Cash Back Rewards vs. Miles: Which Type of Credit Card Rewards Are Better?

When it comes to credit card rewards, there are many different programs. But all of them fall into one of two general categories: First, there are cash back or other fixed-value rewards, such as rewards points that can be redeemed for a predetermined value. Second, there are award miles that are redeemable at a specific airline or hotel brand for travel purchases. And if you're in the market for a new credit card, you might be wondering which is the better option.

The short version is that miles are often more valuable in terms of actual redemption value, but only in some situations and only to certain people. Generally speaking, airline-specific miles are worth more than generic miles. However, the value of airline miles varies depending on the specific flights you're booking, while both cash back rewards and non-airline miles are far easier to value.

For example, if your credit card earns 1% cash back, it's easy to figure out how much you'll get back from your spending. And the same can be said for rewards such as Capital One miles, which can be redeemed at a fixed value of $0.01 each for travel purchases.

However, when it comes to airline miles, the answer is a bit tougher.

How much are miles worth?

There's no perfect answer to this question. Still, let's take a look at an example so you can figure out how much airline miles can be worth to you.

I use the Citi® / AAdvantage® Executive World Elite Mastercard® for many purchases, and this card earns American Airlines miles. American is by far the most convenient airline for traveling from my local airport, and I've found that if I'm strategic about redeeming my miles, I can get far more value from them than from any cash back rewards credit card.

However, as I said earlier, this is very situation specific. So, let's look at a real-world situation.

I'm in the process of planning a trip to Europe with my family and we'll need to fly to London. For our dates and preferred flight times, round-trip tickets are listed at $1,197 for the main cabin or $4,545 for business class on the same flight. If I choose to use miles, the redemption cost is 51,000 miles plus $414.05 in fees for the main cabin, or 113,500 miles plus $1,044 in fees for the business class seat.

After backing out the cost of the fees, this means that I'm getting about $0.015 in value for my miles if I choose to buy the main cabin ticket, or $0.031 per mile if I splurge on the business class seat. (Note: Business or first class on international travel is often the best value for airline miles.)

Meanwhile, most cash back rewards credit cards earn $0.01 to $0.02 back for every dollar in spending. My Citi® / AAdvantage® Executive World Elite Mastercard® earns one mile per dollar on most purchases.

This was an extended way of saying that the value you get for miles can vary widely depending on how and when you redeem them. On the other hand, cash back credit card rewards have straightforward value. If you charge $10,000 in purchases and have a 1.5% cash back rate, you know you're going to earn $150 in rewards. But if I charge $10,000 in purchases and earn 10,000 AAdvantage miles, the value I'm getting is far more uncertain.

The bottom line: Cash back vs. miles

Obviously, if you don't travel much or you don't want to commit to traveling on a specific airline, earning airline miles probably isn't the best choice for you, regardless of how much redemption value you can get.

On the other hand, if you travel often, it becomes a question of whether you prefer the predictability of cash back rewards or if you don't mind doing the legwork required to truly maximize the value of your airline miles. And only you can answer that question.