Credit Cards

Earning Miles vs. Cash Back: Which Makes More Sense?

A while back, I wrote about the merits of using cash back rewards to cover manufactured spending fees vs. travel expenses. An interesting question came up: “Why not just use a travel rewards credit card from the get-go instead of a 2% cash back card?” That’s a valid point, though I personally earn both miles and cash back in order to off-set manufactured spending fees and diversify my rewards balances. Why? Because there are times when paying for travel makes more sense than redeeming miles. So I use 2% cash back cards (and the Discover It Miles Card) to generate extra cash for that purpose. If I don’t end up using the cash for travel, I’ll use it to cover award taxes, fees, and manufactured spending costs incurred from airline credit cards. It’s a win-win situation.

Discover It Miles Credit Card 3% Cash Back Bonus First Year
Maximizing the 3% Cash Back Bonus

So when does it make more sense to use cash back rewards rather than airline miles for travel? I like to put that question to the spending test: How much would I have to spend on a 2% cash back card vs. an airline/hotel credit card in order to cover a travel expense? I go with the option that requires the least amount of spending. For example, let’s say Hainan Airways runs a $1,900 roundtrip business class airfare sale to Beijing. You need to decide between paying for this trip with cash back rewards vs. airline miles. Which works out cheaper?

Generating $1,900 via a 2% cash back card would require $95,000 worth of spending. Meanwhile, earning 100,000 Alaska miles through the Bank of America Alaska Card would require spending $100,000. You could channel $80,000 towards the SPG cards and get 20,000 points in transfer bonuses, but I’d rather avoid the the hassle of a Financial Review. That’s another advantage of 2% cash back cards – banks issuing them tend to be less aware of manufactured spending and less likely to shut you down for it. Thus, I would opt to earn cash back over airline miles in this case scenario. Besides paying less, you’ll also earn miles on these flights. Another win-win situation!

When you’re trying to decide between redeeming airline miles and cash for travel, put it to the spend test. Figure out how much you’ll have to spend on an airline vs. 2% cash back credit card for the flight. If you’re not earning miles via credit card spending, then you might want to think about how much your points are worth to you. Generally, airline miles are valued at around 1.5 cents each. If that’s the rate at which you’re redeeming miles, you’re better off earning 2% cash back. Redeem your miles for first and business class travel and you’ll most often exceed this value.

So where should you channel most of your credit card spending?  Everywhere. Last year I spent well over $1 million on gift cards, spreading it across credit cards that earned cash back, miles, hotel points, and flexible rewards. When it came time to redeem points, I was able to get maximum value out of my rewards because I had options. I recommend you do the same: Spread your spending (manufactured or otherwise) across both rewards and cash back credit cards. Treat the cash back rewards like a travel spending account and put it to good use if redeeming miles doesn’t make sense.

What do you prefer: Cash back or miles?

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  1. Ariana, The other point that should be made for cash back cards is that they pay for things like airlines that you don’t have points in their programs. Also, things like cruises and expensive limo rides. I consider my Arrival Plus as one of the best in my wallet and generate those points through MS. I get the one-time points but rarely do MS anymore on those cards. Sometimes a hotel falls in that price range that I do not use hotel points but pay for it with the Arrival Plus and then redeem points. I am just limited by WM tightening down on their practices.

  2. No mention of the need, or otherwise, to pay tax on the CB vs miles earned?

  3. Agree that spreading out the MS and regular spend is best. Don’t push too much on one card. Spread it around. Also like the flexibility

  4. Jerry Mandel

    Cash back is feeble compared with signup bonuses. At 1.5%, you would get $150 on $10,000 spending. For $10,000, I can get a bunch of bonus miles and points = flights and/or hotel nights worth $hundreds or $thousands.

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