Cash Back vs Miles: Which Type of Credit Card Is Best For Consumers?

Cash Back vs Miles: Which Type of Credit Card Is Best For Consumers?

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For most consumers cash back credit cards will provide more value than a standard airline miles credit card. However, the issue is very nuanced, and the same won't apply to every person reading this. To have a good understanding of the relative value of cash back and airline credit cards you need to consider two elements — raw value and usability/flexibility. Airline credit cards, on average, provide much better short-term value, while cash back cards are better long-term. Airline cards are also less flexible, though they can be optimized while cash back rewards, for the most part, can't be.

Cash Back vs Airline Credit Cards: Which One Is More Valuable?

For the average consumer, we calculate that airline credit cards can return a net value of $678 over the first two years of cardmembership. Cash back credit cards provide just a $559 return in a similar time frame. We based these findings on the average consumer expenditure data released by the Bureau of Labor Statistics, so values will change depending on a consumer's spending habits. That includes spending $330 per month on groceries, $200 on gas, $230 on dining, and $670 on all other random categories. We applied these figures to a sampling of 30 cash back, and 30 airline credit cards from our internal database.

When you look at the long-term value potential of credit cards, however, you'll discover that cash back credit cards tend to provide better net rewards.

Long-Term Net Value of Cashback and Airline Cards
Long-Term Net Value of Cashback and Airline Cards

The discrepancy between long-term and short-term value of the two card types has to do with their bonuses. Airline credit cards often appear to be much more valuable because they come loaded with tremendous welcome offers. It's not uncommon for an airline card to provide 40,000 miles or more, that have a value of over $400. At the same time, cash back cards rarely come with bonus offers greater than $100 - $150. While it may seem airline cards are more valuable, once the first year is up the annual fees on the cards tend to play a big role in their net value. This eats away into the returns you get with airline cards, and allows cash back offers to provide greater net value long-term.

Flexibility & Liquidity

Another point in favor of cash back over airline miles has to do with how flexible these types of rewards tend to be. When assessing the value of credit card rewards you should take liquidity into account. This term refers to how easily an asset, or something you own, can be converted to cash or something that is cash equivalent. Liquidity is important because it's how you, as a consumer, extract value out of whatever you own. With cash back credit cards this is almost a non-issue, since most cash back credit cards can essentially get you cash, making them very liquid. In some cases, you can even have a check mailed to you or money deposited into a checking or savings account.

Airline miles can often be difficult to actually use. First, you will only ever get real value out of them when you trade them in for an airline ticket. If, for whatever reason, you decide you don't want to travel, you will be sitting on a pile of useless points. This is also an issue when you have leftover points that aren't quite enough to pay for a flight. For example, say you have 70,000 miles and you decide to purchase a ticket that costs 50,000 miles. At the end, you will be left with 20,000 miles that have no value until you accumulate enough of them to buy another ticket. This can take years for some people. In most cases, partial redemptions are not possible. The airlines that do allow for it will typically reduce the value of your miles for a cash + miles redemption.

Cash back credit cards have a similar problem, though it's far less severe. Some cards will have a minimum threshold for redemption — typically set at $25. That means if you have $20 worth of cash back accumulated, you can't withdraw it until you hit that $25 mark. The upside to cash back credit cards is that these thresholds tend to be low. With airline miles, they are much higher. You often need to spend thousands or tens of thousands of dollars before you get enough usable miles.

Finally, one should also consider the fact that award seats are not always available on all flights. Depending on the airline credit card you have, the points you're accumulating can end up not serving you on the exact itinerary you want to book.

Airline Miles Can Be Optimized, While Cash Back Rewards Can't

Unlike cash back rewards, airline miles have the advantage of being optimizable. If a person with airline miles chooses to do so, they can stretch out the value of a single mile, beyond the estimates we based our above analysis on. So-called optimizers will plan itineraries that give them the best returns for the miles they have. For example, if you spend time looking at flights on different days and times, you can book an award ticket with United so that you get $0.02 for each mile. The average value of a United mile, however, typically hovers around $0.012.


Average Value
Alaska Mileage Plan$0.019
American AAdvantage$0.013 - $0.015
Avianca Lifemiles$0.014
British Airways Executive Club$0.015
Cathay Pacific Asia Miles$0.01
Delta SkyMiles$0.006 - $0.05
Etihad Guest$0.013
JetBlue TrueBlue$0.016
Korean Air SkyPass$0.01
Singapore Airlines KrisFlyer$0.015
Southwest Rapid Rewards$0.017
United MileagePlus$0.012 - $0.015
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With the best cashback cards available, you can earn from 1.5 to 2 cents per $1 spent. This is competitive with the value you can get from optimizing your miles on a travel card. However, you'll always get a fixed cashback rate, and won't be able to get the additional value you can sometimes get when redeeming miles. Some cashback cards offer up to 5% in rotating categories, but usually cap your earnings at the 5% rate to a certain amount each quarter.

While having a flexible value may at first seem like an advantage for airline miles, this can be a double-edged sword. Anyone who isn't paying attention to how they use their miles can just as easily end up using them in a sub-optimal way. If you want to know how this will apply to your particular situation, you should consider how patient you are when dealing with reward redemptions. If you are a meticulous planner, airline miles can buck the average value trends we described above, and provide you way more value than cash back cards. However, if you are a casual user who doesn't like to spend time planning their trips and redemptions, cash back cards will likely provide the better value in the end.

Joe Resendiz

Joe Resendiz is a former investment banking analyst for Goldman Sachs, where he covered public sector and infrastructure financing. During his time on Wall Street, Joe worked closely with the debt capital markets team, which allowed him to gain unique insights into the credit market. Joe is currently a research analyst who covers credit cards and the payments industry. He earned a bachelor’s degree from the University of Texas at Austin, where he majored in finance.

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How We Calculate Rewards: ValuePenguin calculates the value of rewards by estimating the dollar value of any points, miles or bonuses earned using the card less any associated annual fees. These estimates here are ValuePenguin's alone, not those of the card issuer, and have not been reviewed, approved or otherwise endorsed by the credit card issuer.

Example of how we calculate the rewards rates: When redeemed for travel through Ultimate Rewards, Chase Sapphire Preferred points are worth $0.0125 each. The card awards 2 points on travel and dining and 1 point on everything else. Therefore, we say the card has a 2.5% rewards rate on dining and travel (2 x $0.0125) and a 1.25% rewards rate on everything else (1 x $0.0125).