Miles/Points vs. Cash Back
 

Other than the bonuses that you get for the airline cards, the best longterm plan seems to be:

Fidelity 2% Cash Back Amex and the Capital One Venture 2 points per Dollar card.

Why would it be better to earn 1 mile per dollar on individual airline cards?

It depends on how you value the individual airlines' miles. Personally, I'd prefer 2 cents to 1 mile on any given airline, so I use my schwab visa for everyday purchases when I'm not hitting a spend requirement on a bonus offer.

I agree with the previous post. If you do a lot of first class or business class international flights, then the miles have tremendous value to you, since these are very expensive tickets when purchased outright.

However, right now I'm finding there's a ton of miles to gain through sign-up bonuses, so I'm not particularly looking to add to those balances through regular spend. I'm satisfied that I've got a decent supply of miles for the next couple of trips, I'm looking for currency that I can use immediately instead.

"Cash is King". You can use cash right away to purchase any item that you want whether it's travel related or not. Miles have a much more restrictive use, and you run the chance of miles being devalued or being unable to use the miles due to a lack of award availability. My personal preference is to only sign-up and use mileage related cards when there's a good size bonus.

Plus no annual fee for the Fidelity 2% Amex, so there's no risk in keeping it idle while you meet the minimum spend on another new credit card.

Well, the sign-up bonuses
are where all the action is,
not the spend or cash rebate.

SPG spoints worth more than 2 cents per dollar spent
 

20,000 points convert to 25,000 miles in most programs that I use. As far as international flight awards are concerned, these can be worth close to 4 to 5 cents per SPG point. In my mind, you can't have too many points lying around for international premium travel. I have a 2% cash back on everything card (formerly by Schwab). I only use it at places that don't accept Amex. Otherwise, everything goes on SPG.

Fidelity cards' World Points are also redeemable for Aeroplan miles
 

Fidelity AmEx and Visa WorldPoints have other redemption options besides 1 point = US$.01, such as 1 point = 1 Aeroplan mile (Star Alliance, allows two stop-overs for intercontinental flights). There is also an option for redeeming for flights directly from World Points, which can occasionally be a better deal.

This shows where everyone is different and there is no right answer to questions like this. My instinct is to avoid having a bunch of miles or points "lying around" and subject to depreciation.

I also use the Fidelity 2% cash-back card regularly unless I'm chasing a bonus.

On average I value an airline mile at $0.0225, but the valuation depends on how the miles are redeemed and some options (that I would consider) are as low as $0.0175. Nonetheless, I prefer miles over cash or near-cash (e.g. Capital One Venture) because:

1. Comparing a cash back credit card to a mileage card isn't merely a matter of calculating the value of "a" mile, you need to look at the full package. Cash back cards seldom offer promotions, but mileage cards often have bonus offers for spending in targeted categories, for achieving annual thresholds, or for transfers to specific partners.

2. The premium class ticket that you buy with cash is very likely to require an advance purchase, be non-refundable, stipulate a large fee for changes, and cover only point-to-point travel. By comparison, mileage tickets often (not always) offer much more liberal terms and only trivial penalties for cancellation.

do both
 

When you use an SPG amex instead of a 2% cash back, you are buying miles for 1.6 c each after the 25% bonus on transfers.

At times you should not use a cash back card.
If you get a 2% cash back for business spend, that is taxable income = 1% left
In that case a rewards card in miles is not taxable and better = buying for 1 cpm

At times you should not use a miles card.
e.g., I get 5% cash back with Amex blue cash (old type card) for gas and groceries
I would never get miles instead of 5% cash = 5 cpm.

Reading the Value of Miles section of my website below should help.

True today, but at some point American Express and Chase will back away from the market share battle to evaluate what they have accomplished, and focus on encouraging customers to use and keep the cards. I think it's prudent to give some thought to which cards you want to be using for the medium term.

I have done a lot of analysis on my website regarding Fidelity 2% vs. a miles card. Even with the annual fee on a miles card, you don't need to value a mile as high as 2 cents to beat Fidelity.

For example, with SPG if your annual spending is $30K, you need to value a mile better than 1.78 cent to beat Fidelity. With Amex PR Gold, if your annual spending is $30K with 3K on airfare and 5.5K on gas/groceries, you only need to value a mile at 1.5 cent to net $75 in your pocket compared to Fidelity.

Of course, you can always say you have multiple cards for different categories. But most of us already have too many cards in our wallet, one for general spending, one for top bonus categories, one for places that don't take amex, one for lounge access, one for foreign transactions, and so on. So my argument is that cards such as PR Gold (covering airfare, gas, groceries), Sapphire Preferred (covering airfare, hotels, dining, etc.), Travelocity Amex (covering airfare, gas/groceries/dining) are very valuable. Then if you value 1 mile at 2 cents, then it is almost no-brainer to go with a miles card with an annual fee.

I am not saying Fidelity Amex is a bad card - actually I rate it highly. I am just suggesting other cards may be better if you value a mile high enough. I also understand that Fidelity Amex's WorldPoints can be transferred into AC miles - that is great value even considering the recent devaluation of AC; however, programs like SPG, MR and UR (by Chase) provide great value and flexibility at the same time.

If you value miles on an economic basis - as a discount against trips you would take anyway - a 2% cashback card is frequently the best option.*

If you value miles aspirationally - to be able to purchase travel you could not normally afford/justify - branded miles/points cards are frequently better.

In either situation, most travel related spend (airlines, hotels, car rentals...) will be more profitable on the associated branded credit card.

As someone who values miles on an economic basis, roughly 90% of my (non-travel) spend goes on 2-5% cash back cards.

Anyone who claims to be able to answer this question for you, without customizing the answer to your specific style and goals, is probably giving you bad advice.

* The Virgin America card can pay about 2.15% on everyday spending. I'd argue that the risk of accumulating points on a relatively new, unprofitable airline would negate that extra payback.

Likewise ThankYou Rewards now returns at least 2.66% if the card has the Flight Points feature and if the points are redeemed for air travel. Problem is that Citi has tinkered with this program so frequently that I find it difficult to convince myself to accumulate a substantial TYP balance.

In my mind it is always nice to have miles and points for when I travel.

There are occasions where I need a last minute flight and all they have is first class (due to a delay or mechanical issues).

Using hotel points during peak travel seasons is another reason.

It also depends on how much spending you do.

But the main reason is for emergencies, some examples which I said above.

However if you are able to plan everything far in advance then 2% cash is great since you should also have plenty of time to find deals.

I think you mean you would never get miles at 1 mile/$ instead of 5% cash. That I understand.

But up through this month, I was able to get 4+ UA miles per dollar spent, instead of 5% cash back, on the Chase Rewards Plus card. (Though it's going "poof" at the end of this month.) I value 4+ miles way higher (the way I use them, mostly for "unaffordable in cash" overseas front-cabin flights) than 5 cpm.

And there is at least one card out there (Hilton HHonors Surpass) that gets 6 HHonors points per dollar at gas/grocery/drug, and that might be competitve with 5% as well.

(But this Amex Blue Cash card with 5% cashback on gas/groceries is no longer available to those who don't already have it, right? The current no-fee Amex Blue Cash seems to only give 3% back on groceries and 2% back on gas, and so for me even the no-fee Hilton HHonors AMEX that gives 3 HHonors points on both groceries and gas seems reasonably competitive with that.)

The Pen Fed card with No annual fee and 5% cash back on Gasoline to me is a no brainer. Between the wife and I we spend $800+/mo on Gas that $40 credit right to my account is great!
I have other cards that I sign up for bonuses and churn for other expenses

"As far as international flight awards are concerned, these can be worth close to 4 to 5 cents per SPG point."

I agree, but normally only when redeemed for a premium airline award. I also use SPG points occasionally for Starwood stays, but only when room prices are very high compared to SPG points.

"I have a 2% cash back on everything card (formerly by Schwab). I only use it at places that don't accept Amex. Otherwise, everything goes on SPG."

I agree again, but I use ex-Schwab for all expenses outside of the US due to SPG's surcharge. Lately there are other choices such as certain Chase cards (Priority Club, British Airways, etc) or AMEX Platinum. I normally avoid CapitalOne due to its poor customer service, the restrictive nature of its definition of 'travel expenses' for redemption purposes, and the fact that it often refuses charges outside of the US for reasons of suspected fraud (even if advised of foreign travel).

The new Blue Cash everyday is not very attractive due to its 3% return on groceries; however, Blue Cash Preferred with a $75 AF may make sense to some since its 6% on groceries (only 3% on gas/department stores). Of course, with the $75 AF factored in, you never get 6%.

Amex PR Gold's 2x gas and groceries does not look a lot at the first glance; however, if you value 1 point at 2 cents, then it is 4% = that is why PR Gold could be very valuable. Of course the AF is $175, but you also get 15K bonus after $30K spending - that more than negates the AF. My point is that it all depends on how you value miles and if you value them high enough, then you may want to use those miles cards in lieu of any cash back cards.

That's how I feel, too. That's why I've shifted all spending away from my Citi card and spent almost all the points. Too bad for the unmatched flight points that are going to wilt away.

But for the OP, I value miles more than 2% cash back because I do redeem them for front-cabin flying. I see miles as an opportunity to fly up front because I'm now spoiled that way. If I wanted to maximize the number of miles I fly per mile accumulated, I probably would sit in back, at which point, 2% may be a better deal.

I generally think that 2% cards are the way to go. Using airline or hotel cards only makes sense to me if you get EXTRA PERKS OUT OF THE CARD (a few listed below). Also, if I book a ticket from NYC - HKG with miles, I won't accumulate the 16K miles (and Elite bonus/status additions) I would if I paid cash (or even used Citi ThankYou points or some other points). Therefore, I personally use my miles to book trips for other people.

Some extra perks that may make miles card worth it:

Platinum Delta American Express (10k MQM elite miles if you spend 25k/year + $25 lounge access, free checked bag, + more)

United-Continental Visa Credit Card (2 lounge passes, priority boarding, free checked bag)

American Airlines Visa/Mastercard (discounted rewards promos on US redemptions)

While I like the SPG card for its flexibility, it only offers a quicker way to hotel status (which is not very important to me). Another thing about SPG is that people normally look at the going rate of rooms and extract a 2 cent - 4 cent value from there. However, you can normally book rooms MUCH MUCH CHEAPER using Priceline. This fact goes unnoticed by many. If you don't stay at one hotel chain or value getting hotel elite status (which is nowhere near as good as Airline elite status) the SPG card is simply not as valuable as some think. Now for international redemptions, you can probably extract a bit more value out of the card.

I thought cash back were considered rebates and therefore not taxable. :confused:

Agreed, but a cash rebate could be recorded as reducing the amount of deductible business expenses, effectively increasing the taxable profit of the business. However, in a closely held business there are ample opportunities to reduce taxable profit, and taxes needn't be a decisive factor in choosing a rewards program.

I understand what you are getting at, but as far as I know there is no current requirement to record the transaction net of the rebate - so no tax effect.

There is if you follow accepted accounting practices. You cannot balance if the company claims $100 expenses but disperses only $98. The rebate may not need to be attached to a specific purchase, but it will show up somewhere in the company's books.

The reasoning is different if you are thinking about expense reimbursements made by an employer to an employee using her own card, but if the company pays the credit card bill directly there is no acceptable way to ignore statement credits.

Can't find any quick reference to this but if you search the IRS rulings, you will find that the IRS logic is that the rebate is non-taxable unless it offsets something that is deductible against taxes.

So, for example, these scenarios would require special handling; if the rebate is...

• Against a deductible business expense, then the rebate is subtracted from the deduction claimed
• Against a business capital expense, then it is subtracted from the basis of the item
• Against anything else deductible, such as a charitable contribution, then it is subtracted form the deduction claimed

It would be hard for them to know if you are handling this correctly or not but it would certainly be fair game in an audit...

gotcha. I may have blurred the line a bit but I was responding to the point raised that rebates are taxable income to the individual.

Note that you get $100 cash back when you get the Blue Cash Preferred, so first year is negative $25 fee. If you have a family's worth of grocery spend, it is a no brainier for your groceries. At 3% for gas, I use it, but consider starwood points to be of similar worth.

Note also that many flyertalk members and readers of my blog have been successful at upping the PR Gold's bonus from 15k to 75k after spending only $1,000. Reply or PM me if you need more details.

-------------
Dave

This describes my view to a T.

As to the computations of value for stockpiled miles, I would add that my discount factor for the unknown future gets bigger with each month we see more whopping sign-up bonuses. At some point, the airlines will impose rules that carve out rewards for people who are then currently spending money, and getting awards for others will be much harder or expensive or both.

Very well put, and exactly correct in my view. As I'm more aspirational than economic, my preference is for the SPG card, but due to the foreign exchange surcharge I use ex-Schwab for all expenses in currencies other than USD. In my case that comes to well over 50%.

Agreed, I value miles/points only to the extent that it would cover tickets I would have purchased with my own cash, therefore, no more than a .01 - 1.50 cpm.

Agreed, and on this basis I calculate the minimum value $0.0175 and typical value $0.0225.However, most of our spending goes on cards which deliver 1.25 miles per dollar or more, which means that even $0.0175 per mile is 2.1875% return.

Me too--but horrible news in that our Schwab/FIA card will be discontinued in October. Letters should be going out soon. I am struggling to figure out what my new primary card should be. :(

But everyone else should know that you've started a wonderful thread to help with that:

http://www.flyertalk.com/forum/credi...tion-fees.html

In case you are lazy, my current favorite is the Capital One Venture Visa. 2% practically cash back (can use toward any travel you spend on the card, e.g., cabs, Priceline, little B&Bs, etc.) and better global acceptance being a Visa. Cap1 is good about the fees in general, many other banks have recently taken the fees off their premium cards as well (e.g., Amex Platinum). Read the thread for more ideas.

What I am really waiting for is a card with no intl fees, a good reward and Chip&Pin security. I hate waiting in line at European train stations with my 1980's era magnetic stripe credit card that won't work in "unattended" kiosks.

Thanks for the compliment! :)

Reward Points vs. Cash Back (which option and which card)
 

Hi. There are a number of posts that are similar to what I'm going to ask, but none completely answer my questions. I'm hoping for some help.

My wife and I are looking to get a joint credit card to put all of our joint expenses on (groceries, household expenses, personal travel, etc) and we can't seem to find the right card.

I currently have an Amex Platinum, Corporate Amex, and United Airlines Visa. I'm likely to cancel the Amex Platinum when the year is up because the fee is too high and I don't use the perks enough. The United Airlines Visa is great, but limiting with rewards.

We do like to travel frequently and are always looking for travel deals. Should we just get a cash back reward card is there a stellar travel reward card that can be used to transfer points to hotel, airline, and shopping? We've looked at the Fidelity cash back, SPG Amex, and Capital One Venture. None seem to fit, but maybe one is better.

Thanks for the advice.

check out the Penfed travel rewards American Express card. 5% on airfare purchases, no annual fee, PP select membership, Amex travel benefits, and no foreign exchange fee. This summer it also had 5% back for hotels and dining.

For general purchases I like the FIA Fidelity Amex. If you are loyal to one hotel chain over another then a cobranded card might be worth it; a lot of people seem gaga for the starwood amex.

edited to add: there is probably no single card; you probably need 2 or 3 cards that maximize rewards based on your spending habits. Also, joint credit cards are increasingly rare (speaking about US issuers). More common is making someone an authorized users. You could each get one new rewards card and make each other AUs to capture spending to max. rewards.

Since I have a lot of frequent traveler miles (United, Hilton, Starwood), would you recommend a card that can transfer to my current travel programs?

SPG Amex will be great for general spending and SPG stays.

If you value Hilton points high enough, you will find Amex HHonors (no annual fee) or HHonors Surpass ($75) great for general spending as well. To beat 2% cash back, you need to value 1 Hilton point at 0.7 cent. These two cards also have bonus for category spending. If Hilton Gold or Diamond is not of your concern, then the relevant features are worthless to you.

For United miles, the MP Select Visa (3-2-1 structure) is gone. The new MP Explorer is good but not as good as the old card. For now, Chase Sapphire Preferred which has the 3-2-1 structure is a good card to earn United Miles (actually you earn CO miles but they will be combined). We still don't know at this point if United will be a transfer partner of Chase Ultimate Rewards (UR) after the merger. I will think so but you really never know until it happens.

Please see my website for some detailed reviews on these several cards.