Cash back, points or miles: what each one is worth after costs

The short answer

Start with what you want the reward to do. Cash can cover an ordinary bill or a trip. Points and miles follow their program's rules, so they are worth what you can actually redeem them for, after any fee and any transfer ratio.

Cash back is easier to compare, because $1 redeemed as cash can cover $1 of expense. A points card has to improve on a realistic alternative, such as a no-fee 2% card, after its annual fee. In Julia's example, the same $18,000 of spending left a card earning 3 points per dollar, with a $95 fee, $23 behind a 2% card at 0.8 cent per point and $85 ahead of it at 1 cent per point.

Cash back fits when you want flexibility and a clear redemption. Transferable rewards fit when you have a usable booking and can show better value after costs.

What the names mean

The labels can be confusing. Citi Double Cash earns ThankYou points that redeem for eligible cash at 1 cent each, and Chase Freedom cards also record cash back as points. Some rewards called miles can be used without moving them to an airline, and they don't necessarily measure distance.

Look at the redemption choices rather than assume points or miles always mean a travel strategy.

Cash back and the rest of the trip

Each $1 redeemed as cash can cover $1 of expense, whether you spend it on travel, save it or use it elsewhere.

Think about the parts of a trip that points wouldn't cover too. Airport transfers, meals and activities still need money. If a reward plan paid for the flight but left you short for everything around it, cash back might make the whole trip easier to afford.

Points for a flight: the transfer arithmetic

If you do want to use points for a flight, start with the trip you actually want. Match the baggage, dates, cancellation rules and convenience against the cash ticket you'd otherwise buy.

Say an award needs 30,000 partner miles plus $60 in taxes and fees, and 4 of your bank points transfer into 3 partner miles. That booking takes 40,000 bank points.

• If a suitable cash ticket costs $360, the points save $300 after the award's cash charge. That works out to 0.75 cent per bank point. If your program offered a 1 cent cash or purchase-credit option, Julia would take that route instead. Calling the flight an award doesn't make it the better deal.
• If the suitable cash ticket costs $480, the same award saves $420, or 1.4 cents for each of the 30,000 partner miles. You'd still be giving up 40,000 bank points, valued at 1.05 cents each. The transfer ratio is why those two point values differ.

Check the exact ratio and any minimum transfer increment before moving rewards. Transfers are commonly irreversible: once the rewards enter an airline or hotel program, its availability, expiration, cancellation fees and rules apply. Confirm a usable award and its rules first.

Does a points card beat a flat 2% card?

Say you spend $18,000 a year on eligible purchases at 3 points per dollar. That earns 54,000 points, and the card has a $95 annual fee. A no-fee 2% card earns $360 on the same purchases.

• At 0.8 cent per point, the points are worth $432. After the fee you keep $337, which is $23 less than the flat card.
• At 1 cent per point, they're worth $540, or $445 after the fee. That beats the flat card by $85.
• At 1.5 cents per point, they're worth $810, or $715 after the fee.

Don't choose the points card just because it earns 3 points per dollar. At 0.8 cent per point, you'd be better off with the simpler cash back. Before relying on either higher value, check your own account's redemption offer or find an available booking, because someone else's estimate doesn't tell you what you could get.

Include the fee needed to earn or use the points. The improvement is what you gain over a realistic alternative, not the full reward balance.

Read the redemption menu

An airline may price awards by route, demand or a chart. A bank may let you redeem its miles against eligible travel purchases. Check the rules behind the name.

Some programs give less for ordinary cash than for a credit against a qualifying purchase, and others offer weaker value at checkout than through cash redemption. Check both the points required and the dollars received before you confirm.

A statement credit also doesn't automatically count as a payment. It reduces the balance, but you still need to satisfy the payment shown as due, so keep your rewards and your payment routine separate. And pay purchases without interest: an extra 1% in rewards doesn't justify carrying a balance at a much higher annual interest rate.

Before you act

Reward freedom gets 20 of the 100 points in Julia's everyday Wallet Score. The questions behind it are where you could spend the value, whether a booking is available, how much you need before redeeming, and when the rewards might expire. A big points total doesn't answer those. Her Wallet Check is the actual purchase the rewards could cover, including the cash you'd still need for the trip.

On your issuer's page and rewards terms, check what the rewards redeem for and at what rate, the transfer ratio and increment, the annual fee, and when rewards expire. Julia's examples use round numbers chosen to show the method, not live quotes, and programs change ratios, fees and redemption options, so terms may have moved since the lesson was recorded.

For a flight, include the cash still due and what else you could do with your bank points. The better reward is the one that helps with a purchase you actually wanted.