Cash Back vs. Airline Rewards: Credit Card Smackdown 2009

June 1, 2009
By: Curtis Arnold

Savvy consumers should carefully consider the following disadvantages and advantages of airline reward credit cards. It may be possible to reap more benefits by trading your airline reward credit card in for a cash back credit card.

Most airline reward credit cards come with annual fees and these fees can be steep. Airline reward cards that are associated with a particular airline, such as the American Express Delta Skymiles Gold Card, have the steepest fees. The Delta Gold Card, for example, comes with an annual price tag of $85. Cash back cards, on the other hand, normally don't have any annual fees.

High fees can wipe out any reward benefit that you might earn from airline credit cards. This is particularly true if you don't charge a lot on your card. For example, if you charged $8,500 a year on an airline card, it would take you approximately three years to earn a free domestic round-trip ticket (assuming that you must earn 25,000 miles to get a free ticket). During the three-year period, you could easily have spent a total of $250 in annual fees. The $250 you spent in annual fees could have bought you a round trip ticket on many discount airlines.

On the other hand, you could have earned at least $250 by spending $25,000 on a cash back card that offers a flat 1% rebate on purchases. Tiered cash back cards offer even higher rebate percentages based on your annual level of spending. For example, the American Express Blue Cash Card, which has no annual fee, offers up to a 5% cash rebate on select everyday purchases. With this card, if you spent $25,000 your cash rebate would be at least $310 and could be as high as $990 depending on the type of purchases that you made!

Beyond these rebate advantages, cash back cards have fewer restrictions than airline reward cards. For example, you don't have to worry about seating restrictions, the expiration dates of airline miles, or blackout dates with cash back cards. You simply get your cash rebate check in the mail or a credit to your account at the end of your anniversary year.

A final consideration is that given the current financial challenges facing the airline industry, airline reward programs are more likely to be scaled back. Card issuers can normally scale back a rebate program with only 15 days written notice. Scaling back a program could result in such things an increased mileage redemption requirements or the elimination of bonus mile offers. In the worst case scenario, a rebate program could be eliminated entirely.

Despite such disadvantages, airline reward cards make sense in certain situations.

If you have to travel at the last minute, for example, you may end up paying big bucks for an airline ticket. Using a free ticket that you earned from an airline card in this situation could really work to your advantage (advance reservations are usually required). The same is true with seasonal price increases in airline tickets.

Another plus of airline cards is that many offer several thousand-bonus miles just for becoming a cardholder. Cash back cards usually don't offer such incentives

A final noteworthy advantage of airline cards is that many are now offering reduced mileage rewards. If you don't have enough miles accumulated for a free round-trip ticket (usually 25,000 miles), then you often have the option of getting discounts off a round-trip ticket price for fewer miles. For example, you may be given the option of getting a $100 savings voucher that can be applied toward any future ticket purchase for only 10,000 miles.

You can find a comprehensive list of airline reward cards and cash back cards, including reviews, by visiting the "Card Cards" section of our website.

Important Note! The information in this article is believed to be accurate as of the date it was written. Please keep in mind that credit card offers change frequently. Therefore, we can not guarantee the accuracy of the information in this article. Please verify all terms and conditions of any credit card prior to applying.