Tl;dr: cashback for low spenders, miles for high spenders, and leave a comment if you want my recommendations
It’s up there with age-old rivalries: cats vs dogs, DC vs Marvel, Coke vs Pepsi, iOS vs Android… If you have spent any time at all trying to pick a credit card, you’ve probably pondered between cashback and miles at one point.
It seems to me that most people in this debate are quite polarised and are firmly on one side or the other. Personally, I chase both and have no allegiance to either camp, and I’m of the opinion that this really depends on the person. It’s not that much different from picking your smartphone platform since it boils down to your personal habits and preferences. If you’re picking a strategy to embark on, or wondering if you should switch to the other side, I hope I can clarify it for you.
Once you start researching on credit cards, it’s pretty obvious that they are split between cashback and miles, but perhaps less apparent is that these two groups can be further subcategorised. In order to embark on an efficient credit card strategy, one must know two things: the type of cards available, and the type of person he/she is.
There are 4 types of cards…
- Unconditional miles cards
- Unconditional cashback cards
- Conditional miles cards
- Conditional cashback cards
(I refer to points cards as mile cards, and you should find out the difference here.)
As the name suggests, unconditional cards generally have neither caps nor minimum spends, and tend to award miles/cashback on almost all transactions. In return for this lack of fuss, the reward is low: between 1 to 1.5 mpd for miles cards, and 1.5% cashback for cashback ones.
Conditional cards set forth certain requirements and offer higher rewards. OCBC Titanium Rewards, for instance, offers 4 miles per dollar spent, but only on clothes, departmental stores, and electronics. To receive a full 5% rebate on DBS LiveFresh, one must clock $400 spending on online transactions, and at least another $200 on PayWave payments (the reverse of $200 online/$400 PayWave also works). They tend to be subjected to various caps, some annual and others monthly.
… and there are 4 types of people
Maximising your rewards thus highly depends on how diligent you are to spend on cards in an optimal manner. I’ve noticed that there are simply two kinds of people in the world when it comes to financial stuff: there are the optimisers, and then there are the ones who rather not waste brain cells on such matters.
You can further categorise these two groups of people into the high spenders, and the low spenders.
Cashback for the low spenders
Miles are a lot more valuable when you redeem longer and more expensive flights. If you don’t spend much and finally accumulate about 25,000 miles, you can only go to nearby places like Bangkok on SIA’s economy class. The airline often offers promotional, all-in fares of around $200 for such flights, which means you are getting only about $200 for 25,000 miles. It is worth significantly less, in fact, because you have to pay airport taxes (a staggering $85 for Bangkok) and conversion fees (typically $25) for your bank points.
Even at a high 4 mpd rate, 25,000 miles needs $6,250 of spending. A rather low 3% cashback rate gets you $187.50, while 5% gets you $312.50. Cashback is a no-brainer for maximisers who can (and should) clock at least 5% cashback for their spending.
For people who aren’t maximisers, 25,000 miles requires about $20,833 in spending on a 1.2 mpd. A 1.5% cashback card easily gets over $300 on this amount.
Because one needs a certain number of miles before it makes sense, people who spend a relatively low amount would be better served with cashback cards. They get the reward upfront and don’t have to worry about miles expiring, or being devalued (the number of miles required for flights is constantly being increased from time to time).
Horror story: a friend clocked a bunch of points on a 1.2 mpd card and then used them to offset his credit card bill instead of going for higher value items like miles. He didn’t spend much so he didn’t have many points to make mike conversion meaningful, and doing this got him a grand cashback rate of 0.6%. Why even bother when 1.5% unconditional cards exist?
Summary: If you don’t spend much, just get a cashback card. 1.5% unconditional ones if you’re lazy, but do a little work and try to achieve a few easy conditions for 5% and above.
Miles for the people who spend
Miles truly start to shine when you have a bunch of them, which is why high spenders get the best value by being able to accumulate them quickly.
When someone spends $19,000 with at 4 mpd, he gets 76,000 miles which translates to a flight to San Francisco on SIA’s economy class, or about $1,200 in value. That’s equivalent to more than 6% cashback; not easy to find in today’s cashback environment.
The value of miles gets even higher with business and first class flights – typically tickets that the average Joe not born to riches wouldn’t even consider purchasing with cash. It thus unlocks experiences that we can’t sensibly afford.
Using a 1.2 mpd card for $20,000 of annual expenses gets you to Bangkok on economy at best, but at $200,000 you are looking at a trip to US in business or even first class. A 1.5% cashback card gets you $3,000 which doesn’t come anywhere close to buying that ticket for you.
Horror story #2: a friend had a large sum of $200,000 to pay off, and he used a 1.5% card. $3,000 of cashback sounds respectable, until you consider the fact that he passed on 240,000 miles on a 1.2 mpd card, enough miles for a round-the-world ticket to 7 cities comfortably in business class. Yikes.
Summary: if you spend a lot, clock it on miles. The value of miles increases when you have more of them.
Optimisers with lots of spending
As a person who has a compulsion for optimisation as well has a few avenues of spending between my business, family and friends, I’m talking about myself here. I think this is where the fun begins, and really the point of this blog which can’t quite fit into this post alone. I hope to share more strategies, guides and tricks in future articles.
If you want to know my card recommendations for you, leave a comment with your monthly spending habits and whether you have a preference for miles or cashback. I’ll answer until I grow tired or risk revealing trade secrets I intend to keep to myself 🙃