Types of Credit Card Rewards: Cash Back, Points and Miles

If you’re searching for a rewards credit card, chances are you have seen many promotional offers such as, “5% cash back” or “3 miles on restaurant bills,”. Card issuers attract customers with the lures of miles, points and cash backs. Without understanding the actual worth of these rewards, it can be a cumbersome process to find the best offer among the hundreds of offers you may receive. We have created the following guidelines to help you navigate through the process and find the most suitable credit card for you. 

What’s the Difference between Cash back, Miles and Points?

The main difference among the three prominent reward systems is their flexibility. Although the mechanism of these reward systems is similar, they have different features.

Points: Reward points function similar to discounts and coupons and can be redeemed at designated locations and services. The precise worth of the points vary from card to card and it’s possible to convert the points into miles for a fee. 

Miles: You can use the miles to get free flights at different airlines specified by the card company. The worth of a mile depends on how you redeem them and can be anywhere from S$0.01 to S$0.08. Typically the miles redeemed for long and costly flights are worth more than the miles used for short, economy class trips. The general global conversion rate for miles is S$0.01 per mile. 

Cashback: Cash back is the most flexible and easiest to use rewards system. Cash back cards return a fixed percentage of the expenses made using the card often via statement credits. 

cashback vs miles, calculating the redemption value of 1 Krisflyer Mile in terms of singapore dollars depending on the flight ticket (economy, business, first class, long haul vs short haul)

Cash back or Miles: Which Should You Prefer? 

Whether your reward card accumulates points or miles, they are worthless unless you use them. Since cash back can be used immediately after receiving them, the decision between cash back and miles depends on how frequently you can redeem your points or miles. Unless you fly frequently, cash backs are more beneficial for you since you may not get the chance to use your reward miles. 

How to Compare the Reward Rates of Cashback Credit Cards and Miles Credit Cards

To correctly compare different credit cards, it is imperative to compare their reward rates on an equal footing. The reward rate is the measure of a card’s efficiency- how much money do you get back as rewards for the money you spend? For example, if a card refunds me 8% of my expenditure while another card gives me 5%, the former card is more beneficial. The comparison between cash back cards and miles cards is difficult since miles and points cards don’t have a fixed reward rate like cash back cards. In those cases, we need to calculate the reward rates. 

The first step to calculate the reward rate is to calculate the worth of the reward miles or points. To figure this out, you have to find out how many points or miles are required to redeem a prize. Divide the dollar value of the said prize by the number of miles or points to calculate the dollars per mile or point. Multiply this number to the number of points or miles accumulated for an expenditure of S$100 to get the reward rate. Our data indicates that the value of miles ranges from S$0.01 to S$0.08 (hence 1-8% reward rate for each mile earned per dollar). The value of points will depend on the policies of the issuing bank. 

Finally, every card offers different reward systems. For example, some cards reward as high as 10% cash backs on dining (like our CIMB Visa Signature card) while offering only 0.2% on general expenditure. If you understand how your monthly expenditure is distributed among the various categories, you can find out the amount you can save on any credit card using the aforementioned rule. Using this analysis you can find the best credit card for you. 

Comments and Questions