Why A Cash-Back Card Is Better Than An Airline Miles Card

For frequent travelers, it’s the Holy Grail: a free flight, a free upgrade, the ability to say, “Oh, this? I got it with my airline miles.”

But when push comes to shove, are credit cards that give you airline miles really worth it?

Let’s go point by point.

Value For Your Money
Running the math requires making a few assumptions, but here’s a rough sketch.

Option A: Let’s say your travel card gives you a mile per dollar you spend. Let’s also say that it takes 25,000 miles to get a free round-trip domestic U.S. flight, which is the going rate at airlines like American and United. Obviously, the dollar value of a domestic flight will vary, but for argument’s sake, let’s call it roughly $500.

To earn the 25,000 miles you need, you’d have to spend $25,000. If that flight is normally worth $500, you’re getting back 2 cents on every dollar you spend.

Option B: Let’s say your cash-back card gives you 5% back on certain categories of spending, and 1% back on everything else, pretty standard for its card type. For the sake of our math, let’s say, on the whole, that averages out to roughly 3% back per month.

Instead of using miles, you want to earn $500 to buy your ticket the old-fashioned way. At an average of 3% back, you’d have to spend just under $16,700. That comes out to about 3 cents per dollar.

The outcome? If these numbers hold true, you’re getting better value with a cash-back card.

Of course, not all cards are created equal. If you found a travel card offering 2 or more miles per dollar, then that card would beat most cash-back cards. Try it out with your own numbers with these basic equations:

% money back = cost of your flight / amount you need to spend to earn that flight

From there, you can compare your percent back with a travel card to your percent back with a cash-back card.

Annual Fees
Most airline mile cards waive the annual fee the first year, but then have fees ranging from about $59 (for the Capital One Venture Card) to as much as $175 (for the AmEx Premier Rewards Gold Card).

Meanwhile, with a few exceptions, most of the top cash-back cards don’t have annual fees, ever.

This one’s obvious. If you travel a ton then, yes, you’ll probably want to use your reward to fund your next trip. But it doesn’t hurt for there to be no rules on how you can use your reward cash, and cash-back cards are literally that: your credit card company sends you a check in the mail and you can do with it whatever you please.

Sign-Up Rewards
A lot of travel cards offer initial sign-up bonuses, like 20,000-30,000 bonus points. Cash-back cards don’t do that. This is a huge, obvious perk of travel cards.

(My) Moral Of The Story
In my experience, the best way to maximize all these different factors is to sign up for a miles card, use it just enough to get the introductory offer, and then close the account before the end of the year to avoid paying an annual fee. Once you’ve earned the introductory miles, switch to a cash-back card, which is often better day-to-day money value and has better flexibility. (A quick caveat: for the sake of your credit score, try not to close more than one card in a year.)

Final verdict? A miles card sometimes, a cash-back card always.

[Image credit: Flickr user The Consumerist]