Cashback, Points, or Miles: What to Choose in a Credit Card?
We always say that not all credit cards are equal and that their rewards do not hold the same value. We understand that this can be confusing.
Depending on how you want to use credit card rewards, some will benefit you more than others.
Many people relate the rewards they earn to an equivalent of 1 cent per point, meaning they assume that 10,000 points or 10,000 miles would always be $100, but in reality, it's not the same to get $100 in cashback, 10,000 United miles, 10,000 Citi ThankYou® points, or 10,000 Hilton points.
Of these examples, only the $100 in cashback have a fixed and exact value, which would obviously be $100 USD, no more and no less. But what about the others? Let's take a look:
Generally speaking, credit cards in the United States typically offer one of three types of reward structures: cash back, points, or miles. This can be confusing because at times, the credit card itself refers to its rewards as “cashback” when it actually earns points, or as “miles” when it actually earns cashback, and there are even times when we earn cashback but this can also be used as points and vice versa. Nothing complicated, right? 😂
To overcome this confusion, we have to familiarize ourselves with each credit card rewards program and understand, regardless of how the bank wants to name it, what type of rewards we are truly earning and what is the best way to use them to get the maximum value out of them.
Let's see the differences between the types of rewards and explain them with examples.
Cashback
Cashback is literally what we know as a rebate when we buy something.
If a card offers us 2% cashback on all our purchases, by spending $1,000 we get back $20. Simple.
This cashback generally accumulates in a sort of “piggy bank” within our bank as we use the card, and when we want to use it, we simply redeem it as cash (transfer to our checking account or a physical check) or as credit to our credit card statement, and that’s it, it’s very simple.
Cashback is, therefore, a form of savings on our purchases. It's great, but it’s not the most exciting.
Miles
Miles, for the purposes of this classification, are those we generate through airline cards or through other means such as flights.
There are cards that are not airline cards that claim to earn “miles” just for marketing, but they actually earn cashback or points. An example of this is the Discover it Miles, which earns “miles,” but these can be redeemed for cash or as credit to the statement for travel expenses, which in practice makes them cashback.
On the other hand, Capital One travel cards earn “miles” from Capital One, but they are actually flexible like those from American Express or Chase. These are small but important details we need to know.
So when we talk about miles, we are specifically referring to airline miles.
If a card earns miles, we are talking about airline cards such as American Airlines, Delta, United, etc.
Points
Lastly, we have points, which can be classified into 2 subcategories: flexible (or transferable) points, which are the most valuable and where we want to focus, and non-flexible points, which function similarly to cashback.
An example of flexible points is Membership Rewards® from American Express, since in addition to the usual redemption methods, we have the possibility to transfer them outside of American Express to different hotel and airline loyalty programs, where we can get variable value for them depending on the specific redemption we make. It is worth noting that not all American Express cards earn flexible points; some earn cashback, others miles, and others hotel points.
On the other hand, non-flexible points are those that end up like earning cashback (or worse), as their redemption methods are limited, and the maximum value is equivalent to cashback.
An example of this could be the Bank of America® Travel Rewards Credit Card. This card earns points, but these have a fixed value because the maximum we get is when we redeem to pay part of our statement balance at a value of 1 cent per point; it’s not that they can be used directly for travel, nor can they be transferred from Bank of America for a higher value. If we have 10,000 points, their maximum value we will get is $100. They could even be worth less if redeemed for gift cards, for example.
There is one last subcategory we did not mention, which is hotel points. These act similarly to airline miles: they can be accumulated through co-branded hotel credit cards, or through stays. These points usually have a lower value than the rest (with their good exceptions as usual), but they are equally very useful for any traveling with points strategy.
Sounds complicated? It's not by chance.
All this complication happens because of how banks classify the rewards of their credit cards to compete with each other, even when they actually offer very different products. But you will see that little by little you will understand each program and which ones you need to pay more attention to.
Order of Priorities
1️⃣ Flexible Points
In our order of priorities, we want to primarily focus on cards that earn flexible points, as these are the most versatile and where we can obtain the greatest value. This includes, with some exceptions, cards from Chase, American Express, Citi, Capital One, Wells Fargo, and Bilt.
2️⃣ Airline Miles and Hotel Points
Airline miles, although can also be valuable, limit us to a particular program. If we have American Airlines miles, for example, we can use them within American Airlines either to book with them or another airline within the oneworld alliance, but not with other airlines. The same goes for United, Delta, and other airlines.
This category can also include hotel points, which are slightly less flexible in the context that they are usually only used for their own chain, but also depending on the redemption and the category of the hotel we choose, we can obtain a value much higher than cashback.
In other cases, there are points that offer an even lower value than what we can get from cashback, and it often isn’t worth accumulating them through their credit cards.
Since they can offer good value but with certain limitations, airline miles and hotel points rank in the middle within our priorities.
3️⃣ Cashback and Non-Flexible Points
Finally, in our priority, are cashback and non-flexible points, which ultimately end up being like cashback.
This is because cashback has a fixed value, regardless of how it is used. $200 in cashback is $200 in cash, while flexible points and airline miles can have more or less value depending on how they are used.
20,000 points may equal $200 in cash, or a night in a luxury resort that would cost $600 in cash. An enormous difference.
Cashback is great for “complementing” our credit card strategy and can be used to cover expenses we will have in cash or even for those trips that cannot be optimized with points and miles or the actual expenses we will have on our trip, but it is not part of the main strategy that applies to hotels and flights.
To The Point
Choosing the best rewards strategy with credit cards is not just about accumulating points or miles without a plan, but rather understanding how they work and how to maximize their value. While cashback offers simplicity and certainty, flexible points and miles can get us a much greater value when used strategically for travel.
To get the maximum benefit, our priority should focus on flexible points, followed by airline miles and hotel points, leaving cashback and non-flexible points as a complement, but not the main focus.
By knowing the differences between these systems and learning to use them wisely, we can turn our day-to-day expenses into nearly free travel experiences.
