For many credit card users, the allure of accumulating points to redeem for airline miles is compelling. It seems like a savvy way to get more bang for your buck, especially for frequent travelers. However, what often goes unnoticed is that these points are not exactly free; they are bought, subtly, through every transaction made.
Understanding 'Cost' Across Both Systems
Annual Fees: Cashback cards often come with lower or no annual fees, whereas cards with miles-based rewards programs frequently have higher annual expenses. Factor in those fees when considering the overall value of the rewards you earn.
Opportunity Cost: While 'buying' points with your spending can make sense, what potential cashback opportunities are you missing out on? Compare cashback cards carefully to assess which offers a higher potential return based on your typical spending.
Time Investment: Earning and redeeming points requires research – researching the best point redemption strategies, staying current on program changes, and being diligent about maximizing earning potential. Cashback is much more straightforward, saving you valuable time.
Points: A Form of Cashback?
At its core, earning points is essentially another form of cashback but with a specific purpose. When you choose a card that offers miles or points instead of direct cashback, you are opting into a system where your rewards are earmarked for specific uses, like travel.
This can be beneficial if you frequently travel and can maximize these points effectively. However, it's crucial to understand that you are potentially foregoing the simplicity and flexibility of cashback, which can be used anywhere, for anything.
Comparing Points and Cashback Cards
Benefits of Points Cards:
Targeted Rewards: Ideal for those who travel often or prefer to save rewards for big-ticket items like flights or hotel stays.
Bonus Offers: Many points cards come with substantial signup bonuses and opportunities to earn multiple points per ringgit spent on specific categories.
Drawbacks of Points Cards:
Complexity: Understanding the best ways to redeem points can be complex. Poor choices can lead to points being worth less than if you had chosen cashback.
Limited Use: Unlike cash, points are only useful within specific contexts, typically travel-related.
Benefits of Cashback Cards:
Flexibility: Cashback can be used for any purchase, offering immediate reductions on expenses or simple statement credits.
Simplicity: There's no need to strategize about point transfers or redemption options.
Drawbacks of Cashback Cards:
Less Rewarding for Specific Lifestyles: If you travel a lot, a cashback card may not offer as much value as a card that boosts travel-related spending.
Maximizing Your Rewards Potential
Points Aren't Equal: The potential value of reward points varies drastically. Some programs offer points worth a fraction of a cent when redeemed, while others can offer substantially more. Refined Points readers should always research what their points equate to in real-world value before choosing a program.
Transfer Partners: Introduce the concept of transferable points programs. For example, many credit cards in Malaysia such as the CIMB Travel World Elite, UOB PRVI Miles Elite and HSBC TravelOne Mastercard offer flexibility by allowing transfer to various airlines and hotels (increasing redemption options). This can significantly boost point values, especially if you take advantage of transfer bonuses.
Hybrid Options: Some cards offer a blend, providing cash back along with the option to convert into airline miles or other point systems. This flexibility can be valuable for some.
The Case for the Simplicity of Cashback
Peace of Mind: Many people value the psychological benefit of immediate, tangible rewards. Cashback feels like instant gratification and reinforces the feeling of 'saving money' directly. This can positively impact financial habits more than complex reward points systems might.
Versatility for Varied Lifestyles: With cashback, your spending determines your rewards, not the other way around. This can be especially valuable for people whose expenses fall across many categories, offering rewards regardless of how money is spent.
Using Credit Cards Overseas for More Points
It's tempting to use your credit card abroad to earn more points, as many cards offer increased rewards on overseas spending. However, this comes with higher transaction fees, which can sometimes offset the extra points earned.
It's a balance that needs careful consideration:
Cost vs. Reward: Calculate whether the extra points outweigh the fees. Consider factors like foreign transaction fees, which typically range from 1% to 3%.
Exchange Rates: Be wary of poor exchange rates sometimes used by credit card companies, which can further dilute the value of any extra points earned.
The UOB PRVI Miles Elite, which is a RM100,000 annual income credit card, offers a stellar 1.11 MPR on overseas spend, but based on several forums, the overseas charges are significantly higher.
Final Thoughts
Whether a miles-based credit card is worth it over a cashback card depends significantly on your spending habits and lifestyle. Frequent travelers who spend savvy and have a strategy for point usage can derive great value from miles cards.
However, for many, the simplicity and flexibility of cashback prove more beneficial, especially when considering the hidden costs associated with earning and redeeming miles.
When choosing to use a credit card overseas to gain points, always weigh the increased rewards against the higher costs to ensure it truly benefits your financial strategy.
