How to Travel More and Pay Less: Points vs. Cash Back

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When it comes to credit cards, many people prefer simple cash back cards that provide 1% or 2% of your overall spend as a statement credit. I totally get it - cold, hard cash sounds more tangible than earning points.

However, you can actually earn MORE cash back by using travel rewards cards, especially as a first-time customer.
Last Updated: September 27, 2021


Disclaimer: Some of the links below are referral links, which means I earn a small commission at no additional cost to you. This post is not sponsored by any of the companies mentioned. All opinions are my own.

Example 1: American Express Gold Rewards Card

Let's take the American Express Gold Rewards Card ($120 cash back via GCR) as the first example. You can earn 50,000 Membership Rewards (MR) points as a new customer once you spend $3,000 in the first 3 months. The annual fee is $250 and you also get an annual $100 travel statement credit.

In total, you should earn at least 53,000 MR points in the first year, assuming you hit the minimum spend (50,000 welcome bonus + 3,000 on spend).

Option 1: Redeem 53,000 MR points for a $530 statement credit. This is not bad from a pure cash back perspective. If you spent $3,000 on the Tangerine Money-Back MasterCard, let's say all in the 2% category (which is highly unlikely, but let's use this example for argument's sake) AND you got the 10% cash back on $1,000 promotion, you would still only get $160 cash back.

Option 2: Redeem 53,000 MR points for 53,000 Aeroplan miles. 53,000 Aeroplan miles can get you two (2) North America roundtrip long haul flights in Economy, or one (1) North America roundtrip long haul flight in Business Class. 

Let's use Toronto to San Francisco as an example, as it's typically a pricey flight. From a simple Aeroplan search, you can get a flight for 25,400 miles as long as you shell out an extra $75.24 in taxes. See example for Oct 21-28.


The cash fare for the same flight is $638, which means you're getting $638 - $75 = $563 worth of value out of your 25,400 Membership Rewards points compared to the cash back scenario. If you're traveling with a companion and book two flights, you're getting $563 * 2 = $1,126 worth of value out of 50,800 Membership Rewards points!

If you count the annual fee and add back the GCR rebate, it's $1,126 - $250 + $120 = $996 worth of value which is still higher than the statement credit option.


Now you could argue that you don't need to take this exact Air Canada flight, you could take a cheaper flight for $578 by flying out at 7am, fly out on cheaper dates, or try and find a budget airline. The nice thing about points is that is there a fairly fixed "points price" for each destination, and occasionally you will find a sweet spot where the cash fare is high while the "points price" is low.

Other examples of flights that you could redeem on Aeroplan for 25,000 miles include Vancouver to Toronto, Toronto to Los Angeles, etc. - there are so many options for traveling short-haul within North America.

In addition to Aeroplan, American Express has introduced Fixed Points Travel. With 25,000 points, you have enough to do the following:
  • 15,000 points to travel round trip from Toronto to New York/Montreal/Ottawa, Calgary to Vancouver, or Montreal to New York, up to a maximum value of $300 off the base ticket price.
  • 20,000 points to travel within or from a Canadian province to an adjacent Canadian province/territory/U.S. state
Even with Amex Fixed Points Travel, you could probably make your 25,000 points earn at least $300 worth of value, and still have some left over for cash back if that's what you really want.

In cash back terms, think of it this way:
  • By signing up for the Amex Gold Rewards Card, you can get at least $530 cash back in the first year by paying a $250 annual fee, plus the $120 rebate.
  • If you choose to redeem for long-haul North America flights and you can spend $3,000 in 3 months, you could get ~$1,000 worth of value. That represents cash back of $996 / $3,000 = 33.2% which is much higher than most cash back cards offering 0.5-4% cash back.
  • As a rule of thumb, I would say a worthwhile redemption works out to at least 2 cents per point (cpm), which is really another way of calculating cash back. Generally, you should be able to get 2% cash back on a regular credit card, so you should aim to beat that value. The example I used is $1,126 / 50,800 points = 2.22 cpm if you don't count the annual fee, or $996 / 50,800 = 1.96 cpm if you count the annual fee. These cpm values could be higher or lower depending on whether cash fares are low or high, so it's up to you to optimize your redemption to be above 2 cpm.

Example 2: Marriott Bonvoy American Express Card

Another popular travel loyalty program is the Marriott Bonvoy program, which you can earn through the dedicated Marriott Bonvoy American Express Card. You can earn 70,000 Marriott Bonvoy points after spending $1,500 in the first 3 months of owning the card. The annual fee is $120 and you get a free night certificate every year that can be redeemed for a hotel of up to 35,000 points/night.

If we once again assume you spend $1,500 on a 2% cash back card, you would get a total of $30 cash back. Even if you were boosted to a 5% or even 10% cash back welcome offer, you'd get $150 cash back at most.

On the other hand, 70,000 Marriott Bonvoy points are enough for two nights at a standard Category 5 hotel. Let's take the AC Hotel Boston Downtown as an example, which is available $391 USD which roughly converts to $497 CAD:


On the other hand, if you sign up for the Marriott Bonvoy card and pay the $120 annual fee, you can get 2 nights completely free:



That works out to $497 - $120 = $377 worth of value from spending $1,500. That's equivalent to 25% cash back! Don't forget you could also use the annual free night certificate, so technically you could get an additional free night at the same hotel.

If you're not big on hotels, the 70,000 Marriott points can also be converted to a number of airline partners, including Aeroplan, Alaska Air, Avios, and so on. It is recommended to redeem these points in chunks of 60,000 Bonvoy points, since they will award an extra 5,000 miles for everything 60,000 Bonvoy points converted. As an example, you could convert 60,000 Bonvoy points to 25,000 Aeroplan miles which is enough for a long-haul Economy flight within North America.

Conclusion

While I've focused mainly on Aeroplan redemptions in this post, there are plenty of other programs out there like British Airways Avios, Iberia Avios and Alaska Mileage Plan that also have crazy travel redemptions beyond 2% cash back. See my destination-specific posts for how to maximize each program!

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