MilesBuzz! - credit cards--cash rebate or miles?

I know this is a mileage forum, but let me ask this anyway: Is it better to get a cashrebate or frequent flyer points from your credit card purchases? At www.money99.com, (http://www.money99.com,) there is a link to a credit card that pays a 1.25% rebate from the first dollar, up to a max of $600 per year. I know many of the more experienced travelers value their miles at 2-3 cents per mile, but it is always such a pain for me to redeem my miles--so many strings attached and fine print.

I think I am switching to one of these cash rebate cards unless you can convince me not to.

p.s. I fly about 6 times a year, take a vacation in Europe once a year, and stay at hotels about 10 times a year.

A link to the oft-discussed Farm Bureau rebate card is below. This appears to be the best rebate card.

http://www.farmbureaubank.com/bankserv/creditcards.htm

I like MBNA's Amtrak (discussed in the Visa/Mastercard section due to the lack of an Amtrak section). You get a fair amount of flexibility in terms of redemptions.

I saw some discussion of this card, but can't find it now.

One problem I have with this one is they don't want to tell you what your rebate will be. To quote, "Your level of cash reward will depend on your usage and can reach up to 2% . . .this is a partial summary . . . full details will be included with your cardmember agreement."

That sort of makes it difficult to figure out which one is best. I mean, if you don't get to 2% until you've spent $30,000, then what is the point?

The way you should base it is to determine which one you'll get more benefit from. If you get, say, three percent back from dollar one, then you'll be better off taking the cash rebate. But if you only get two percent back and you have to run up $50K in charges first, then take the miles.

I'd go for the mileage cards...eventhough it's harder to get free travel...but it can still happen. And with many of these rebate cards..you won't get significant rebate unless you spend more than $30k.

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mailto:ahfang@earthlink.netahfang@earthlink.net</A>
AIM: Albertplano

Lemon Thrower,

No one can tell you how much you value miles, and no one should be trying to "convince" you. Honestly evaluate how much a FF mile is worth to you -- how much you'd be willing to pay for, say, a 40,000 mile domestic F award, or a 10,000 mile domestic upgrade -- and go from there. If you find award tickets a hassle to redeem, then maybe miles are worth less than $0.01 each to you, and you should use a cash rebate card; that's fine.

This board ain't called cashrebate.com!

Plus, if you're using an AA card, all of those miles go towards your 1 million mile threshold for Lifetime GLD (or 2MM/Lifetime PLAT).

- Sameer

I fly Delta because I live in Atlanta and fly only about every other month. So I can never reach elite/medallion level, and my understanding is that on Delta only "real" miles count towards your status.

One of the questions I have had luking is why some of you value your miles so highly. I guess if you have airline status and can upgrade for 10K its well worth it to do so (less than a $20 rebate), and to take advantage of similar perks. I think you have indirectly answered my question.

The best card depends on your needs & interests.

Picture 3 people who will spend $25,000 in credit-card expenses in the next 18 months. These are based on some real people I know:

Example 1: John lives near Chicago and does not travel on business. His last flight was 5 years ago on some airline he can't remember. He wants to visit his mother in Florida in a few years, perferably in January or February. His schedule is somewhat flexible.

John should get a no-annual fee rebate card that pays an average of 1% back. He'll get $250, which covers the cost of most domestic flights with adequate advance purchase. If he gets miles, he may not find availability for a flight to use the airline's miles when he wants to.

Example 2: Sally has Elite status on two airlines and three hotels. As a consultant, she travels too much. Somehow, Sally found the time to find the right man and will get married next year. She decided to use her miles & points to treat her hubby (the one that got her the huge ring) First Class tickets to Hong Kong, with a stopover in Singapore. She realizes that she needs miles on a specific airline and will be short ~20,000 miles for those tickets.

Sally should pay the annual fee for the airline Visa card.

Example 3: Bob has never taken a flight in his life. He thought about a vacation in NYC once, but his wife is too scared to get in a big plane. Bob is a construction manager who will be hosting a family reunion in his hometown off the interstate. He has a lot of property and a big house, but no way can everyone sleep there.

Bob might want to get a card with a hotel affinity, like the AMEX or Citibank Hilton HHonors Card or MBNA Marriott Card. No annual fee and free hotel points. Use the hotel points to put family up at the nearby Hilton Hampton Inn, Marriott Fairfield Inn or the like. If he has points left over, redeem them for merchandise @ skymall or with Milepoint.


All of the above is MHO.

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On the road, In the air,
I enjoy travel, From here to there.

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by LemonThrower:
One problem I have with this one is they don't want to tell you what your rebate will be. To quote, "Your level of cash reward will depend on your usage and can reach up to 2% . . .this is a partial summary . . . full details will be included with your cardmember agreement."
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I thought it was exceedingly simple. 2% rebate through "award points" that can be redeemed at any time (no need to wait until year-end). There is a limit of 60,000 points that can be earned in a given year. The explanation is here:

http://www.farmbureaubank.com/disclosures/rules_grids.PDF

The 2-cents per mile theoretical value is just that -- theoretical. Some award redemptions give you much LESS value than that, other give you much MORE.

Obvious example of former: cashing in 25,000 miles to fly from SFO to LAX. Flight value approx. $100; miles worth only 4/10 of a cent each. http://www.flyertalk.com/forum/frown.gif

Obvious example of latter: cashing in 100,000 miles to fly First Class from SFO to LHR or CDG. Flight value approx. $10,000; miles worth 10 cents each. http://www.flyertalk.com/forum/smile.gif

So, echoing other posters above, you have to ask yourself HOW you would use the miles. And consider the multitude of uses (for example, transferring miles into HHonors and redeeming for hotel awards instead of flights).

Kathy

OntheRoad, that was a very helpful explanation. A lot of the posts on this board assume you are elite, but don't say so.

HighGamma, what is confusing is that Farmbank does not tell you what the actual rate is. I have a discover card that pays 1%, but it is a lower rate on the first $10,000. ONly after $10,000 is the rebate a full 1%. Most, but not all, rebate cards pay tiered rebates like this. The Farmbank disclaimer suggests they pay a tiered rebate ("up to 2%") but they don't give you the details until you get their card.

LemonThrower/Highgamma

Clicking on the link provided by Highgamma you will find the following grid:

Spent Earned Percent
5000 25 0.5%
10000 75 0.8%
15000 150 1.0%
25000 375 1.5%
35000 700 2.0%

Clearly, the 2% is only if you spend a lot

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by VolleyballFerd:
LemonThrower/Highgamma

Clicking on the link provided by Highgamma you will find the following grid:

Spent Earned Percent
5000 25 0.5%
10000 75 0.8%
15000 150 1.0%
25000 375 1.5%
35000 700 2.0%

Clearly, the 2% is only if you spend a lot</font>

Ah, yes, but you have up to 3 years in which to charge all the way up to the $35k. That is slightly more than 11k a year, which most people can do. You cash out anytime after you get to 35,000 points, as long as it's before the 3 year deadline.

If you're a big spender, your rebate's capped at 60,000 ($1,075 rebate) per year.

p.s. they'll even give you 2500 points to start you off...

[This message has been edited by rox59 (edited 01-22-2002).]

How about the GM credit card?

You get 5% on everything you charge up to $10,000/year. I was able to get over $5400 off the price of a Chevy plus an additional $1000 only available to GM credit cardholders. I saved over $6400!!!

Admittedly, it was better when I first signed up for it about 9 years ago (5% rebate up to $20,000/year, balance transfered counted and they had partners (such as Mobil)) that gave another 5% on purchases. But it is still the highest cash rebate card there is. Regular is no fee and the gold has a $39 annual fee that is added to your rebate total or you can call and have it waived.

[This message has been edited by doctorphil (edited 01-22-2002).]

Another thing to consider, and maybe someone out there knows whether this is true or not:

it is possible (probable?) that money received as a rebate would be taxable, whereas so far the miles received are not.

If it is taxable, then you would have to figure that into the equation. If you want to further complicate it, if you receive cash, it could earn interest, whereas miles just sit around waiting for their airlines to go out of business.

It is not taxable since it is a rebate on what YOU spent!

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by LemonThrower:
HighGamma, what is confusing is that Farmbank does not tell you what the actual rate is.</font>

I'm actually supposed to be good at math! http://www.flyertalk.com/forum/redface.gif I stand corrected. This clearly is considerably more complicated than I thought. The ability to add over three years is nice though. (I invest enough in savings bonds each year to make the top level. I think that savings bond purchases are a great way to "top off" rebate cards.)

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by doctorphil:
It is not taxable since it is a rebate on what YOU spent!</font>

That may be true, but the rules on the website refer to "earning points" and redeeming those points for cash. I know that if you open an account at a bank and they give you $50 for opening it, they report this transaction to the IRS. The key question is whether anyone out there has this card, and has received Interest or Dividend forms from them at tax time.

I argue with myself and spouse about this a great deal. I argue with myself every time I choose a card to pay a bill. Let's see...Delta/Am Ex double miles on some things. The Delta 'base miles' thing. The AA lifetime status situation.

Then there's cash.

I assume that the Delta companion ticket is worthless (to me at least).

Then there's the cost of the cards.

My head is splitting.

Any day of the week, I'll give you a different opinion.

Another card to consider is the Stockback card ( see http://www.stockback.com ) which gives you shares in a mutual fund instead of cash at a rate of 1%. I actually use the Stockback website because they give me $2 for every ticket I buy online from USAirways.

I go for points actually, not miles. Diners Club and AMEX allow me to keep a pool of points that I can use to top off any account when needed. If I have 99,000 miles in an account and need to redeem a 100,000 mile award, those last 1,000 miles have a very high marginal value, typical much more than 2 cents per mile. Being able to grab those miles from DC or AMEX is very valuable. AMEX has also been running a ton of double point promotions lately, right now at grocery stores and gas stations, throw that on top of redemption bonuses that have been more common lately and I've been earning up to 2.5 miles/dollar. Diners Club also has the double miles promo with BA every year ...

Gamma--I was having problems becuase I could not find that info on FarmBank's site. All I could find was their vague statement that the rate was "up to 2%" and they would only tell you the exact rate once you were appproved. Thanks for finding and posting that info.. I agree, its pretty simple once you have that info.

DoctorPhil, that sounds like a good deal you got on your car. There are two slight drawbacks with teh GM card, but it sounds like they were not a problem for you. First, there is a cap on how much you can accumulate in a single year--for example, if you spend $25K on your card, I don't think you get $125K or even $25K of GM credits. Second, regardless of how many GM credits you have, there is a cap on the amount you can use for any single car. In my experience, its usually just 2 or 3 thousand. You probably bought either a very expensive or very unpopular car. I would not get a GM card until I knew exactly the limits that would apply to the type of car I wanted to buy.

I have a Discover card and do not recall getting an IRS 1099 form from them.

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by 0524:
This board ain't called cashrebate.com!</font>

Is Wyckoff, NJ close to Blue Ball, PA by chance! http://www.flyertalk.com/forum/smile.gif

Does anyone know about tax liability on earned cash rebates from credit cards? If you were taxed on them, then the miles look even better.

I'm no lawyer or accountant, but my understanding is that cash rebates from credit cards -- just like cash rebates from purcahses a product -- is not treated as income. The IRS considers the rebate part of the cost of the good, just as it (typically) does with FF miles.

LemonThrower,

I've typically used my frequent flier miles on American for 1st Class travel as a way of spicing up my vacations. Has always worked out well. Just finished trying to do the same with Continental. No go. Essentially getting coach tickets that equal 1 cent a mile (and I don't even get miles for the trip).

I can take American most places that I like to go. However, Continental and America West have me good when I want to travel to Phoenix. Might get that Farm Bureau card after all. Easy enough to fill it up from my annual savings bond purchases.

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by ontheroad:
I'm no lawyer or accountant, but my understanding is that cash rebates from credit cards -- just like cash rebates from purcahses a product -- is not treated as income. The IRS considers the rebate part of the cost of the good, just as it (typically) does with FF miles. </font>

Exactly. Rebates are not taxable...they are looked upon as discounts if you will.

oldpeny16 I hear you...we have a rebate card from Fleet...and my wife and I argue over wheather to use this or just use the Starwood Amex...right now we are concentrating on the AMEX.

Choosing miles or rebate depends on the value of the miles you receive. That value depends on how you will use the miles. I have a discussion on how to value your miles on my site below. Click on Free Frequent Flyer Miles in the left menu, then on Value of Miles in the top menu.

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The Personal Travel Experience of Gary Steiger - including how to get free frequent flyer miles on the web.
http://home.earthlink.net/~pgary/TravelFrame.html

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by rox59:


p.s. they'll even give you 2500 points to start you off...

[This message has been edited by rox59 (edited 01-22-2002).]</font>

In regards to the Farm Bureau Visa card that gives a 2% cash rebate, does anyone know if they still are giving the 2500 points sign-up bonus, and if so where can I find it in writing? Thanks!

I have spent many years researching this question.

As has been said, the value of a mileage-earning card depends entirely on how you are going to spend the miles. Hunnybear and I use ours for a combination of first-class international travel, which can be worth over 10 cents/mile compared to the cost of a ticket, and free trips for relatives, which are valued at more like 1 cent.

I use the Starwood American Express card primarily, and just acquired the Fleet Platinum Cash Rebate card for places that don't take American Express and for foreign purchases (1% exchange commission).

Valuing miles at 10 cents each (i.e. 100K miles for FC award from SFO-LHR when the normal ticket price is $10,000) is only valid if you would be willing to spend the $$ in the first place. Some of you might be willing to part with $10,000 for that ticket, but I bet most of us would not. If you would only be willing to spend say $2000 for that same ticket, then the miles are only worth 2 cents each.

Back to the larger question.....I too have considered this issue many times and have concluded that the miles are worth more to me than the rebates. In general, I value miles at about 1.4 cents each, but I can cite a number of instances where I redeemed them for tickets worth more; most rebates are only 1%. A 2% rebate card is worth looking into.

I have a 1% card but am looking for a better deal. I'm also topping off some other accounts with points.

After a few months on this forum I concluded that I am unlike most here since I have status only at Hilton and at no airlines. As a result, I can't use the points for upgrades into first class.

Sure, I can sometimes use the miles for air tickets at better than $.01 a mile, but when you consider the flexibility and uncertainty required it usually works out that I can get a better deal paying cash. I think you have to compare your award ticket to the price you would have gotten on a discounted ticket in order for this to be a fair comparison.

Cash rebate not a not taxable event?
Hm, maybe I should sign-up for these cards issued from banks on Cayman Island or the Bahamas.

Anyway, I pass on most cash rebate card offers because they typically set higher APR than the regular mileage earning cards.



[This message has been edited by SJC_Traveler (edited 04-17-2002).]

The key question with all of these cards is how quickly you achieve awards and how quickly you redeem them. For example: if you spend $5K a month on your credit card, that Farm Bank card is probably great for you because you would consistently be taking rewards, injecting them into your favorite investment vehicle, and watching them grow.

If you fly a single airline a lot, but spend little on credit cards, take the mileage card with a big upfront bonus. A year from now, re-analyze and see if the annual fee is worth staying in that card. If not, you are back to re-evaluating the market. Maybe another airline card with upfront miles? Maybe a hotel card with upfront points and lower fees? Maybe a rebate card...

Ideally, I'd like to have more cash back and placed into a mix of investments. Problem is that most cash-rebate cards are full of hidden clauses that either delay the rebate point, charge fees, or otherwise clutter the process. Therefore, I've cycled through some airline cards over the past couple of years. I have two more to go (airlines on which I actually hoard *some* miles). Once I'm blacklisted from upfront mileage bonuses, I will reevaluate the market. Hard to tell what my spending will be like then...

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by yanxfann:
In regards to the Farm Bureau Visa card that gives a 2% cash rebate, does anyone know if they still are giving the 2500 points sign-up bonus, and if so where can I find it in writing? Thanks!

</font>

yanxfann,
I have an application that states the 2,500 bonus but I wanted to keep the app. Call the toll free # 1-800-492-3276. Hopefully, the offer will still be on them (this one says in the fine print, "accurate as of 7/31/01") and then they could send you one for your assurance.

rox59: Thanks for getting back to me. What initiated all of this was that I applied using Farm Bureau's online application about 2 months ago, received the card and just got my first bill with about $2K worth of charges on it and at the bottom of the statement it said something to the effect that I had accumulated 2000 points (or whatever they call them) - I had expected it to be 2000 PLUS another 2500 for the sign up bonus. I guess that I missed out on the 2500 point bonus (perhaps it has expired) as I don't see it mentioned anywhere - too bad since that would have been an easy $50. Thanks anyway!