Goodbye frequent flyer miles, hello cash back?

Remember S&H Green Stamps?

I sure do. I remember helping my Aunt Freda paste them into books and then trade them in for toasters and clock radios and the like. The company is a shadow of its former self, but still exists, sort of, in the guise of S&H Greenpoints.

The American public’s fascination with Green Stamps started to wane in the 1980s, and turned instead to frequent flyer miles and points.

One big difference: you could always spend your Green Stamps as soon as you had enough to buy something. But “spending” frequent flyer points is getting harder, and may get harder still.

The airlines do hand out hundreds of thousands of so-called “free” seats each year, it’s true. But if you’re earning frequent flyer miles with an airline-affiliated credit card, chances are you’re paying a hefty annual fee to the credit card company. And now there are new fees for cashing in frequent flyer miles and the old ones have been jacked up.
You’ll pay up to $100 for some frequent flyer credit cards annually, and over at Delta and US Air you’ll pay up to $50 for cashing in miles (I’d be surprised if other airlines don’t add this fee), not to mention a penalty of up to $100 if you cash in those miles at short notice, and another $50 to $100 should you decide not to use your ticket (a “redeposit fee”). Oh, and there’s a fee of up to $30 should you need to speak to an airline representative during the transaction. See chart.
 
True, airline credit cards do hand out generous sign up bonuses (20,000 miles is typical) to snare you.

And true, some frequent flyer awards are good value if the price you’d pay to buy the ticket is exorbitant (such as a first class international roundtrip that might cost $15,000 but can be had for 150,000 miles).

But if you’re like most people and you cash in your 25,000 miles for domestic flights costing $300, $400, $500, or even $600 round-trip, then miles earned with frequent flyer credit cards may just not be worth the hassle any longer.

Instead, let’s look at $25,000 spent in various categories on what are arguably the two best cash back rewards cards available: The American Express Blue Cash and Chase Freedom cards, both of which have no annual fee. The Amex card pays 5% back on groceries, gas station purchases, and pharmacies, and an industry leading 1.5% on everything else; the Chase card pays 3% back on whatever your top three (of a possible 15) spending categories are in a given month, and then 1% on everything else, plus a bonus $50 back with your first purchase (much better than paying $50 to cash in frequent miles).

As you can see from the chart below a typical family could easily earn almost $700 with the Amex card in a year, or around $450 with the Chase, assuming a spend of $100 a week on groceries, $3000 a year on gas, $1000 annually on drugstore/pharmacy purchases., and the rest of the $25,000 on other categories.

$25000 spent on a frequent flyer credit card vs. a cash back card

Clearly, if you spend more on gas and groceries than what we’ve allowed for, then the Amex card might be an even better idea,.

The nice thing about cash is that no airline is going to tell you that your cash isn’t good here anymore, as they might with miles (ever try to use frequent flyer miles to Hawaii? Hah!).

And Chase and Amex aren’t going to go bankrupt; your airline may and there go your frequent flyer miles (just ask all those folks who had miles on Aloha Airlines).

There are no capacity controls on cash.

There are no fees spending your cash on an airline fare.

There are no annual fees for your credit card.

And for $500 or $700, you can buy yourself a pretty fine airline ticket, even an international one, or even one to Maui.

Spend 25,000 miles, in contrast, and to obtain and use those miles you’ve already paid up to $150 in credit card fees and booking fees, so the cash earned from a no-fee cash back card looks even better.

Oh, sure, I know I’ll be hearing from all you mileage junkies out there, and to repeat, there are tickets for which miles make sense, such as international business and first class. But if you’re like the vast majority of Americans who don’t even own a passport and sit in the back of the plane, listen up: frequent flyer miles, like my Aunt Freda’s beloved green stamps, aren’t what they used to be. Take the cash instead.