Reader Javier asked recently in the comments on this article: “Keith turned me on to your site on Facebook. I wanted a little direction. I have the Capital one Venture card with 2x per dollar spent. I crunched the numbers for last month and if I switched to the Chase card I would be down about 3200 points/miles. Capital One doesn’t necessarily use the miles redeem system, they just reimburse you for the travel based on the amount of the ticket. How would I be able to utilize your system with Capital One?”
I started writing a quick reply but it quickly got more involved with examples so I wanted to make this into a more comprehensive post that I could refer people to in the future since this is a common question. This is a long post, but read and digest it slowly because it is an important one. If you don’t want all the details, skip to the bottom to the Conclusion TLDR section.
What is the difference between a cashback card and a miles card?
Cashback cards give you cash back (in the form of cash or a statement credit or a fixed value towards travel expenses). Here are some examples of cash back cards:
- The Discover It® card gives you 1% cash back on all of your purchases plus 5% cash back in quarterly rotating categories such as gas, department stores, online shopping and more.
- The Capital One Venture card gives you 2X Miles on all spending that can only be redeemed for travel expenses. This makes it a 2% cash back card for travel expenses. I actually have one of these cards myself that I got when they were offering a 100,000 mile sign up bonus!
Miles cards give you frequent flyer miles directly with an airline or hotel program. Here are some examples of miles cards.
- The Citibank AA Platinum Personal MC gives you 1 American Airlines AAdvantage Mile for every dollar you spend. It also gives you a 10% rebate when you redeem miles so you could think of it as earning 1.1% in miles.
- The Chase British Airways Visa gives you 1.25 Avios for every dollar that you spend.
Hybrid cards are a third category that combine some elements of cash back and some of miles. Here are some examples of these type of cards.
- The Chase Sapphire Preferred card gives you 1 Ultimate Rewards point per dollar that you spend on all purchases. For Travel (hotels, airfare, taxis, trains) and dining (which includes restaurants AND most bars) they give you 2X points per dollar. You can redeem Ultimate Rewards for cash at a rate of 1%, book travel through Ultimate Rewards travel at a rate of 1.25% or transfer the points to 6 different airlines including British Airways, United and others or to 4 different hotel programs or even to Amtrak. So if you are looking for award tickets and one airline doesn’t have availability for certain dates, you can check other dates and use the same cache of miles. It is this flexibility that gives Hybrid point cards their value as you will see in the examples.
- The Chase Ink Plus card also gives 1 Ultimate Rewards point per dollar that you spend but also gives 2X points on gas stations and hotel accommodations. More importantly, it gives you 5X points on Office Supply Stores (such as OfficeMax and Staples), telecommunications expenses (such as cable TV, cell phone bills, internet bills, or landline phone bills).
- The American Express ® Premier Rewards Gold Card gives you 1 Membership Rewards points per dollar that you spend on all purchases. For US Gas Stations and Supermarkets they give you 2X points per dollar and for airfare booked directly with the airline they give you 3X points per dollar. You can redeem Membership Rewards points for a statement credit at a rate of 0.5%, or Pay with Points at Amazon at a rate of 1%, or transfer the points to 17 different airlines (including Delta and British Airways) or 4 different hotel programs (including Hilton and Best Western)
So which type of card is best?
Like most types of things in life, the answer is “It depends”. It depends on your goals and on your spending patterns. What I try to do is earn points, miles and cashback at the highest rate I can and then redeem them in the way that gives me the most value. Let’s look at some examples to show you what I mean. To make these examples a bit less complicated, I am not going to include last minute booking fees or taxes but those may apply in certain award redemptions.
Assume that you have $10,000 in spending this year at some non bonus category merchant such as a car repair or shopping for clothes:
For the Discover It® card you would earn 1% cash back ($100) that you could put right into your bank account.
For the Citibank AA Platinum Personal MC you would earn 10,000 AA Miles which is enough for a 1 way domestic ticket on their discounted award list (which requires 8750 AA Miles) and almost enough for a 1 way domestic ticket anywhere which costs 12,500 AA Miles. For a 1 way ticket booked 1 month in advance such as Miami to Monterey, CA (which I priced out at $320 just now) you get a value of $320/8750 = 3.6 Cents per Mile which is much more than the 2% you would get for the Venture card. If you look at last minute travel, the difference is even bigger. A 1 way ticket to Monterey leaving today costs a whopping $576. If you used 8750 AA miles instead you would get $576/8750 = 6.5 Cents per mile!
The Chase British Airways Visa you would earn 12,500 Avios which is enough for a round trip ticket from Miami to Cancun, Mexico (which only costs 9,000 round trip). If I book a month out, this ticket would cost $373. Since I am only using 9000 Avios, this gives a value of $373 / 9000 = 4.1 cents per mile. If you book last minute for example leaving today, it would cost you $530 which would give you a value of $530 / 9000 = 5.8 cents per mile!
The Chase Sapphire Preferred card and the Chase Ink Plus would be equal on this example. You could either get 1% cash back ($100) or redeem it for $125 in travel booked through Chase Ultimate Rewards, or transfer the points to British Airways and book either the $373 ticket a month out to Cancun or the $530 ticket leaving today. So you could get 4.1 or 5.8 cents per point by transferring the points to Avios. It is this flexibility that makes Chase Ultimate Rewards my favorite type of points.
The American Express ® Premier Rewards Gold Card would give you $50 in cash in your bank account for $10,000 in spending or $100 to spend at Amazon.com or you could also transfer them to Avios for a ticket to Cancun and get 4.1 cents or 5.8 cents per point.
Assume that you have $10,000 in spending over a year at office supply stores. This could be for equipment for your business or even Visa gift cards that you got when they were having a sale like last week!
For the Discover Card, the Capital One Venture, the Barclays Arrival card, the Citibank AA Card, the British Airways Avios card, the Chase Sapphire preferred card, or the American Express PRG Card they would earn exactly the same as in Example 1 and have the same value.
For the Chase Ink Plus however, you would earn 5X points because the purchases were made at an office supply store. This means you would earn a whopping 50,000 Ultimate Rewards points for this spending. You could then transfer these points to Avios and redeem for FIVE tickets from Miami to Mexico. This could give you a value of $373*5 = $1865 or $530*5 = $2650 in value (depending on if you are traveling last minute or booking a month out). You could also redeem those 50,000 points for $500 in cash right into your bank account. The value per point would remain the same but the value per dollar spent would go way up to $500 / $10,000 = 5 cents per dollar spent or $1865 / $10,000 = 18.6 cents per dollar spent or $2650 / $10,000 = 26.5 cents per dollar spent.
For this one I am going to assume you do a lot of spending or get a lot of bonus points by opening new credit cards (which is what I recommend). If you spend $100,000 (or get 100,000 in bonuses) the numbers might work out like this.
For the Discover card, you would earn $1000 in cash back.
For the Capital One Venture or the Barclays Arrival, you would earn $1000 in cash back or $2000 you could use for travel expenses.
For the Citibank American Airlines card or the British Airways Visa , you could redeem 100,000 miles for a round trip business class ticket from Miami to Paris (you would have 25,000 Avios left over with the BA Visa since it gives you 1.25 miles/$). If you paid for this ticket it would cost $4900 or so which gives you a value of 4.9 cents per mile.
For the Chase Ink Plus, Sapphire Preferred, and American Express you could transfer those 100K points to Avios for a business class ticket which would also give you a value of 4.9 cents per mile. For the Chase cards, you could also transfer those points to United if the Avios didn’t have award availablility.
- If you don’t spend a lot of money in the bonus categories (Travel, Dining, Office Supply stores, Gas) AND you book your airfare and hotels far out when the prices are relatively low AND you don’t mind flying in coach, OR if you like booking hotels that are not part of a miles rewarding chain or like to use AirBNB or other travel sites then the Capital One Venture or the Barclays Arrival card will give you a solid value.
- If you spend a lot of money in the bonus categories (Travel, Dining, Office Supply Stores, Gas), then a card that gives you a bonus in these categories will provide you more miles or cashback. Examples of these cards are Discover,Chase Sapphire Preferred, Chase Ink Plus, and Amex Premier Rewards Gold card.
- If you want to fly in first or business class or like to travel last minute without paying through the nose, then a miles earning or hybrid points earning card is the way to go. Examples of these cards are Chase Sapphire Preferred, Chase Ink Plus, and Amex Premier Rewards Gold card.
At the end of the day, why choose just one? The combination of the Chase Sapphire Preferred, the Chase Ink Plus, and Capital One Venture will cover you under any of the situations I have mentioned and allow you to optimize both your earnings and redemption options. I have all 3! Not to mention I received sign up bonuses for all 3. Right now you can get 40,000 for the Chase Sapphire Preferred, 70,000 for the Chase Ink Plus, and 40,000 for the Capital One Venture. In a few months with the sign up bonuses you can earn more miles than it would take you years to earn through spending.
As always, reply with any questions and follow me on Google+, Facebook, Twitter and Instagram to make sure you don’t miss any great info! And don’t forget to share this article with anyone who might be interested using the handy social share buttons right below this post!