Cash back vs. Points: Which Travel Reward is Better? – Episode 170
Understand the differences between cash back vs points vs miles. In the world of travel rewards and credit card perks, terms like points, miles, and cash back are often thrown around. However, there are key differences, and understanding the nuances can help you achieve your travel goals sooner. But what do they really mean, and how do they differ from each other? Dave Grossman, a seasoned travel rewards expert, breaks it down.
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Cash back vs Points: How To Choose the Best Option
Cash back
What is cash back?
“Cashback” is a straightforward concept. It’s when you receive a percentage in cash back from a purchase. The redemptions are simple: as you spend money, you earn funds back and build up a balance.
Wondering how to use cash back?
These “cash back” funds can be redeemed as a direct deposit into your checking or savings account. They can be used to erase a purchase, receive statement credit, obtain gift cards, or checks in the mail. Use them for anything you need!
So taking the example of a 2% cash back credit card, when you make a $100 purchase, there’s $2 sitting in your account for you to redeem.
Cash back can be earned by making purchases with a cash back credit card or debit card.
It can also be earned through shopping and dining portals, where you earn cash back or points for making purchases through affiliated retailers.
Websites like Rakuten (formerly Ebates) allow you to earn cash back or points for online shopping, which can be converted into American Express Ultimate Rewards.
Read Next: How To Earn Cash back with Rakuten
Using tools like Cashback Monitor can help you find the best rates for earning cash back or points on purchases.
Is cash back taxable?
According to the IRS, cash back is generally not taxable since it’s considered a discount or rebate. Speak to your tax professional for specific tax advice.
Miles
“Miles” are earned on airline loyalty programs. Hotels have equivalent rewards, which they call “points.”
Helpful Tip: Some airlines call their rewards “points” too. Miles and points may be used interchangeably.
Generally, you can only earn and redeem miles/points through a specific airline or hotel loyalty program. If you wanted to fly on a different airline or stay at a different hotel chain, you may not be able to do so using those miles or hotel points.
Miles are the most inflexible travel rewards, typically redeemed for free flights or hotel upgrades and stays.
As for loyalty programs, here are a few:
- Delta has Delta SkyMiles
- JetBlue has TrueBlue
- American Airlines has AAdvantage
- Hilton Hotels has the Hilton Honors
- Marriott has Marriott Bonvoy.
Points
“Points” are transferable and typically issued by a bank. These points can be transferred to various airline and hotel partners, providing flexibility in booking flights and accommodations.
If you are looking to fly business or first class, focusing on earning points may be the best option.
Points can be earned through credit card sign-up bonuses, everyday spending, and utilizing shopping and dining portals. Opening small business credit cards can also provide larger signup bonuses and additional bonus categories for spending like office supplies.
Helpful Tip: Some points and miles programs have expiration dates. For example, American Airlines AAdvantage miles expire after 24 months of inactivity.
Which travel rewards should financially savvy travelers prioritize earning and why?
Both cash back and miles have their limitations. Dave Grossman recommends earning transferable points, such as Chase Ultimate Rewards, American Express Membership Rewards, Citi ThankYou Points, or Capital One Miles.
These points offer flexibility as they can be transferred to various airline and hotel partners, allowing you to find the best redemption options for your travel needs.
Transferable points provide the ultimate flexibility in booking flights, as they can be used across multiple airline alliances and partners, maximizing the chances of finding available award seats.
Furthermore, transferable points programs often offer special transfer bonuses, allowing travelers to earn even more points when transferring to specific partners.
Is it better to earn miles or points?
Overall, focus on earning flexible points rather than miles because points can be converted to miles but not vice versa. With points, there’s way more versatility in redemption options.
What is the best travel rewards program?
According to Dave Grossman, there isn’t a single best travel rewards program.
He mentions that some people prefer the Chase ecosystem for its simplicity and the ability to earn higher rewards by pairing cards together, like the Chase Freedom Unlimited and Chase Sapphire Preferred Card.
Chase Ultimate Rewards is part of the big four transferable points programs, along with American Express Membership Rewards, Citi ThankYou Points, and Capital One Miles. These points can be transferred to a variety of airline and hotel partners, providing flexibility in booking flights and accommodations.
For example, Chase has partnerships with airlines like United and Southwest, making it familiar and convenient for many travelers.
Chase’s partnership with Hyatt is also very valuable. Dave mentioned that he personally gets the highest-value hotel redemptions from Hyatt.
Chase’s program also allows you to earn points through various bonus categories, such as dining and travel, making it easy to accumulate points quickly toward free travel.
Ultimately, the best travel rewards program is the one that aligns with your individual preferences, spending habits, and travel goals.
What are ways to earn points and miles?
Here’s a list of popular ways to earn travel rewards.
- Join loyalty programs, fly with specific airlines, or stay at hotels.
- Open new credit cards with lucrative signup bonuses.
- Utilize credit cards with bonus categories for spending on gas, groceries, dining out, car rentals, and more.
- Using shopping and dining portals, platforms where users can earn bonus miles or points by making purchases through affiliated retailers or dining establishments.
- Activate targeted promotions and bonus offers.
- Take advantage of small business credit cards for larger signup bonuses.
Disclaimer: It’s important to be mindful of credit card balances. Always pay credit card balances in full to avoid incurring high interest rates or late penalties which cut into your reward benefits.
About Dave Grossman
With over 15 years of experience traveling the world in first class using points and miles, Dave Grossman is a wealth of knowledge in the travel hacking space.
He has saved tens of thousands of dollars using frequent flyer miles and shares his expertise through his website, MilesTalk, and resource Your Best Credit Cards.
Your Best Credit Cards helps users find the best credit card for their unique lifestyle. Use the “Card Explorer” feature to filter cards based on your preferences. Or sign up to receive bonus offer notifications to hear when credit card signup offers increase.
In this podcast episode, Dave shares valuable insights on earning and maximizing rewards to afford business and first-class tickets. He emphasizes the importance of flexibility, strategic planning, and utilizing tools to make the most of your travel rewards.
Listen to this podcast episode on Spotify.
Other Travel Hacking Episodes You’ll Enjoy
Easy Ways To Earn Thousands of Points and Miles a Year – Episode 123
6 Travel Hacking Mistakes To Avoid – Episode 94
How To Get Free Hotel Upgrades with Julia Menez from Geobreeze Travel Podcast – Episode 79
Read the full transcripts of this podcast episode.
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Danielle Desir Corbett is an award-winning and 6x grant-funded travel writer and podcast host who went from financial struggle to visiting 27+ countries all without waiting until retirement. Her story is proof that budget doesn’t limit adventure. Tune into The Thought Card Podcast for practical strategies to travel smarter and live on your terms. Say hello: thethoughtcard (at) gmail (dot) com.
