is 2% back for every purchase. Someone applying now should go for one of the Fidelity Amex cards.

    In other categories, the Penfed Gas Cash card is 5% on gas. The Amex Blue Cash Preferred is 6% back on groceries and 3% at department stores with a $75 annual fee. The Blue Cash mentioned above is deprecated.

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