The key to understanding what type of rewards work best for you depends on the type of credit card you own, how much you spend and your lifestyle habits. Despite all these different factors, there is one that we can all agree is most important – which reward gives us the most value.
What’s the difference between cashback and miles?
The main difference is their flexibility. The value and speed at which you can earn these rewards may differ slightly, but are largely the same.
- Air Miles
The miles you earn from your credit card can be used to offset the cost of your travel expenses, specifically your plane tickets and hotel bookings. The value of each mile point depends on how you redeem them, ranging anywhere from S$0.01 to S$0.08. Usually, the miles redeemed for long and expensive flights are worth more than short, economy or budget trips. The general global conversion rate for miles is S$0.01 per mile.
Cashback rewards are flexible and easy to use. As the name implies, you get a sum of money credited to your account depending on how much you’ve spent on your credit card over the course of a month or 3-months (the duration cap differs from card to card). Cashback cards return a fixed percentage of the expenses made through your credit card.
Value of Miles VS Cashback:
- Air Miles
Based on what you choose to redeem your air miles for, the value attached to each mile can vary greatly. Your miles are most valuable when redeemed for long-haul flights in first or business class, last minute flights, and luxury hotel stays.
Through strategic point redemption, you would be able to gain three to five cents in value per point, which is much better than the best cashback reward cards.
While the best travel hackers are able to get anywhere from three to five cents per point, cashback points are usually valued at one cent per point. While the maximum value of cashback rewards is restricted, the consistency and ease of redemption is a lot more attractive than travel rewards.
Unlike travel rewards, cashback is given out at regular intervals automatically. On the other hand, travel rewards run the risk of expiring if your miles are not redeemed in time.
Perks of Miles VS Cashback:
- Air Miles
A big benefit of travel rewards cards are the perks that come with overseas travel. This is especially true for frequent travellers, as the process of checking in, boarding and airport transfers can be tedious and cumbersome if done repeatedly. Travel perks include priority boarding, status upgrades, lounge access, free checked bags, and free airport transfers.
The main draw for cashback credit cards is the liquidity and flexibility of what they receive – cold hard cash. The cash that you receive can be used for ANY transaction (something that you can’t do with air miles). This includes investing your money, allowing it to grow over time.
So what type of credit card should I choose?
Before choosing a card, look at your past spending history. Are you spending enough? A recent study by NerdWallet showed that you need to spend a minimum of S$8,600 a year on travel expenses in order to truly benefit from a travel rewards credit card. Anything less and you would be better off owning a cashback credit card.
From a study conducted by the Credit Bureau of Singapore, the average Singaporean spends about S$6,000 on their credit card (S$500 a month). Based on this, majority of Singaporeans should opt for cashback rewards. Let’s break down the maximum rewards you stand to gain based on your annual credit card transactions.
Average annual transactions of S$6,000:
Average annual transactions of S$12,000:
From the comparisons above, the rewards that you can gain from travel rewards can grow exponentially the more miles you accrue. However, you also need to understand that the flights and travel rewards you can redeem your miles for are subject to availability. If you don’t think you’ll use travel rewards enough – and you can’t spend them in enough places – opt for the flexibility of a cashback card. You may earn less, but you will probably be able to take greater advantage of the benefits.