Team Clark is a big fan of cash back credit cards, due to their simplicity and consistent value. But even though many cards offer reward points that can be redeemed for cash back, it’s often a bad idea to do so. Here’s why…
You may want to choose travel rewards instead of cash back
It’s understandable that many credit card users are skeptical about redeeming their rewards for airline miles, hotel points or travel reservations. With the games that some airlines and hotels play with these programs, many savvy consumers have just given up on them and decided to earn cash back instead.
But what about those credit cards that offer you reward points that can be redeemed for a variety of options, including cash back, travel reservations and even frequent flyer miles? It turns out that you could receive far less value by opting for cash back than you would from other options.
Two of the most popular credit card reward programs, Chase Ultimate Rewards and American Express Membership Rewards, offer you far less bang for your buck in cash than you can receive from redeeming your points for travel reservations or airline miles.
Why you should avoid redeeming Chase Ultimate Rewards points for cash back
When you earn Ultimate Rewards points from your Chase Sapphire Preferred, Sapphire Reserve or Ink Business Preferred card, you have the option of converting your points to miles with nine different frequent flyer programs. These programs include Southwest, United, JetBlue, Virgin Atlantic and Singapore.
When you are able to redeem these miles for the most expensive flights in business or first class, you often receive several cents in value per point redeemed, as opposed to just a single penny per point when you redeem for cash back. For example, you can redeem 100,000 Virgin Atlantic miles for a round-trip, business class ticket to Europe on Delta. That’s easily worth at least $4,000, making those points worth 4 cents or more each.
But even if flying overseas in business class isn’t your thing, consider that Southwest points are worth 1.5 cents each towards any seat they have for sale, which is still 50% more value than you’d receive if you redeemed your points for cash back.
Transferring points to Hyatt is also a good idea. You can redeem just 5,000 or 8,000 points for a night at a Hyatt Place or Hyatt House that could cost $150-$200 per night. This option can return two to three cents in value per point redeemed.
Finally, when you redeem your points for travel reservations made directly through Chase, you’ll still receive more value than you would for cash back. The Sapphire Preferred and Ink Business Preferred both offer 1.25 cents per point redeemed for travel reservations though Chase. The Sapphire Reserve offers an outstanding 1.5 cents per point. And since the Chase Ultimate Rewards Travel Center is run by Expedia, you can redeem your points this way for nearly any airline, hotel, rental car, or cruise line — as well as transfers and activities.
Why you should avoid redeeming American Express Membership Rewards points for cash back
Compared to Chase Ultimate Rewards, you’ll get even less value from your American Express points when you redeem them for cash back. American Express offers a paltry 0.5 cents per point when redeemed for cash back. You’ll get closer to one cent in value when you redeem these points for merchandise, gift cards or reservations booked through Amex Travel. But as with Chase Ultimate Rewards points, you’ll receive your best possible value when you transfer your points to miles and use those miles for expensive last-minute flights or flights in business or first class.
American Express now has 19 airline transfer partners, including Delta, Air Canada, Singapore, British Airways and JetBlue. You might not always get four cents in value for each point redeemed, but you’ll usually do better than one cent per point, and nearly always better than the half a cent a point offered as cash back.
As an expert in credit cards and award travel, I frequently say that how you spend your points is as important as how you earned them — just like your money. I’m also always quick to point out that credit cards aren’t for everyone. For more information, read about Clark Howard’s credit card philosophy. But, by looking beyond the tempting offers of cash back, you’ll find that your Chase and American Express points can go even further than you might have dreamed.