Are Frequent Flyer Mile credit cards a good idea?

I just decided to cancel my AAdvantage credit card for a 1% cashback card with no annual fee. Many people have the frequent flyer cards so let’s consider the math on them. They typically come with a high annual fee (around $80) while other cards have no fee and other rewards.

Let’s say you spend $25,000 per year on the card, which is enough for 25,000 miles or one domestic flight on the typical airline. With a typical cashback card you get 1% back though some cards give 2% or even 4% back on certain classes of purchases. I have an Amex from Costco that gives 3% on gasoline and 2% on travel expenses, but Amex is not as accepted as Visa or MC.

  • Your cash cost for the 25K miles is $250 plus the $80 annual fee = $320
  • There are varying taxes and fees on award tickets, as low as $8 but sometimes much higher
  • If you are booking less than 3 weeks in advance, fees of $50 to $100 will apply
  • Finding available award seats can be quite difficult, the supply is far lower than for cash seats in most cases. There are also blackouts.
  • You will not receive miles for your trip. A typical cross-country return is 5,000 miles, of $50 at the 1% rate, $80-$100 at the rate airlines claim
  • Most people use miles long after they earn them, and in fact have a large balance. So a time discount should apply. Miles sitting in accounts earn no interest, cash does.

As such the free trip is harder to get and costs $400 to $500. But that is not far from (and sometimes more than) the cash price of a ticket. But cash is of course a much more flexible thing — you can use it for anything, not just airline tickets. There are a raft of cards out there now which tout “miles on any airline” and what they really give you is a 1% cashback that is only good on airlines. General 1% cashback is much better.

There is an argument that upgrades do much better. Upgrading with miles can be cheaper than upgrading with cash, since the cash price of business class seats is very high. However, as you learn if you are not a top elite flyer, upgrades are quite hard to get. Others are ahead of you in line. AA also instituted a cash co-pay on upgrades making them more expensive than before when done with miles.

If you spend less than $25K per year on the card, the math gets even worse. At $12.5K per year, you gave up at least $460 to $550 for your free ticket, and when the tickets are available on miles, the cash fare is often lower. If you spend much more a year, the cost may make some sense.

A common trick for people who have mileage cards is to pick up group checks at restaurants and have everybody pay you cash. However, the cards that give 3% cashback at restaurants like the Amex are much better for this.

Take into account flights, though

Most airlines will let you combine flight miles with card miles. If I fly across country round-trip twice, that's about 10,000 miles, leaving me only needing to spend $15,000 on the card to get a free flight. 1% cash-back would be only $150, which isn't enough to buy a ticket.

All that says

Is that the miles earned from flying are a good deal, a better deal in a way than the ones earned from credit cards, as they come for “free.” Or rather, your ticket is slightly more expensive to account for them. As noted with the internal cost ranked as a bit below a penny per mile, the “cost of miles” is probably below $50 on a transcontinental ticket.

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His name is Brad Templeton. You figure it out.
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