Cashback Dominates Miles for Most People
Whenever people find out about my involvement in this “hobby”, one of the first questions that comes up is, “what credit card should I get?”, or some variant of that.
And really, my advice to almost everyone is that they should just focus on cashback credit cards. 2% cashback is probably a better value for 95%+ of people I talk to than trying to accumulate miles. (Of course, the best strategy is to apply for lots of credit cards and get the sign-up bonuses and then close the cards after a year so you don’t have to pay the annual fee, but many people are unwilling to apply for lots of credit cards.)
Reasons why cashback dominates miles for most people:
- Cash can be used to purchase any flight that’s available. Miles are subject to the whims of award availability. While this might not be a problem for those of us with extremely flexible travel schedules (and/or those of us willing to fly circuitous routings), many people are beholden to strict vacation schedules. It honestly is not that feasible to rely on miles to travel to popular destinations during popular travel periods (e.g., summer, New Years), particularly if you have specific destinations in mind or specific dates you must fly on.
- Similar to #1, but it’s significantly harder to fly on miles if you’re looking for more than one ticket.
- Redeeming miles can be extremely complicated, particularly if you want to get lots of value out of your miles. Unless you are willing to invest a lot of time in terms of understanding how different programs work, what routes are likely to have availability, the best times to book, etc., (or you are willing to pay someone else to do this for you) you will likely be frustrated when trying to redeem your miles.
- Miles can be devalued at any point in time. Cash does devalue, but not nearly in the same way. You can start saving miles two years in advance for your honeymoon, but then a program announces a devaluation, and then you realize you need twice as many miles as you thought you did.
- Airfares are increasingly affordable, even in business class. It is increasingly common to see things like sub-$600 airfare to Asia and sub-$500 airfare to Europe. At these cash prices, it is very hard to justify using miles for economy class.
This calculation changes if you’re looking to fly business class or first class, as using miles makes these much more attainable than paying cash, but with the devaluations that we’ve seen in the main US frequent flyer programs, this is becoming harder to take advantage of unless you are a business traveler who earns tons of miles or are willing to manufacture lots of miles.
Of course, I will continue to accumulate and redeem miles, but I have an extremely flexible schedule, usually don’t have specific places I need/want to go, am usually only booking for one person, and have already invested a lot of time in terms of gaining the knowledge needed to redeem miles. But there are very, very few people I encounter in real life who I think would get more value out of accumulating miles instead of 2% cashback, particularly when you take into consideration all of the time and effort needed to learn enough to earn and redeem miles effectively.
I switched from points and miles accumulation to cash back. Originally, I was thinking I could get a better value out of points, but I realized that points need to be consumed on travel. If I get cash back, I can invest the money so it produces a return. This actually causes it to increase in value. Points generally tend to decrease in value.
I find miles and points to be a type of forced savings plan. If I had the cash back I would just spend the money as it came back in. So due to my lack of discipline saving money, m and p are ideal. Good points above.
Those not going for the bonuses (and certainly not MS) would have to have a lot of regular spend to build much. Any idea what the monthly spend people asking you are doing? If not in business I would think $2K a month is pushing it for most, so they may get $480 cashback in a year. At least to us that seems pretty small. One good bonus could do that value.
It seems light slow sledding, but I guess it depends what you’re used to.
Very timely article. I’ve been a M&P hobbyist since 2012 and am slowly switching to cash back. Collecting M&P made me “spending focused”. I didn’t get into debt, but I justified a lot of unnecessary spending to get the points. I used them well, traveled like I never would have otherwise, but realize I need to become more savings focused in my daily habits. By sticking to a strict budget and not overspending every month (usually to meet a minimum spend), I can buy the first class ticket or suite I want. My daily spending now would never generate anything substantial, nor would it likely meet a minimum spend. I still keep track of the hobby with great interest, but realize that my approach has changed. If a great sign up bonus came up, I’d be tempted to jump on it. Once it’s in your blood it’s hard to stop.
I actually disagree with every single point here! IMHO (and stressed on the “humble” part; I ain’t expert in this, obviously, being in the comment section), for travel purpose, miles/points are generally superior to cashback. And this is *before* all the other perks offered by a “travel credit card” (which usually earn points rather than cash). That said, this is strictly for travel purpose. Cash, being cash, can be used elsewhere. If you want to spend your rewards for something else (says, a new coat!), duh, you need cash.
Anyhow back to the points vs cash for travel:
i) Availability: frankly, I don’t see difference, especially with more flexible point system (think Chase or Amex) or with a large carrier (think Delta or American). This is doubly so for Chase or Amex points, which act essentially as discounted (33% for Chase Reserve! That’s a LOT!) cash on their portal, so… On the other hand, if a route has no award space, it generally has no spaces. Again, I have never seen a marked difference between the 2.
ii) Flexibility: Maybe I am being super dumb here, but I don’t actually see a difference either. Look, you plan your vacation. It’s not like you must take this exact time to this exact resort with 4 days of notice. Generally, a vacation is planned a few months ahead of time, with plenty of leeway. Even for a very tight holiday (think you-must-be-home-for-Thanksgiving), a regular employee tends to be able to flex around it a bit, maybe a day off? Similarly, if there is a good reward to go to Japan instead of China, why can’t you vacation in Japan instead of China?
It’s also noteworthy that I don’t fly more than a handful of times a year (1-3 vacations, and I doubt most people take more than 1 vacation). And I like being to new places. So, the “constraints” of the system act more like “opportunities.” Hey, it’s cheap this year in India by the way of China, wanna fly?
iii) Cost: (Point) expensive flights are expensive for a reason. And if a flight/hotel stay is expensive in points, it is only *very* rarely that it’s cheap in cash. There are exceptions, but generally, a point is worth more than a cent. Now, I may not get, says, 4 cents/point. However, 1.5-2 cents/point is generally doable. Even at 1.1 or 1.01 cents/point, points are better.
iv) Miles devaluation: So long as I can redeem a point for more than a cent, I come out ahead. Which is still generally true. On the other hand, see my point above about “constraints” vs “opportunities.” Look, if it’s leisure travel, why care so much about must-see? If it’s business travel, you ain’t paying. Even for you-must-be-here-for-Thanksgiving, you can play around slightly with dates for a better deals.
Beside the above points, I want to raise some perks of points that cash can’t compete:
a) Mental blocks: I won’t spend, I don’t know, $2K/person to experience international business class. But 100K points? What’s a point anyway? No emotion! So, at least I get to experience :-). Same thing for very fancy hotels.
b) Other perks: when you earn points/miles, you earn more than just points/miles. If you are on a travel credit card, hey, lounges! If you are on an airline, hey, status! If you are on a hotel, hey, late checkout!
c) Encouragement to travel: look, cash is, well, cash. Everyone has weird things for cash. Points are, well, pleasant side effect of hogging in a restaurant. It’s not quite wealth, so you can spend it freely. You have a hole burning in your account that beg you to travel.
A side note to c: if somehow you are relying on your cashback to cover your expenses, this makes no sense whatsoever. However, if your expenses are covered, points allow you to live a little, to experience a little, to see and feel nicer things in life, guilt-free. So, cover your bases, and grab your points.
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