Is It Possible to Have Too Many Miles, and When Should You Switch to Cash Back?

AP Airline Reporter Scott Mayerowitz asked a fantastic question in the metaphysics of miles on Facebook.

If Twitter is where you speak truth to the world and Facebook is where you lie to your friends, then this seemed a pretty deep and nuanced question for Facebook.. and seemed worth answering here.

Scott’s instincts are right that above a certain level more miles at the margin are worse less because of the time until you use them (present value discount), risk of devaluation (risk adjustment), and opportunity cost (value of alternatives).

The value of a mile changes depending on how many you already have. We can talk about points having a value ‘on average’ but this is misleading.

  1. The value of the first mile you earn is very low since you cannot do anything with it. It may be stranded or even expire unused.
  2. The value of an incremental mile earned goes up substantially as you approach having enough miles for an award. If you have 109,000 American Airlines miles, and you need 110,000 for a roundtrip business class award to Asia, then that last 1000 miles is worth well more than just $18 (1000 miles at 1.8 cents a mile).
  3. The value of an incremental mile earned goes down substantially when you have several hundred thousand or million miles, because you may never get around to spending them at all (and certainly not before award chart changes require more miles for the same award).

I like to have enough miles in multiple accounts so that I have more than one option to redeem for the award I want — I increase my chance of getting the saver award I’m after that way.

But having more miles than you can reasonably spend over the next couple of years may not be a good idea.

That said, I do not follow my own advice. Goodness knows I have more miles than I should in certain programs. Seven figure balances with both American and US Airways — which will ultimately be combined into a single account — are more than ultimately desirable for instance.

And holding cash makes more sense than holding (versus spending) miles. You can earn a rate of return on cash while the value of miles will tend to depreciate along with changes to award charts.

  • Diversify your points holdings. Don’t put all your miles in one account, once you have enough points for the award you want start building up in another account.

  • Hold more bank points that transfer to miles than airline miles or hotel points. The flexibility helps hedge against any one airline or hotel progam devaluing.

  • Continue to use points cards when the value of those points in the worst devaluation scenario is greater than the value of cash back. In other words, miles remain valuable — their value doesn’t approach zero when you earn too many points — their value simply changes at the margin and may well be lower.

    • Use your spend for big mileage bonuses on new cards.
    • Use your spend when bonused by your points-earning card (eg 5x from Ink Plus outweighs any cash back option, natch).
    • In general cash back outweighs earning just 1 mile per dollar. Whenever you are earning just 1 airline mile per dollar you are actually buying that mile for 2 cents because of the opportunity cost (you could earn 2 cents instead).

I think the three reasonable cards to consider for unbonused spend, especially once you’ve accumulated a large stash of miles, are:

Barclaycard Arrival PlusTM World Elite MasterCard®.

    You get an effective rebate towards travel of 2.2% since you earn 2 points per dollar on all spend (each worth a penny towards travel) and you get a 10% rebate on points used when redeeming for travel.

    This is the best card if you value paid domestic coach travel that earns miles and where you face no blackout dates or capacity restrictions.

    The annual fee is $0 the first year, $89 thereafter and comes with 40,000 points after $3000 spend within 90 days. It also has no foreign transaction fees.

    So it’s hugely valuable the first year ($400+ in value, 2.2% effective rebate, and no fee).

    After year 1 (if you don’t value the other features of this card, like TripIt Pro) you’d have to spend at least $44,500 on the card to cover the annual fee with extra earnings versus the Fidelity card.

Fidelity Investment Rewards American Express.

    This is the gold standard of cash back cards. You earn a straight 2% cash back — not 1% or 2% to use on travel — actual money.

Starwood Preferred Guest Card from American Express.

    I can pretty much always get 2 cents per point back with a hotel redemption.

    And if I value the most valuable mile that Starwood points transfer to at 1.8 cents, then with the 5000 point bonus for transferring points into 20,000 miles, each Starwood point is worth 2.25 cents.

    The card has a $0 fee the first year, $65 thereafter

This same analytical framework holds, by the way, when deciding when to earn miles or cash back through an online shopping portal.

(Note that the Barclaycard Arrival PlusTM World Elite MasterCard® and the Chase Sapphire Preferred Card offers referral credit to me if you’re approved for it using my link. Thanks for your support!)

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. The new Amex Everyday turned my calculations upside down. I snagged an Arrival for unbonused spend (and the 40,000 points), thinking that 2.2 cents was a pretty decent fallback. Now that I can earn 1.5 MR points per dollar, which is a conservative 2.4 cents, I appear fully married to MR and UR.

  2. Don’t forget that UR can be converted to cash at 1 UR = $0.01. i.e. 5x on the Bold is the same as 5% back, a 50K sign up is a $500 statement credit or cash to your Chase account.

    Of course keeping the points in UR until you either need miles or cash is your best bet as you can frequently get more in a mile than 1-cent per point.

  3. I struggle with this. I run points through my business and we spend about 1m a year on CC. I earned about 350k points last month. I currently have around 2m points but have all of my travel scheduled through the year and want to requali for AA Explat which will take about 50k of mile-run vacations (I like to hit up a town for 3 days and do get the mileage run in). At this point I have started giving travel to my staff but I give them economy stuff which doesn’t really eat in to my balances. I may consider putting some spend on a 2% cash back card but somehow it kills me to do it…

  4. I’ve been using the SPG Amex as my everyday card for years but find it painfully slow to earn points unless I go through the trouble of manufactured spending. Maybe some of your readers think this “trouble” is not a problem at all, but I’m thinking one of the new Amex Everyday cards would be a better fit for me (I hit over 30 transactions per month on my SPG card as it is, just all in small dollar amounts).

    Speaking of manufactured spending, maybe it’ll be worthwhile with the Fidelity Investment Rewards card. Us it to buy 10 $500 debit cards for $50 (roughly) every month, load the $5000 into Bluebird, use Bluebird to pay off the Fido Amex bill, get $100 back (2%), and pocket the $50 profit.

  5. Clearly many of us have skipped past the rational cost-benefit analysis laid out here. 😉 I bet most of us secretly or explicitly enjoy the gamification of it all (i.e. playing Vanilla Whack-a-mole with Office Depot, CVS, etc.). There also seems to be something to miles in particular that encourage hoarding as clayd333 kind of alludes to.

  6. For un-bonused spend, I prefer the Club Carlson and Starwood cards to cash back. I can realistically redeem for hotel stays and get more than a 2% rebate. (For Club Carlson, that’s even true without the “last night free” bonus. With the bonus, it’s not even close – $10,000 in spend gets me 2 nights at a nice London hotel, worth way more than $200 cash back.)

  7. What would be the advantage of 2 cents for travel expenses with the Arrival vs the 2 cents cash with the fidelity card? Besides getting the sign up bonus on the arrival, of course.

  8. One advantage of the Arrival over the Fidelity card is that the Arrival is a Mastercard, which is widely accepted everywhere. Many vendors do not accept American Express cards such as the Fidelity Amex. My largest expenses (medical, vet, home maintenance) are with vendors that don’t take Amex cards.

  9. @clayd333 – I hear what you’re saying about diversifying with 2M miles in the bank. It might be worth considering how big your hoard is in relation to your cash and other liquid assets. If you’re cash-poor and $10-20k in cash back (per year, based on 1M in spend) would be appealing, take that. But if you’re heavy enough on liquid assets that you wouldn’t miss the $20k, maybe it’s worth hoarding even more miles. For me, the points earning rate would make some difference – I would likely choose 2x valuable points (UA, BA, Chase UR, AA, Amex MR, etc.) over $.02, and I’d choose $.02 over 1x points.

    You mention that you’re starting to use points to give travel to your employees. Another way to look at this: would the employees prefer cash, cash-funded travel, or other cash-funded gifts more than award travel? Award travel comes with some serious restrictions, particularly as to availability, choice of carriers, and lack of mile/status earning, which can make it less appealing than a purchased ticket.

  10. I went through the same thought process myself about 6 months ago. With +700k plus airline and +500k hotel points felt having a Barclay Arrival card (and the complete flexibility it offers) made the most sense as my everyday, non-bonuses spend. Now if I spend those balances down I’d revert back to the “old” model.

  11. Great answers Gary, and I’m 100% with UAPhil. With the Club Carlson card’s free award night you’re essentially earning 10 points per dollar spent which I feel is about equal to 3-4% cash back at worst. Right now my go-to cards are:

    1) Ink – obvious

    2) Discover It & Chase Freedom for rotating categories

    3) Club Carlson for everything else

  12. I think you meant you have to spend 4500 not 44500 on the Barclays Arrival to cover the annual fee.

  13. I got my Arrival in November, and do agree about the problem of holding it beyond the first year with its $89 fee. I will be watching with great interest to see whether they will be doing retention offers that make it worth keeping.

  14. I don’t have a business or do the manufactured spend thing. Therefore it seems I’ve always got a minimum spend to work on. They makes the question of what card to use easy.

    I have a half million in airlines miles, and 2 million in hotel points. I hope to retire in the not-too-distant future and start burning through the collection. If I did the same with cash equivalent I would probably feel guilty.

  15. clayd333,

    If you can do 1M a year, I would go for the Chase UA Club Card
    500k extra UA miles will get you 2 trips in F almost on any *A airline anywhere in the world.
    For 400$ well worth it, in my experience. Forget cash.
    Remember Cash Back is taxable really if used for company spend.

  16. I do agree, at about 5-10M miles you are probably approaching no real value unless you can burn them at that rate

  17. I’m with hoarding. A million miles in each of the major carriers isn’t all that much if you’re redeeming for F/J and want flexibility.

    But why is it either/or? A decent MS program has both miles/points and cashback. With the wide availability of MS opportunities, one can effectively push thru as many miles/points/cashback as one wishes.

    I’d feel naked if I didn’t have a few million points, as I redeem ~2MM a year.

  18. So 4.2 million aa + us for me and my partner is too much? 🙂 They will come in handy for DOMESTIC FIRST travel after Dougie screws us all over…

  19. Did I see in the T and C’s for Fidelity that the bonus and the 2 percent you earn will be taxed? Not so worth while if so.

  20. @ffi – I tend to think that Amex Everyday Preferred > United Club Card but many Amex partners do have fuel surcharges. I’d take access to all 3 alliances and the great first class space offered for instance by Singapore. Although I wonder how much better that really is than the SPG Amex which is 1.25 miles per dollar really, and has even more transfer partners (including SQ and AS and also JL).

  21. @Elena G – no, you have to spend $44,500 in a year to break even with the extra return vs. fee.

    $44,500 * .022 = $979
    $44,500 = .020 = $890

    That difference is the $89 fee.

    If you spend less than $44,500 in a year then the extra 0.2% return yields less than the annual fee for Arrival and thus Fidelity is better. (And that treats credit towards travel the same as cash, but also does not value Barclays’ other benefits like no foreign transaction fees and tripit pro).

  22. Well one of my goals this year is having about 50-100k miles and points in my favorite airline accts, AA, AS. And hotels (HH, Marriott,Hyatt, ClubCarlson). Because this is my travel habits, and plus I keep miles and points on tap for emergency flights/stays in case my family needs em.

  23. I find your post very intriguing. With the devaluation of the dollar it reminds me of conversations with my financial planner. I’m always concerned with having enough funds in my retirement account and dont want to be too frugal now only to have an excess upon my expiration. How much is enough? If I have the miles/points they will certainly diminish in value and if I have the dollars they will certainly diminish in value.
    (This considering I can’t travel to the extent I would like due to my career and family obligations and am trying to bank significant miles/points for a time point when I am more free to travel)

  24. Gary,

    Your discussion relative to the $44500 spend limit is a refreshing insight. Consider producing a graph showing actual percent return versus spend levels accounting for the yearly fees for the Arrival, Venture, and Quicksilver cards to show how the fees impact the percent return as a function of spend levels. Thus, many folks likely have no business having multiple cards with yearly fees due to their spending limitations. FYI, I have made the graph for several credit cards and find the insights very useful.


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