Cash to miles

In the post “Giving Cash its Dukedom,” I argued that getting cash back instead of points & miles can be a good thing even if you’re points-obsessed.  In that post, I argued that under certain circumstances it is preferable to choose cash back instead of miles even if your end-goal is to earn miles.  I pointed out that it is often possible to use cash back to buy miles cheaply.  Here are some examples of current and past opportunities for buying miles cheaply:

1. Purchase US Airways miles for 1.135 cents each.  Offer expired at the end of October 2012, but hopefully we’ll see it again sometime this year.
2. Purchase US Airways miles for 1.2 cents each.  Expired.
3. Buy Avianca LifeMiles for 1.5 cents each.  Offer expired September 28th (but is likely to return)
4. Use Avianca’s cash and points awards bookings to buy LifeMiles for less than 1.3 cents each.  Ongoing

The techniques shown above for buying miles at a discount average to about 1.3 cents per mile.  Let’s use that as our benchmark.

Assuming you’re happy with the types of airline miles that can be bought cheaply, it’s worth considering whether earning cash may be better than earning miles…

Evaluating cash back opportunities

Suppose you had to choose between putting your day to day spend on an airline credit card that earns 1 mile per dollar everywhere, or a cash back card that earns 1.5% everywhere.  After $10,000 of spend, you would get 10,000 miles from the airline card.  With the cash back card, though, you would get $150 back, which you could then use to buy about 11,500 miles (given the 1.3 cents per mile benchmark).  So, the 1.5% cash back card is arguably slightly better at earning miles than the 1 mile per dollar card. 

An easy way to replicate this analysis is to take the cash back % and divide it by 1.3.  So, a 1.5% cash back card is like a 1.15 miles per dollar card (1.5 / 1.3 = 1.15).  In other words, it’s better than an average airline card (but not by much).

SPG vs. 2% cash back

The Starwood Preferred Guest (SPG) card is quite valuable for its hotel points, but some people use it for earning miles since each SPG point becomes 1.25 miles when transferred 20,000 points at a time.  This is arguably one of the better cards for earning miles for general, non-bonus category spend. Meanwhile, the benchmark for cash back cards tends to be the handful of cards that offer 2% cash back.

We can compare these two types of cards with the formula given above.  2% cash back is like 2 / 1.3 = 1.54 miles per dollar.  In other words, a 2% cash back card beats out the SPG card for earning miles.  Don’t mistake me here, I would still prefer SPG points over 1.5% cash, but that has more to do with the value of SPG points for hotel stays and for the flexibility of transferring to a huge number of airline programs.  If you were to treat all miles equally, and if earning miles is your goal, then this analysis says that 1.5% back is better.

1.5X vs. 2% cash back

There are a few airline cards that offer 1.5 miles per dollar.  One example is the United MileagePlus Club Card which automatically offers 1.5 miles per dollar.  Some others offer 50% bonus miles when you reach a spend threshold (e.g. Delta Reserve at $30K and $60K spend, and American Express Premier Rewards Gold at $30K spend).  If you can hit those spend thresholds exactly without going over, then those cards also average 1.5 miles per dollar.

Since we showed above that 2% cash back cards earn the equivalent of 1.54 miles per dollar, all of these cards are roughly equivalent in earnings.  Here the deciding factor may be the types of miles you can earn.  If you like US Airways or Avianca miles, then cash back may be your best bet.  If you prefer United miles, then the MileagePlus Club card is worth considering (if you can stomach its hefty $395 annual fee).

Bonus categories

If you’re like me, you may have a mix of points & miles earning cards and cash back cards.  The best cards offer bonus points in various categories (for a list of examples, see “Best Category Bonuses“).  Let’s look at some of the categories and see whether cash back or miles are preferred.  Note that, for the purpose of this analysis, I’m not looking at hotel points as an option.

• Office Supplies: The Chase Ink cards offer 5 points per dollar at office supply stores.  Since Ink Bold & Ink Plus points can be transferred directly to United miles, let’s treat those points like miles.  Meanwhile, the American Express SimplyCash card earns 5% cash back which is  equivalent to 5 / 1.3 = 3.85 miles per dollar.  Ink wins easily.
• Drug Stores: While some mile earning cards offer short term or limited bonus points at drug stores, I don’t know of any that offer drug store bonuses as a standard feature.  Yes, the Hilton cards currently offer bonus points at drug stores, but we’re talking about miles here.  So, I think the best we could do is get 1.5 miles per dollar (with the MileagePlus Club card, for example).  Meanwhile, the US Bank Cash+ card can earn up to 2.5% cash back at drug stores.  That’s equivalent to 2.5 / 1.3 = 1.92 miles per dollar.  Cash+ wins.
• Grocery Stores: The Amex Blue Cash Preferred card offers 6% cash back up to $6K per year in spend.  That’s equivalent to 6 / 1.3 = 4.6 miles per dollar.  Next best is the PenFed Platinum Rewards card which is like a cash back card in that points can be converted to Visa gift cards for 1 cent each. The PenFed card earns 3 points per dollar at grocery stores, which is like 3 / 1.3 = 2.3 miles per dollar.  As with drug stores, the best mile earning options are 1.5 miles per dollar.  Winners: Blue Cash Preferred & PenFed Platinum Rewards.
• Restaurants: The Citi Forward card can be treated like a cash back card since its points can be converted to cash at a value of 1 cent each by using points to pay mortgage or student loans.  So, since the Forward card gets 5X points at restaurants, it is equivalent to 5% cash back, which equals 5 / 1.3 = 3.8 miles per dollar.  The best mile earning card, meanwhile, is the Chase Sapphire Preferred which earns 2.14 points per dollar at restaurants (when you include the 7% annual dividend that Chase offers).  Citi Forward wins (and it’s even better if you pair it with the Citi ThankYou Premier card and use points for airfare for a value of 1.33 cents per point).

What it all means

If you’re still with me here, then hopefully you see the point.  Often, the best way to earn the most miles is by getting cash back instead of miles.  The examples I listed above focus on credit card earnings, but the same thinking is true of shopping portals, and other points vs. cash earning opportunities.  If your main goal is to earn miles, then, ironically, you’re often better off taking cash.

Now, in real life, the decision doesn’t just boil down to a simple formula.  If you want to earn miles, you should think about what type of miles you most want to earn.  Opportunities to buy miles cheaply are rare with United and American Airlines miles, for example.  So, if you need those miles, you can forget everything you just read .

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