Is a cash back credit card or travel rewards card better? A TravelSort reader commenting on Best Travel Rewards Credit Cards writes “…there are a few cards which I do not understand why you left off your everyday spending list: – PenFed Travel Rewards: 5% on all airfare spend – PenFed Cash Rewards Visa: 5% on all gas spend, 3% on all – Citi Forward: 5% on all dining spend For dining, you mention the the Sapphire Preferred's 2.14X. Even transferring the Sapphire's Ultimate Rewards to United miles with a value of two cents per mile, that's still only an effective 4.28% — less than the Forward. On airfare and gas, you mention the Amex Premier Rewards Gold's 3x and 2x respectively. Even accounting for the fact that you can transfer Membership Rewards to KrisFlyer miles, I don't see how you beat PenFed's 5% in these two categories, especially considering the Amex Gold's annual fee. Thoughts?”
This is a great question, and for me, it goes to the heart of the matter: what are your travel preferences, and just how much are they worth to you? Here then, are some reasons for and against travel rewards cards vs. cash back cards.
Top Reasons to Focus on Travel Rewards Cards and Throw Away Cash Back Credit Cards
1. Frequent Flyer Miles Make Possible Travel You'd Never Do in Coach
For my family and me, our strong travel preference is for first class and business class international flights that would otherwise cost anywhere from $5000-$25,000 per flight. And actually it's more than just a preference, because we simply wouldn't fly these long haul flights in economy class. My husband is 6'5 and can't even do transcon domestic flights without being in a lot of pain, let alone international flights. And while I don't have the height excuse, I'm at a stage in my life where I want to travel more comfortably, and not arrive at my destination in pain or sleep deprived.
2. You Value an Upgraded Travel Experience
Even if you can sleep anywhere and aren't unduly uncomfortable in an Economy seat, if you really enjoy and look forward to a first class award flight, that's a good reason to earn frequent flyer miles and points so that you can upgrade your travel experience. It's no different than enjoying a wonderful meal at a fine restaurant–sure, you could nourish your body much more simply, but a fine meal or a first class flight is about the totality of the experience, and not the utilitarian principle of feeding yourself or getting from point A to point B.
3. You Value Having More Options for Travel
While Capital One would love you to believe that they give you the most options by being able to redeem for any seat that is available for sale, I'll never have a Capital One card and won't recommend it to anyone who at least wants the option of redeeming for international premium class travel. For example, a First Class flight on Cathay Pacific from NYC to Hong Kong is 135,000 AA miles. That same flight can easily go for $25,000. Let's see, 135,000 AA miles vs. 2,500,000 Capital One points? I know which I prefer.
While the Capital One card isn't a straight cash back credit card, the same principle applies to the other cards mentioned. Let's say for the sake of argument you have $20,000 in airfare spend per year and with the PenFed card mentioned, manage to earn 1000 points. While they can apparently be used for 1.5 cents per point when redeeming for airfare, that still barely makes a dent in a $25,000 ticket. Not to mention I spend closer to $1500 on airfare per year, so it's a non-starter for my needs. Even more so for true cash back cards, which, if they give you 5% cash back (such as the Chase Freedom, if you use it for cash rather than points) sharply limit the number of 5X bonus points to–$1500 over 3 months. That's why it's so much more lucrative to turn those Freedom points into Ultimate Rewards points.
Another way to have more travel options is to be able to book awards at the last minute, when paid tickets are expensive. Even though there can be a lack of award availability close to a given date, there are times that there is still award availability but where last minute paid tickets are extremely expensive. Why wouldn't you want to have some frequent flyer miles and points on hand to give yourself options in case you need a last minute ticket somewhere, for family or emergency purposes?
4. Enjoy Elite Status Perks
Whether you want to have priority boarding, free checked bags, be Starwood Gold (available with the AMEX Platinum card) or Hilton HHonors Gold or Diamond status, these perks only come with travel rewards cards, not with cash back cards.
5. Get Free One Ways As Part of Award Tickets
As you know if you read this blog, you can build in a free or cheap one-way award flight across the country or to Hawaii using American or United miles. With a paid ticket, you would, of course, pay for that transcontinental or Hawaii flight, but if for example you’ve earned United miles with a credit card, you can use a United free one-way to maximize your award.
Top Reasons to Focus on Cash Back Cards and Ignore Travel Rewards Cards
1. All Your Travel is Domestic
Naturally, there's no one size fits all. My travel preferences may not be yours, and if all or virtually all your travel is U.S. domestic, then you may well be better off with a cash back credit card, particularly if your spend categories match some of the mentioned cash back cards.
2. All Your Travel is in Economy Class
Even if you do travel internationally, if all your travel is in Economy, you may find cash back cards to provide better value. The top value for travel rewards cards is in redeeming for international first class and business class. This is also why it rarely makes sense to redeem frequent flyer miles for economy class tickets on airlines that charge high fuel surcharges, such as British Airways.
3. Your Focus is on Saving Money, Not on Upgrading Your Travel Experience
As the counterpart to what I wrote above on travel rewards cards and upgrading your travel experience, if you're utterly indifferent to a more luxurious experience and are truly just as happy in coach, you're most likely better off with a cash back card and saving on your economy class flights.
The bottom line: While it's easy to get caught up in valuations of various frequent flyer currencies, the reality is that many of the folks, myself included, that earn and redeem millions of frequent flyer miles and points, either value their miles and points above 2 cents per mile or point or wouldn't do the trips they do at all, without those miles and points. And when you get into not doing a trip at all, that value is pretty substantial.
Related Posts
8 Reasons You Should Throw Away Your Cash Back Card if You Love to Travel
Beginner's Guide to Miles and Points
Trading Up and Trading Down to Afford Luxury Travel
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