I receive compensation for many links on this blog. You don’t have to use these links, but I am grateful to you if you do. American Express, Citibank, Chase, Capital One and other banks are advertising partners of this site. Any opinions expressed in this post are my own, and have not been reviewed, approved, or endorsed by my advertising partners. I do not write about all credit cards that are available -- instead focusing on miles, points, and cash back (and currencies that can be converted into the same).
JimT wrote in the comments,
Much of your discussion is focused on the credit card signup bonus. What if a travel rewards credit card presented a transparent value proposition with no signup bonus that was so compelling that customers would always keep it top of wallet with frequent use?
Would you please describe the spending circumstances required to exceed a 2% no annual fee cash back credit card return using a travel rewards credit card?
I generally find that really big signup bonuses mask mediocre long term value propositions for holding a card. Thank you for the insights.
The simple answer is: use a miles and points credit card, instead of a cash back card, if you:
- Want to redeem your miles for premium cabin international travel
- Are earning more than one point per dollar for the purchase
When you put unbonused spend on a mileage-earning credit card you are basically buying those points for two cents each — the opportunity cost of putting the spending on a 2% cash back card — and that’s likely a mistake since most people wouldn’t buy miles for 2 cents each.
Folks who only want to use their points for domestic coach tickets should probably choose cash back, and buy their tickets, rather than limiting themselves to award availability because most of the time you won’t do better than 2 cents a point for those redemptions. Although when you earn miles for credit card spend they’re added to the miles you earn from flying and all other sources so they can get you to redemptions more quickly. That does make the points more valuable.
Still if you put spending on a United, American or Delta co-brand you are effectively buying your United or American miles at 2 cents apiece. I like the signup bonuses on those cards. I like the pseudo-elite benefits they provide like free checked bags and priority boarding. But I don’t like putting unbonused spend on the cards because a single United mile or American mile is simply not worth 2 cents.
If you’re really close to an award it can make sense to spend on the card to top off your account. Miles at the margin that give you what you need to redeem are worth more. But in general and on average no individual airline’s currency is worth that much. You wouldn’t speculatively buy their miles at that price. I highlight offers when airlines are selling miles for less, but unless they’re selling for below 1.5 cents I’m pretty much not a buyer.
I publish a valuation of points. The only currency I value at more than 2 cents is Starwood Starpoints.
That’s why I believe otherwise-unbonused spend belongs on:
- Starwood Preferred Guest® Credit Card from American Express. I value Starwood points at 2.3 cents apiece.
- Citi Double Cash Card which gives you 1% back when you make a purchase and another 1% back when you pay for the purchase. This or similar no annual fee 2% rebate card is better for unbonused spend than an airline mileage card.
Some people prefer the Fidelity Visa because Visa products are good at Costco and you get the full 2% rebate up front, no wait until you pay your bill at the end of the month. On the other hand you have to open up a card account and you need a Fidelity account for the rebate to go into.
Regardless, if you are going to make purchases that earn only 1 point per dollar make sure you’re earning one of the most valuable currencies — which transfer one-to-one or better into a variety of different airline miles programs. That means for instance using a card like Chase Sapphire Preferred which earns transferrable Chase points.