Frequent Miler on the Air - When are points better than cash & vice versa? | Coffee Break Ep39 | 12-31-24

Episode Date: December 31, 2024

The Smartly Credit Card (with opportunity for up to 4% cash back everywhere) has us wondering...when should you value cash back over other points and miles or transferable currency rewards? (00:26) - Smartly Credit Card: Up to 4% cash back Learn more about the Smartly card here. (01:21) - Using 2x everywhere points card is like buying points for 2 cents each (05:12) - So, is cash the final answer? No! (09:07) - So what's the ideal strategy? (13:36) - Learn more about the Hyatt milestone spending here. Visit https://frequentmiler.com/subscribe to get updated on in-depth points and miles content like this, and don’t forget to like and follow us on social media. Music Credit – Beach Walk by Unicorn Heads

Here we go. This is not your typical Frequent Miler on the Air episode. This is a standalone segment we're calling Coffee Break. Each Coffee Break segment will cover a single topic related to miles and points. And each Coffee Break is limited to 20 minutes or your money back. Enjoy. Today's coffee break. When are points better than cash and vice versa? So the smartly credit card, which lets you earn up to 4% cash back everywhere, has us questioning the value of earning points when we could be earning big cash back instead. That's right. We could be earning cash back bigly. And so there's an opportunity there.

And it's relatively easy for most people to be earning quite a bit of cash back. The top rate requires a good bit of deposit. But I think for a lot of people, this is a pretty accessible way and an important comparison point, I think, to make between the different options out there. Yeah. So, you know, for those who can get the 4% cash back, you know, there's a big opportunity cost now to using other credit cards for rewards. For example, when you're earning two points per dollar everywhere, we used to think that was fantastic. It's still pretty darn good. But all of a sudden, if you're choosing to earn two points per dollar everywhere instead of 4% cash back,

that's like you're paying two cents for every point you're getting. And that might be a good deal depending on your situation. But usually we don't think of two cents per point as a great place at which you want to buy your points. Right, yeah. I mean, it's a pretty expensive rate at which to be buying points at that rate. And that's if you're comparing against a 2x everywhere and and when we say buying points i mean i guess you're not literally buying the points right but but essentially you're giving up the opportunity so if you could get four pennies and instead you're picking two points then you're giving up the opportunity for two pennies for every point that

you pick up so and that's based on a 2x card if you were doing spending on a 1X card, I mean, my goodness, I could see, you know, player one's getting unhappy with player two's doing 1X spending because it's like paying four cents for every point. And, you know, while premium cabin redemptions can be really nice and all, four cents per point is like, that's way more than I would ever pay for a point. Oh, a hundred percent. And, you know, there's a lot of people out there uh you know spending on their delta cards and getting mostly 1x and and delta miles it's really rare these days to get

outsized value usually only getting around one cent per point value from your from your miles and yet people do it because they like delta or whatever but but the opportunity cost is big and it's real in those kinds of situations. Yeah, and even category bonuses that look pretty good, like a 3X category bonus is still not really cheap because again, compared to the 4% that you could potentially be earning with the Smartly card, it's like you're paying 1.33 cents per point.

That's a pretty big cost. Yeah, it is. It's significant enough to at least think about it. I think for a lot of us, it may be worth it, but you should at least be going in with that mindset. Now, even if you like your points, even if you like getting outsized value with points, getting 4% cashback might still be the best way to do that because points go on sale often. And so, you know, look at like Hilton and IHG that often sell their points on sale for half a cent each. If you use the cashback from your 4% cashback card to buy those points when they're on sale, it's like you're earning eight points per dollar for all your spend. Right, right. I mean, that would be really good, right? I mean, or it would feel really good,

particularly if you really like Hilton points, if you like them for SLH redemptions and stuff like that. I mean, that's pretty nice. And that's not the only one, of course, if you prefer airline miles, airplane and life miles, sell their miles at least occasionally for 1.3 cents per point. And so if you're earning this big pile of cash back at 4% back, it's essentially like earning three miles per dollar if you use that cash back to buy miles when they're on sale for 1.3 cents per mile, which again, 3X everywhere. Like if there were a 3X everywhere card, everybody'd be screaming about that, right? That's right, that's right.

And yet, here you go. We sort of have it. It's just that you have to redeem your cash back when there's a sale on the miles in order to get that rate. Right, right. But like if Aeroplan or Avianca LifeMiles came out with a credit card that offered three miles per dollar flat rate on all spent,

like wouldn't everybody be like, oh my goodness, you got to get this card right now, right? It would be big. It'd be a big deal. Yeah. Yeah. All right. So is cash the final answer? Should everybody be just earn cash and forget about the points and miles? Yeah, I think so. All right, let's go home. Pack it in, Greg. It's done. It's done. FrequentMiler done. It's just 4% on the Smartly card now from now on. Can I at least get another cup of coffee before's go home. Pack it in, Greg. It's done. It's done. Frequent miler done. It's just 4% on the Smartly card now from now on. Can I at least get another cup of coffee before we go home? One more cup. One more cup.

We're closing up shop here because that's all there is to it. I mean, it makes a pretty compelling case. I can't lie. If you can get that, first of all, I don't think it's going to last forever. So let's be clear. I don't think the 4%, I think that seems unsustainable in the long term. I think it'll probably be around for at least a year. Maybe it'll be around longer than that. I'd love to be wrong. Probably not going to last forever, though. If you did have the option for 4% forever, that

would be pretty good, but not necessarily the be all and end all, right? Why not? Yeah. I mean, so this idea of buying points when they're on sale. It's like a nice, almost theoretical idea, but the reality is that opportunities come up to use points to get outsized value when there's no sale available. I mean, so like often you have to jump on something. You know, maybe you all of a sudden see that there's a whole lot of award space

on Air France or KLM to fly to Europe for 50,000 miles each way in business class. And you could do your whole family that way if you wanted to. That really happens. But oh, wait, you didn't buy the Air France, KLM flying blue points when they're on sale. I don't even know that they go on sale that often. But the point is, like, you're going to see that kind of stuff. And then you're going to be missing out if you don't have any transferable points, at least where you could transfer to a program like that. You know, then there's, there's other, you know, things like like Hyatt, where the points rarely go on sale, or if they do, they're still pretty expensive. And you can so often get outsized value. And so the strategy is not really going to help you

much in that kind of situation. Yeah. I mean, you want to have some buckets of points available for those things. The good things come up, or you want to book a positioning flight. Booking an award ticket has advantages because, of course, you can cancel without any penalty or sometimes a cancellation fee. It depends on the airline. But a bunch of the US-based programs, at least, don't have cancellation fees on their awards. So you can cancel right up until relatively close to departure with a lot of US-based programs. So there are advantages behind having those miles because it gives you flexibility over cash. Although cash, I think overall, most people would agree is a more flexible instrument than miles and points, but miles and points unlock some opportunities that

cash either can't or you would need a lot more cash in order to unlock. So yeah, I agree with you. There are some of those situations that you're going to want points for. I feel like I've frequently run into situations where i've been like really happy i've either had the miles that were needed for for a you know a spontaneous opportunity or i had transferable points that could give me those miles quickly right um but i still love the fact that when united had this weird sale uh where where you could fly for 60,000 points pretty much anywhere in the world in business class that my wife and I hopped on that and got flights to New Zealand during peak, peak season, which winter to us and summer to them.

And that kind of thing, I guess if you're earning enough cash, you could pay the cash rate, but that's going to wipe out all the advantage of earning 4% over 1 or 2x. So, okay. So then what would you do? I mean, does that mean you would spend at 2x instead of earning 4% back? Like, how are you going to earn those transferable miles and points? You already agreed with me that that's expensive, right? Right, right. To spend at 2x.

How about this as an ideal strategy what if what if we say yeah um just earn the when you're when you're doing regular spend just spend everything on that that four percent card i mean if you have a card that has like a 5x category bonus fine do that but but you know you should be feel fine just using that four percent everywhere because it's pretty close to the top you're going to get. But then still earn lots of points and miles through new card welcome bonuses, through targeted card bonuses that a lot of issuers offer regularly, through retention bonuses when you call and say, hey, they're going to have canceling and they offer you a big reward for staying. Referral bonuses when you're for friends or family members. There's lots of ways of earning points and miles and often transferable points, which are so much better than specific points because then you could get the types of points that are needed for many situations.

There's so many ways to do that, and so why not sort of divide and conquer in that way? Obviously, someone might say, but wait, when I'm working on these welcome bonuses and some of these targeted bonuses, they require spend. Yeah, great. Use those credit cards for that spend because the rate of return usually, unlike a welcome bonus, is over 10 points per dollar usually. And then for cash back, you do the spend with your 4% card and maybe you sign up for some bank bonuses as well. So you have your cash back store that you, maybe you mark that for travel type things. Yeah, you know, like Greg said,

there are so many ways to earn transferable points other than day-to-day spending. And I would venture to guess that for a lot of people listening that are into this, you probably earn, well, I don't know about you in the general sense, for a lot of people listening, they earn the majority of their miles and points, not from like everyday purchases, but rather from the welcome bonuses.

Yes, they're making everyday purchases to meet the spend for the welcome bonuses. But probably they're not spending enough at three, restaurants to make a remarkable difference in their mile balance over the course of the year. What really makes a big difference is those big welcome bonuses and referral bonuses and shopping portals. I mean, don't forget those two. You got like Rakuten, where you could be earning MX membership rewards points, clicking through to buy something from a popular retailer for a good return and using your 4% cash back card to buy it, but earning a bunch of membership rewards points while you're doing it. So I totally agree with Greg. I think the 4% card would be like your everyday driver that you use on different stuff. And what I like about this card is to the altitude reserve. We've talked about a bunch over the last couple of years, because that

earns three X mobile wallet. And, you know, the short story skipping ahead a few steps is that it's essentially possible to look at that as sort of four and a half percent back if you use the rewards the right way without getting into all the detail there. But that's on mobile wallet purchases. So that's great for in-person spend. I mean, you're going somewhere and you're spending money. But if you're buying stuff online, if you're buying stuff at Costco.com or you're paying bills that are online, then you're not getting that increased rate unless you're paying with Apple Pay Online. I've heard from Apple users

that you can get that with Apple Pay Online, but you can't with Google Pay. I haven't gotten the 3X when I'm on a web browser ever. So anyway, a lot of those types of purchases would be better off on this Smartly card if you had access to that. So yeah, I agree. Yeah, and also like, because you have to jump through hoops would be better off on this smartly card if you had access to that so yeah so yeah i agree yeah and and also like because you have to jump through hoops to get the four and a half percent with the

altitude reserve like it's just easier to get the cash back you know withdraw it to the bank account as soon as you earn it so it starts earning interest you know your altitude reserve points aren't going to be earning interest uh you know until you sort of redeem them and get the equivalent of cash back from them. But yeah, so it's a good way to go. Now, I don't think it's the be all end all for everybody. Like, I do think that's a good general strategy, especially for those who can get the 4% card and get 4% from it, I guess I should have said. I think there are people who, you know, legitimately highly value things that you can get from big spend on certain cards. Like, so take, take the Hyatt card, for example, I wrote a post and had a spreadsheet about this, how like as you earn – with the Hyatt credit card, your spending can earn you elite nights, which in turn can earn you Hyatt milestone rewards and the elite status you get from Hyatt, you can estimate the value you're getting per dollar of spend

from the Hyatt credit card. And with the spreadsheet I created, you can see that depending on how highly you value these things, at some spend levels, it's like you're getting over four points per dollar on all your spend, as long as you could sort of stop at certain thresholds. And so, you know, I think that's a totally legitimate, another way to go is that type of thing. If you value those kind of big spend bonuses that various credit cards offer. Yeah, that's a good point. But you do have to think

about how much they cost you, right? Because, you know, then essentially every $5,000 spend that earns you the two elite nights, you're getting 5,000 points, it's a one x. So it's kind of like paying four cents per point plus for the you know, the elite now you got to figure out is that worth it to you or not? And it may very well be but you do have to kind of do the math. And that's, you know, these cashback offers like this, the Smartly card make you have to do the math or, or, you know, you may come out behind. And so you have to consider your options. But yeah, I like this.

I think that this is a really cool opportunity. Now, even if you can't meet the 100K spending requirement, I still think you got to sit there and consider, well, you only need $5,000 in the bank to get two and a half percent out of that card. And so still, it's like you're paying 1.25 cents per point or something like that, which is around an amount that we said, I probably wouldn't pay that much. So it's still kind of made for spending on the 2X card, but I could see a lot of people doing better with the 2.5% back still. And that, again, only requires $5,000 in deposits for 2.5% back on that card, which I think is a sweet spot for a lot of people that can't meet the higher deposit requirements. Though, keep in mind, if you have an IRA or you have retirement savings, that kind of thing, you could potentially meet that 100K if you have an ira or you have retirement savings that kind of thing you could potentially meet that 100k if you've got that by moving that stuff over to us bank so it might be easier than

it seems to hit that yeah i mean just if you have stock investments that you can just like move over and you know it's not gonna uh if you hit the 100k it's not going to cost you more because there's no they waive the annual fee on their self-directed investment accounts with the $100K savings. Right. There you go. So there you have it. We think that this is definitely an interesting thing to consider. You've got to run the numbers on your own to figure out what your best option is.

Yeah. Yeah. Good point. Sorry to give you that homework, everyone.