Cashback vs. Airline Reward Credit Cards

Credit Card Tips by Curtis Arnold, CardRatings.com Founder/Public Relations Director

Savvy consumers should carefully consider the following disadvantages and advantages of airline reward credit cards. It may be possible to reap more benefits by trading an airline reward credit card for a cash back credit card.

1) Most airline reward credit cards come with annual fees and these fees can be steep. Airline reward cards that are associated with a particular airline, such as the American Express Delta Skymiles Gold Card, have the steepest fees. The Delta Gold Card, for example, comes with an annual price tag of $85. Cash back cards, on the other hand, normally don't have any annual fees.

High fees can wipe out any reward benefit that you might earn from an airline reward card. This is particularly true if you don't charge a lot on your card. For example, if you charged $8,500 a year on an airline card, it would take you approximately three years to earn a free domestic round-trip ticket (assuming that you must earn 25,000 miles to get a free ticket). During the three-year period, you could easily have spent a total of $250 in annual fees. The $250 you spent in annual fees could have bought you a round trip ticket on many discount airlines.

On the other hand, you could have earned at least $250 by spending $25,000 on a cash back card that offers a flat 1% rebate on purchases. Tiered cash back cards offer even higher rebate percentages based on your annual level of spending. For example, the American Express Blue Cash Card, which has no annual fee, offers up to a 3% cash rebate on select everyday purchases. With this card, if you spent $25,000 your cash rebate would be at least $310.

2) Beyond these rebate advantages, cash back cards have fewer restrictions than airline reward cards. For example, you don't have to worry about seating restrictions, the expiration dates of airline miles, or blackout dates with cash back cards. You simply get your cash rebate check in the mail or a credit to your account at the end of your anniversary year.

Despite such disadvantages, airline reward cards make sense in certain situations.

1) If you have to travel at the last minute, for example, you may end up paying big bucks for an airline ticket. Using a free ticket that you earned from an airline card in this situation could really work to your advantage. The same is true with seasonal price increases in airline tickets.

2) Another plus of airline cards is that many offer several thousand-bonus miles just for becoming a cardholder. Cash back cards usually don't offer such incentives

You can find a comprehensive list of airline reward cards and cash back cards, including reviews, by visiting the "Card Reports" section of our website, CardRatings.com.

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