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Reader Alexis asked the following question on the “Need award help” page of the blog:
Hi there- i have approximately 180,000 Chase Sapphire points saved up. I’m currently planning two trips for my boyfriend & myself:
1. Boston > Reyjkavik in July/August 2015 (approximate cost: $650 or 60,000 points/per ticket)
2. Boston > Bangkok in February/March 2016 (approximate cost: $1,000 or 75,000 points/per ticket)
Simultaneously, I switched from using my Chase Sapphire Preferred® Card to my Starwood Preferred Guest® Credit Card from American Express for ALL purchases (Except rent- can’t do credit) to load up on points (currently have 22,000 and counting)
Questions: Which trip should I use points vs cash? Which card should I primarily use?
I am so lost! Thank you so much for the help!
This is an especially interesting question, given that I think Alexis might want to reconsider her miles & points strategy.
What award is a better value?
Looking at the two trips, Alexis can redeem her points for the trip to Reykjavik, where she’d be getting ~1.08 cents of value per mile, or she could redeem them for the trip to Bangkok, where she’d get ~1.33 cents of value per mile. What the above totals don’t factor in, however, is the following:
- There are taxes and sometimes fees on award tickets, which aren’t factored into the mileage costs above. In other words, the value she’d be getting per mile is even less than the above.
- You don’t earn miles on award tickets, so when you factor in the mileage cost you have to account for that as well. In other words, if you’re flying from Boston to Bangkok on a paid ticket you might earn up to 20,000 miles, which essentially means that in relation to a $1,000 fare, the “real” cost of that award is 95,000 miles, since it’s the 75,000 miles you’re paying, plus the 20,000 miles you’re forgoing by booking an award ticket
Adjusting the above numbers slightly, here are the real costs of the options:
- Iceland: 65,000 miles (60,000 miles plus the 5,000 miles you’re forgoing) or $650 — value of 1.0 cent per mile
- Thailand: 95,000 miles (75,000 miles plus the 20,000 miles you’re forgoing) or $1,000 — value of 1.05 cents per mile
So the Thailand value is marginally better, but still isn’t a very efficient use of points, in my opinion.
In both cases she’d actually be best off using the “pay with points” option of the Chase Sapphire Preferred® Card, whereby she could redeem each point for 1.25 cents towards the cost of a flight. And then she’d also earn miles for those flights, since Chase is essentially paying for the cost of the ticket.
And that’s still far from the best use of Ultimate Rewards points.
“Traditional” points/miles aren’t for everyone
Generally speaking, traditional mileage currencies are most valuable for people:
- Looking to redeem for first/business class redemptions, given that they can be exponentially more expensive on cash tickets, yet are often only marginally more expensive when redeeming miles
- Those booking last minute tickets or tickets in markets where airfare is really expensive
In this instance, I don’t think either of Alexis’ trips fit in the above category, given that she’d only be getting about 1.0 cent per point of value, or 1.25 cents per point of value using the “pay with points” option.
Where should Alexis focus her spend?
I’ve said it before and I’ll say it again. For certain travel patterns, cash back credit cards represent a much better value. For example, the Barclaycard Arrival Plus™ World Elite MasterCard® offers the equivalent of 2.1% cash back towards travel.
That’s because you earn two miles per dollar spent, plus a 5% refund when you redeem miles. Each mile is worth one cent, meaning you’re basically earning 2.1% cash back towards the cost of travel.
Then when you redeem the Barclaycard Arrival Plus miles towards the cost of a ticket, you’re really booking a revenue ticket, which means you still earn miles for the ticket. It’s a win-win.
Assuming the two upcoming trips are pretty representative of the types of trips Alexis takes, I think she’s best off with a cash back credit card.
If she wants a more generic cash back card, she could consider the Citi® Double Cash Card. That card has no annual fee, and earns 1% cash back when you make a purchase, and then 1% cash back when you pay for that purchase. That ends up being like 2% cash back with no annual fee.
While I’m a big proponent of the value of miles, I don’t think a traditional mileage currency is best for everyone. If your spend patterns are similar to Alexis’, you can’t beat a cash back travel credit card like the Barclaycard Arrival Plus™ World Elite MasterCard®, or if you’re looking for a more generic cash back card, something like the Citi® Double Cash Card is tough to beat.