Cash Back vs. Airline Miles: An Overview

In choosing between cash back and airline miles rewards, the main question is, which type of rewards card makes the most sense for you? It makes sense to pick the card and rewards program that fits your goals and lifestyle.

Before choosing a card, it's important to consider if you spend enough to make it worth it since many rewards cards have annual fees. If not, there are still many credit cards that offer valuable rewards yet don't charge an annual fee.

Then, read the fine print. Are there any blackout dates that would limit your ability to use your travel rewards? Do your rewards expire? Are there ways for you to earn more, such as making online purchases through your credit card rewards website? Paying attention to these details can help you optimize your rewards so that you can get the most out of the benefits your credit card offers.

Key Takeaways

  • In choosing between cash back and airline miles, think about what you want to achieve with your card spending—cash in hand or earning enough miles to redeem for travel.
  • Before choosing a card, it's important to consider if you will earn enough in terms of cash back, points or miles to justify any annual fees.
  • For cards with annual fees, look beyond any one-time bonus or first year annual fee waiver and calculate how much rewards value you will likely derive year after year with your typical spending patterns.

Cash Back

Cash back credit cards have the advantage of flexibility. You can choose to spend that cash on travel, use it for other purchases you'd like to make, or simply put it into savings. However, if you carry a balance on your credit card month to month, even the most generous rewards program will be greatly offset, if not completely nullified, by the amount you are paying in interest.

Most cash back cards don't charge an annual fee, which saves the effort to determine whether a certain rewards value must be earned over the course of the year to justify the cost. That makes cash back cards a natural fit for people who don't spend a significant amount on credit cards. Cash back rewards can reach up to 6% of a transaction, though such rich bonus rewards are limited to categories of spending (like groceries) and are typically capped on a quarterly or yearly basis. Others pay a fixed cash back percentage, like 1.5%, on all purchases. Cash back rewards are typically redeemed as a statement credit, which can offset a a portion of costs incurred through monthly purchases. Consumers may also receive the cash reward directly by deposit to a linked checking account or through the mail by check. Cash back rewards typically have fewer redemption options compared to points and miles-based rewards but tend to be more straightforward in their value.

Typically, the cardholder must reach a certain transaction level to qualify for cash or other benefits, usually around $25, but it varies from card to card. Some credit cards offer varying levels of cash back, depending on the spending category of purchase or transaction level. Ultimately, not all cash back cards are created equal, so be sure to do your research to ensure you're receiving the best card possible.

Airline Miles

There are two main types of travel cards that deliver rewards in miles or points: airline-specific co-brand cards issued in partnerships between airlines and banks, and more general travel cards that earn rewards that can redeemed for travel on any air carrier. Travel rewards credit cards are more likely to charge annual fees.

Co-brand airline miles are more limited, but they can be a good choice if your lifestyle involves travel—or you hope it will in the future (maybe you need a little motivation to start planning that trip to Spain). Usually, airline miles earn at about the same rate as cash back rewards (though airline cards often offer bonus miles for airline purchases and other categories like hotel, dining or gasoline) and there may be a one-time bonus incentive offered in exchange for a certain amount of spending during the first several months the account is open.

The one-time bonuses can sometimes be the most lucrative rewards you will get out of your credit card, so it makes sense to satisfy the initial spending requirements involved. Some miles cards (both general travel and co-branded airline cards) also let you use earned rewards for other travel redemptions besides airline tickets, such as hotel rooms or rental cars.

Airline-specific cards will often limit your ability to shop for the lowest cost ticket because you are only earning and redeeming rewards with a single carrier, but the rewards can sometimes be redeemed at more favorable rates during off-peak travel times. However, if you are trying to travel during peak travel seasons or the holidays, expect lower reward returns and beware of blackout dates. Premium airline-specific cards might throw in added perks, such as seat upgrades, waived baggage fees, priority boarding, or access to airport lounges.

General travel cards have the benefit of flexibility as they allow redemption across many airlines and hotels but will generally yield similar rewards rates as a cash back credit card. Don’t expect to get upgrades or special treatment with a general travel credit card; this type of card is the equivalent of a cash rewards card in its rewards and perks, except that the rewards must generally be redeemed for travel through the card issuers reward program portal and not through any airline's frequent flyer program.

If you don't think you'll redeem earned travel rewards for airline tickets or hotel stays frequently enough to justify any annual fees involved, opt for the flexibility of a cash back card; you may earn a little less in terms of total value, but you will probably be able to enjoy full use of the rewards.

Special Considerations

Before signing up for a card with an annual fee, consider the value of the first-year bonus along with its spending requirement and rewards earning rate to determine how much you will need to spend each year for the rewards value to at least equal the cost of the annual fee. Figuring this out may be a little tricky because sometimes you have to convert miles into dollars, but it can be done. For example:

  • Miles values can vary but are generally worth 1 cent per mile. If the bonus is 50,000 miles and each mile is generally worth $.01 so the bonus value would equal $500. You have to spend $3,000 within the first three months to get this one-time bonus. That's a 16.7% return on required spending.
  • If a card offers 2x miles for every purchase. For every $1 that you spend, you earn $.02 in rewards value. (This is the same as earning 2% back.)
  • The annual fee is $95. If earning $.02 for every purchase dollar, you would have to spend a minimum of $4,750 on your card each year (which is under $400 per month) to justify the annual fee. The one-time bonus would equal over 5 years of the annual fee, though, so this illustrates that travel rewards credit cards with annual fees can be a good deal if you redeem the rewards for their maximum travel redemption value.

A desirable travel card also has no foreign transaction fees, the miles don't expire, and there are no blackout dates for redeeming travel points, which can be spent on any airline and hotel. Most general travel cards provide these attributes. Co-branded airline cards often don't, however, but do provide other valuable benefits like airline frequent flyer status, priority boarding, free checked bags and other perks.