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For many mile/point fanatics hobbyists, the term “Cash is King” falls on deaf ears. When given the choice between earning points or saving cash we generally go with the former. Sure, cash can be used to pay for anything, anywhere, but points & miles can be used for luxury first class trips around the world – trips we would never take if we had to pay with cash.
That being said, I think we are often too quick to dismiss cash as a good option. Even if you don’t agree that “Cash is King”, I think we ought to give cash its due in the royal hierarchy. How about Duke? Let’s give cash it’s Dukedom (OK, technically Dukes get “Duchies”, but “Dukedom” sounds better doesn’t it?).
Real choices
Many people (including me) choose points over cash all the time. For example, we choose point earning credit cards over ones that earn cash back. We shop via point earning portals rather than cash back portals. Sometimes, though, it’s arguably the wrong choice. Here are some examples of easy ways to earn or save cash that many of us forgo:
At grocery stores one can earn 6% cash back by paying with the Blue Cash Preferred card (soon to be capped at $6K per year of spend) vs. 1 point per dollar with most rewards cards.This offer has expired- Using the US Bank Cash+ card, one can earn 6.25% cash back in any two of a slew of categories: department stores, restaurants, home improvement stores, electronics stores, airlines, hotels, etc. See “The best cash back card?” for more.
- The Discover More card has rotating 5% cash back categories, but also has one of the most lucrative online shopping portals which often offers 10% to 20% rebates on purchases.
- Cash back portals such as FatWallet, TopCashBack, BigCrumbs, etc. often offer much larger rebates than similar point earning portals.
- Often hotels can be booked much more cheaply through sites like Priceline and Hotwire, but then the those stays don’t generally earn points or stay credits towards elite status.
Eating your cake too
For me, earning or saving cash is less fun than earning points. With points, travel feels free. Spending tens or hundreds of thousands of points for a great vacation is no big deal. Paying cash, though, is painful even if I’ve saved cash in a myriad ways all year.
If you’re like me and prefer points and miles, but also want to make the most rational choice as often as possible, here is a proposed solution:
- Setup a bank account specifically for cash rebates. This could be a great time to setup an account that offers a mile earning debit card, by the way!
- Don’t be afraid to save money and forgo points. However, as you accumulate cash back and savings, move those savings into this new account.
- Use this account to buy points and miles when they are available at a great rate. Here are some real world examples where it is (or has been) possible to buy points & miles cheaply:
- Purchase US Airways miles for 1.135 cents each. Offer is available until the end of October.
- Purchase US Airways miles for 1.2 cents each. Ongoing.
- Buy Avianca LifeMiles for 1.5 cents each. Offer expired September 28th (but is likely to return)
- Use Avianca’s cash and points awards bookings to buy LifeMiles for less than 1.3 cents each. Ongoing
- Use Priority Club’s Points & Cash trick to buy points for .7 cents each. Ongoing
- Buy points cheaply during shopping portal mega-promotions. Through a number of big shopping portal promotions, I’ve been able to buy points cheaply by shopping through the portal to earn points and then reselling the items purchased. Generally, I loose a bit of money on the resale, but I consider that the cost of buying points. Through many such promotions, I’ve successfully “bought” points and miles at less than 1 cent each. For example, see “Mileage Run Shopping Results” or “Sears 15X: Frequent Miler’s almost final results.”
- Each spring, American Express sponsors the “Daily Getaways” in which it is often possible to buy various points and miles at deeply discounted rates.
- Hotel chains often offer mega-promotions in which you can earn huge numbers of points through one or two stays. In some cases, it pays to book a stay at a cheap hotel just to get the points.
- Also consider using this fund to pay for mistake fares when they become available, or to fund your mileage runs so that you earn miles and elite status.
- Or, simply use this fund as a vacation slush fund to pay for all of those little things that can’t be bought with points and miles.
Deciding points vs. cash
When choosing between earning points or cash, you can use my Fair Trading Price chart to estimate the fair trading price of the points you would earn and compare that to the amount of cash you would save or get back. Personally, I think that’s too much trouble. Instead, if the choice is between airline miles and cash, I think a simple “1.5 cent per mile” valuation is reasonable. It is often possible to buy miles for 1.5 cents or less, so you should choose cash if the cash rebate % is 1.5 times (or more) the number of miles per dollar that would be earned. For example, if you need to choose between a shopping portal that offers 3 miles per dollar or one that offers 5% cash back, go with cash back. In other words, multiply 3 X 1.5 = 4.5 to see where the cutoff is. Cash back rates of 4.5% or higher are arguably a better deal.
When to choose points
Even if cash looks like the better option, there are times where it absolutely makes sense to go for points anyway. Here are just a few examples:
- Keep account active: Many loyalty programs require account activity every two years or so to keep the account active. Earning points is a great way to achieve this.
- Topping off an account: If you are building points in one program for a planned award, then it absolutely makes sense to forgo cash in favor of points.
- Southwest Companion Pass: Southwest offers a fantastic program in which you can get a companion pass once you’ve earned 110,000 points in one year. The pass allows a companion to fly free with you for the rest of that year and all of the next. If you’re working towards this pass, then it certainly makes sense to choose points over cash!
Am I a hypocrite?
I’m convinced that logically it often makes sense to earn cash instead of points. However, I’m not sure that I’ll actually act that way from day to day. Despite the arguments I laid out above, earning 1000 points seems more exciting that saving $15 bucks. Will that change if I setup a travel slush fund? I’m not sure.
What about you? Do you like points or cash? What will you choose going forward?
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[…] collecting cash instead of points. I first brought this up a year ago with the post “Giving Cash its Dukedom“. Since then, many points programs have increased award prices and many points […]
[…] the post “Giving Cash its Dukedom,” I argued that getting cash back instead of points & miles can be a good thing even if […]
I have a balanced approach – I enjoy earning extra points for daily spend (groceries, gas, restaurants) and I’m discovering new ways to do that, but I refuse to pay $7 for soap on drugstore.com just because I’ll earn extra points when I can get the same soap at Target for $3. That’s not how I was raised. 🙂 I’ve accepted that I’m living vicariously through bloggers; I’m not a world traveler (I live in the US, I don’t have the vacation time). I will probably always pay something for travel – for example, my husband and I stayed a week at the Waldorf Astoria this fall for $1,000 using Hilton Honors points and Ultimate Rewards points for the airfare. We would have spent $1,000 on a trip to NYC anyway, but we got to stay at the Waldorf and fly for free! THAT is what I’m interested in – I’m not brave enough to do CC churning or mileage runs, but modest points-earning is opening up more extravagant opportunities for a middle-class couple.
@Lawrence – Nowhere! (grin) But this is a temporary situation.
Right now, the best option is series I savings bonds @ 2.2%, tax deferred. TreasuryDirect doesn’t make it easy to understand the actual amount of interest you’ll earn (as it is a combination of a fixed rate and a variable inflation-based component), but savings-bond-advisor.com does a good job of explaining it. Ignore the idea that these are an inflation hedge, and just look at the total rate in comparison to what you can get with a CD.
Unlike marketable securities (treasury bonds, corporate bonds, etc), there is no market risk with these (as you can’t sell them, but you can redeem them early), and you have to hold them at least a year before you can redeem them. Savings bonds are much more like CDs in this regard. Minimum holding period is 1 year.
The problem with these, though, is you can only buy $15k/year (and you have to backdoor into the last $5k via a tax refund).
I’m not sure if discounted flow is relevant to points. If point level required stays the same, and fare costs increase over time, then “saving” can be good.
I don’t think the issue or the differences rise to either decision being called stupid.
There is also a value to the enjoyment people get from point accumulation (not always the same with cash).
Seems like the vast majority should be using cash back – but that’s exactly why CC companies go out of their way to promote miles and points-earning cards. They know many (most) will stupidly choose to earn rewards that are less lucrative than getting cash back. And they know many rewards/points will never get used, or if they do get used, they get redeemed for low cost rewards. Finally, many tend to bank their rewards, and if any know about discounted cash flow valuation calculations, the longer you take to use your points, the less they are worth. (ie, $1 today is worth less a year from now). The CC companies count on people hoarding their points/miles for a trip “some day” – and the longer away that “some day” is, the better for them..
The only reason you should be using a non cashback card is to earn the easiest, most lucrative bonuses. If you can’t get cash back on all transactions, then use a miles earning debit card.
That said, if you can generate “free spend”, you should always choose the rewards/points.
I recently got the Barclay’s NFL card. It’s 40,000 pointa after $1,000 spend (done). They then offer $400 statement credit for it as an option. As much as it takes the fun away, I think I am going to have to take them up on it, rather than NFL stuff or whatever.
Nice, but not that much fun.
@Frequent Miler: love the idea of the special cash account just for points. Imagine a situation where you can get 2x the UR points, or 10% discover cash back. A $100 purchase will net you 200 UR points, or $10 back. With the latter option you could later on use these $10 for instant via United Award Accelator at 2 CPM (I actually have an outstanding flight with that exact price). So in the end these $10 would yield 500 UA miles, vs. the original 200 UR points you’d go for. Smart! Compartmentalization works.
Cedric: Exactly! You get it!
Lots of good points in here. For those w Kids I agree it is much harder to find 4 together for free. Maybe thats where the cash back portion can kick in. 2-3 for free the rest with the cashback that was earned.
Thanks for the post. A big part of playing the miles/points game is fighting to make rational decisions.
I value UR points closer to 1.7 cents because they transfer to Southwest, which has many destinations from my home city. I always check a cash back comparison site to see if cash back is a better value.
I think many people (including myself, at least some of the time) overvalue points when they shop through portals. And unnecessarily so, as many of us accumulate enough points to meet our needs through credit card sign up bonuses.
@Ki7roy – where are you getting any interest that is meaningful?
Lots of times you see people on FT ask about maximizing points on purchase of something like an engagement ring. I think you’d do much better in getting a cash discount and forgoing the points altogether. You’ll always do better on a cash price 🙂
logically, cash makes sense but it boils down to each individual priorities. If travel and leisure are their things then points are the way to go but if cash is your lifestyle then by all means, cash in the pocket.
Don’t forget about the tax implications here if any of this is business related. Cashback could be taxable, where the IRS seems to consider miles/points to be in a different category.
Good to see you suggesting a reasonable number like 1.5 cents. I doubt many would pay much more than that for miles without a specific redemption in mind. I’d put it closer to 1.25 on the buy side, and as low as 1.0 for programs like Delta.
I’m with Bruce on this one. However I see bloggers spending tons of money on hotels and air fare just to get status. Many expenses come along with points and miles.
1. award booking fees
2. Annual CC fees
3. Award booking services
4. Chicago Seminar
5. Buying ticket for status
6. Eating in restaurants they don’t like(I do this)
7. Buying things they don’t need because 10x
Don’t get me wrong I also do some of this stuff, but sometimes I think maybe I should get a cash back card and forget all this.But it sure is fun and yes I have been to Asia and Europe in first class.