It can feel like quite the financial coup to book a vacation entirely on points. (Airfare to Paris for $0 out of pocket? Yes, please.) But when the possibility of cash back is also on the table, it can be tough to know which is the better value. That’s why we called on Julian Kheel, director and senior analyst at The Points Guy, to teach us how to calculate the best choice.
First Things First: What Are the Points or Miles Worth?
For example, the Citi AAdvantage Platinum Select World Elite Mastercard is currently offering a bonus of 50,000 miles. The Points Guy values American Airlines AAdvantage miles at 1.4 cents each. Multiply 50,000 miles by 1.4 cents and it’s clear that the bonus is worth $700.
You can use the same system to determine whether the ongoing rewards on a travel card are better than those on a cash-back card. For instance, the Citi Double Cash Card earns 2 percent cash back on all purchases, while the Hilton Honors American Express Card earns 3 Hilton points per dollar on most purchases.
According to valuations by The Points Guy, Hilton points are only 0.6 cents each, so for each dollar you spend, you’re only getting 1.8 cents—less than the 2 cents per dollar you’d earn with the Citi Double Cash.
There Are Other Factors to Consider
Things like welcome offers and sign-up bonuses (common with credit cards that offer travel miles) can tip the scales when it comes to determining which card yields the better reward. The Chase Sapphire Preferred Card offers a sign-up bonus of 60,000 points (worth $1,200 when used on almost 13 partner airlines and hotels, according to The Points Guy’s latest valuations) after you make $4,000 in purchases in your first three months of opening an account. Cash-back cards, on the other hand, tend to offer sign-up bonuses that are worth a couple hundred dollars at most.
It’s also good to note things likes bonus spending categories (for example, the Chase Sapphire Preferred Card offers 3x Ultimate Rewards points on all travel and dining purchases) and annual fees (some annual fees are upwards of $350, which detracts from any points benefits).
To truly determine the worth of the rewards a particular card is offering, you’ll need to look up the valuation (info that is regularly updated at The Points Guy) and multiply that number by the bonus amount.
That said, Kheel does have a top pick for each type of card: "The Citi Double Cash is a solid, everyday cash back card that will serve most people well, and the Chase Sapphire Preferred is a great overall travel rewards card that can fit the needs of both beginner and advanced travelers.”