Now that many US-based airlines are charging co-pay fees for upgrading from economy class to business or first, and considering some of the other fees you'll now pay to use your frequent flyer miles (see chart), Airfarewatchdog suggests that you think twice if you're collecting most of your miles with a credit card. Sure, the bonus miles you can earn by applying for a new card can be tempting, as was the case recently when the British Airways Chase Visa Card offered an incredible 100,000 miles to new applicants, but once you've collected the come on bonus, take a second look at cash back credit cards.

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 ($75-$100 is typical). And now there are new fees for cashing in frequent flyer miles and the old ones have been jacked up (See chart.) In addition to fees of up to $1,000 each way to upgrade to business class from the least expensive economy fares, you'll pay up to $250 to redeposit your miles should you change your travel plans, and US Airways charges up to $50 just to cash in your miles, not to mention up to $150 if you cash in miles close to your departure date. Plus, as anyone who was collecting miles with now-defunct Aloha Airlines can attest, your stash can go up in smoke if an airline stops flying.

True, some frequent flyer awards offer 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.

Let’s look at $25,000 spent in various categories on what is arguably the best cash back rewards card available: The American Express Blue Cash Card, which has no annual fee. The Amex card pays 5% back on groceries, gas station purchases, and pharmacies, and an industry leading 1.25% on everything else, once you spend $6500 or more in a calendar year; there's no limit to what you can earn. Other cards, such as the Discover Cash Back Bonus Card, pay 5% back on a wider range of purchases, although do so on a rotating schedule (for example, the Discover Card in 2010 pays 5% thusly: airline, hotel, car rental, and cruise purchases from January to March; home and fashion purchases from April to June; gas, hotel and movie spending from July-September; and restaurants and fashion from October to December), but there may be a limit on how much 5% cash back you can get (you do earn 1% cash back on all other purchases, however).

Another popular cash back card comes from the folks at Discover, which is offering a $50 additional cash back bonus.

As you can see from the chart a family could easily earn over $850 with the Amex card in a year,  assuming a spend of $200 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.

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

There are no capacity controls on cash.

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

There are no annual fees for your credit card.

And for $850, you can buy yourself a pretty fine airline ticket, even an international one, or even one to Maui.

Spend 25,000 miles on an airline frequent flyer credit card, in contrast, and to obtain and use those miles you’ve already paid up to $100 in credit card fees and and who knows how much in frequent flyer fees, so the cash earned from a no-fee cash back card looks even better.

Oh, sure, I know I’ll be hearing differing opinions from all the mileage mavens out there, and to repeat, there are tickets for which earning and spending frequent flyer 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 aren’t what they used to be. Take the cash instead.

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