Giving Cash its Dukedom

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.
  • 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:

  1. 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!
  2. 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.
  3. 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:
    1. Purchase US Airways miles for 1.135 cents each.  Offer is available until the end of October.
    2. Purchase US Airways miles for 1.2 cents each.  Ongoing.
    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
    5. Use Priority Club’s Points & Cash trick to buy points for .7 cents each.  Ongoing
    6. 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.”
    7. Each spring, American Express sponsors the “Daily Getaways” in which it is often possible to buy various points and miles at deeply discounted rates.
    8. 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. 
  4. 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.
  5. 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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Comments

  1. Agreed…I find earning points much more exciting, but cash is much more practical. I’ve become a big fan of topcashback in the past few months thanks to you. It is almost always better than standard miles/points shopping portals even when factoring the value of a mile/point (with the possible exception of the Ultimate Rewards portal).

  2. .
    I would agree as well that cash is often a good or better option. For my part, I mainly use mile/point credit cards for sign-up bonuses. I can’t be bothered trying to keep track of which card to use for which type of transaction on daily spend and get my wife to do the same.
    .
    I use fatwallet or other cashback options in most cases unless I needed to top-off an account for a specific award. With a quarterly app scheme, I find I am finishing off our bonus spend about the time we get our new cards, so I can pay for something that gets cashback and helps meet spend for the bonus.
    .
    In truth, having an extra $1000 a year to spend at a destination instead of 100K points/miles works fine for me.
    .
    Ike

  3. I am a cash back person and have been following your advice to that end.I can’t always use your advice but pick and choose ideas from you that have netted me a large amount of cash. Thank you

  4. Agree cash is more practical, but except in cases where it is indisputably more valuable to grab a cash rebate than points, I always choose points. Simple reason: if I get points/miles, they all go toward funding travel. If I get cash, I feel obligated to discuss with my husband about if it’s used toward something else, whether that’s auto repairs or something more fun like restaurant meals. The only problem is he’s starting to catch onto points now…so his recently acquired 70K Delta AmEx has now been earmarked for wedding airfare instead of actual vacations (how will we earn status now?!). I guess it’s all about compromise? ;)

  5. Discover Card is offering $0.15 cash back per gallon of gas purchased at Wal-mart through December 24, 2012. In October I earned $16.58.

  6. Excellent post and some great ideas…. but like you I find it hard in most cases to take the cash unless it’s better deal by far.

  7. Since your metric is 1.5x cash for every point, you would pick points everytime for card use with the ink-vanilla-bluebird combo since there is no 7.5%+ cashback card. However, combining that with cashback portal purchases can make for a pretty balanced way to travel for free and get a little spending money.

  8. I’ve been struggling with the cash vs points decision recently, and have also found that its more satisfying to get points over cash. Its easier to justify the time spent comparing shopping portals and websites when you can see a tally of points earned doing it, while the cash just slips back into the back account and is forgotten.

    The 1.5cpm estimate is nice, but if you are doing primarily domestic travel or frugal family travel, that number should probably drop to 1 cent per mile. Meaning cash will almost always win. The reason I say this is because cash is so much more versatile. You are much more flexible on booking flights for example. And if you have no issues with using priceline or hunting down reduced rates on hotel rooms, you will find that hotel points are only worth using at very select cities and hotels.

    • AndrewC: Yes, good point about domestic travel. Miles are a good investment mostly for international travelers — especially those who want to travel business or first class. For those people, they could get the miles needed for those trips by buying them at 1.5 cents each or less. One just needs to be ready when the great deals are available.

  9. It’s not really accurate to say miles are woth 1.5 cents, because while you may not be willing to pay a premium for biz or first class, you still can get it with points, and you can’t buy it for 20-30% over what coach costs.

    Miles and points also give you the flexibility you can’t get with a paid ticket, like the stopover, open jaws, free one-ways, ability to change flights.

    Finally, at least for me, I always seem to be working towards minimum spend or topping off my UR account so I can’t find any spending to spare for the 6% grocery cashback. I will take advantage of cash-back portals though.

    • rick b: I didn’t say that miles are worth 1.5 cents. My point was that you can usually buy miles for 1.5 cents or less (see the examples listed). So, if you take a 1.5% rebate instead of 1 mile per dollar, you could end up with the same or more miles by using that money to buy them.

  10. Good post. Having a family with 3 small children – we are purely domestic travelers and are never going to buy that many first class tickets with points. I am big into this points game – we are going to Disneyworld next year for a week using free airfare and hotel via signup bonuses. BUT I still use a Target card (5% off at register) and I have an ancient grandfathered no fee Compass Cash card that gives 5% at gas, grocery and drugstores. Trust me – I am a computer programmer and have completely optimized my credit cards and when to use them and still I use these cards :). I know I can use the INK at OD, but that is too scary on a big scale, and I am just going to dip my toe into the Bluebird – mainly try it for car payments, water bill, etc. Thanks for the sanity check.

  11. I was struggling with this just last night. Had to buy a gift and chose Ice.com because it had 8 points/$ in UR portal. Purchase was $125, or 1,000 points. Searched for a coupon code and found 20% off, but had to use the link, which would have negated portal. I know rationally it would have made much more sense to save $31, but I chose the points because I find it more satisfying. Weird, and not rational.

  12. The one phenomenon I come across all too often in the travel blogosphere are point hoarders engaged in excessive spending for the sake of racking up a few points. The ole’ spend a dollar to save a nickel phenomenon.

    As someone who puts cash and frugality first (while still managing to rake in 7 figures of points the past two years), I find that kind of excessive consumerism a bit troubling.

  13. I do a mix – but similar to Tana above, as a family traveler who takes 1-2 trips a year my point hoard is reaching the point of diminishing returns, especially when finding redemptions for 4 people together gets tough. Makes hotel points more attractive since one room is easier than 4 tix.

    That said, the point sign on bonuses are generally bigger than the cash sign ons, so I’ll tend to direct my non-categorical spending towards min spend, and my categorical day to day to my cashbacks (BCP & Forward).

  14. I sometimes feel a twinge when I do a Upromise portal redemption knowing that money goes to the 529 plan, vs something fun. Still 5% is 5%.

  15. It’s an addiction…it does not have to make sense!!!! I am hooked on points!!!! There i said it. You can keep the nickels and dimes…give me points!!!

  16. 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.

  17. 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.

  18. 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.

  19. 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.

  20. @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 :)

  21. 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.

  22. 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.

  23. @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.

  24. 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.

  25. 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.

  26. 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).

  27. @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).

  28. 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.

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