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For those of you who don’t already know, DollarsAndSense is currently participating in a ‘friendly’ Airmiles vs Cashback competition organised by SingSaver, where different financial websites select which is the preferred type of credit cards. DollarsAndSense along with The MileLion are on Team Airmiles.
We choose air miles over cashback because the maths clearly show that a miles card would deliver better ‘cash spent to benefit received’ value.
A recent discussion with a friend who just started working after graduating from university prompted us to write this article.
After explaining and successfully convincing our friend to apply for an airmiles card, instead of a cashback card, we wanted to write this article so that we can explain this to young graduates on the rationale on why most young adults are better off choosing an air miles card over a cashback card.
You can thank us when you are travelling on your complimentary Singapore Airlines (SQ) ticket for your year-end holiday, or even your Business Class SQ flight during your honeymoon, while your (stubborn) friend either remain in Singapore or spent a few thousand dollars, unnecessarily, on flights.
We will be assuming that you are able to meet the minimum annual income requirement of $30,000. If you don’t, then this discussion doesn’t apply anyway, since you would not be able to apply for cashback cards either.
Charging To Your Air Miles Credit Card Generally Gives You Better Returns
Let’s assume you charge an average of $1,000 per month to your credit card. You would spend a total of $12,000 per year.
If you use a basic air miles credit card such as the American Express Singapore Airlines KrisFlyer Credit Card, which gives you 1.1 Miles for every $1 spent, you would earn a total of 26,400 miles over a 2-year period.
This is not all. If you include in the traditional welcome bonus of 5,000 miles, and the additional 7,500 bonus miles that you received if you spend $3,000 within the first 3 months, and then another additional 7,500 bonus miles if you spend another $3,000 from 4thto 6thmonth, you would earn an extra 20,000 bonus miles.
In total, you will earn 46,400 miles.
What Does 46,400 Miles Get You?
Option 1: Two pairs of round-trip SQ economy flights to Bali – 30,000 Miles
Option 2: One round-trip economy SQ flight to Hong Kong or Taiwan – 30,000 Miles
Option 3: One round-trip economy SQ flight to Maldives/Sri Lanka – 37,000 Miles or one-way Business Class SQ flight to Maldives/Sri Lanka – 39,000 Miles
Besides what we have stated above, there are of course various types of combinations that you can consider based on how much miles you are willing to redeem. Check out Singapore Airlines Award Chart here.
If your plan is to travel once every 2-3 years, we would definitely suggest charging your monthly expenses to an air miles card as often as you can, since you can easily earn enough miles to redeem round-trip flights to most popular holiday destinations in Asia.
For many young working adults who just graduated, earning miles for a free flight will be a rather achievable task. You don’t have to be a big spender or a frequent holiday goer to enjoy these complimentary flights. All you need to do is to use the right credit cards.
What If You Used A Cashback Card Instead?
Using a cashback card isn’t necessarily a bad thing. It’s just painfully uninspiring. Let’s assume you receive a 1.5% cashback on your spending. Using the same example, you would have spent $24,000 over 2 years giving you a total cashback of $360.
Not bad, but certainly nothing close in terms of value compared to enjoying a free round-trip flight to Hong Kong, Taiwan or Maldives.
An Air Miles Card Doesn’t Make You Spend Any More Than A Cashback Card
Some ill-advised cashback fanatics claim that miles card will make you spend more. That’s just plain ridiculous.
A cashback card provides cash back based on the same exact principle that a miles card does. Regardless of whether you are using a miles card or a cashback card, you have to spend on your credit card in order to earn the benefits.
The main reason why some cashback fanatics have this (incorrect) perception is that most cashback cards provide cashback on a monthly basis.
For example, if I spent $1,000 a month, I can earn a cashback of $15 each month (based on 1.5% cashback rebate). If I am a cashback fanatic, I may think I am saving $15 each month. Conversely, if I am using an air miles card, I could earn 1,100 miles which don’t give me any savings…yet.
However, when I travel, I will be able to claim on these air miles which I have saved up over the past 2 to 3 years. This means I could easily save at least $400 to $500 if I fly on economy, as compared to my cashback friend who will now need to spend on his flight.
Both air miles cards and cashback cards do help you to save, with the key difference being that cashback cards provide short-term savings while the savings for air miles cards are only realised when you redeem for a flight, which won’t be something which you do every day.
Cashback fanatic who think cashback cards are the only option for saving money is only looking at this topic from their own short-term perspective. The only time an air miles card doesn’t make any sense is if you have no intention to travel. If this sounds like you, then you are better off sticking to a cashback card.
Some cashback fanatics may also argue that they are able to earn a higher level of cashback. Do yourself a favour. As a young working adult, treat these claims with a pinch of salt.
The simple reason is that in order to efficiently earn these higher cashback rates, you must first meet a minimum spend each month. The easiest way to so is to have recurring bills each month. Many cashback cards also give you a higher rebate if you clock in spending in certain categories such as telecommunication bill, petrol, grocery shopping and even utilities.
This is great…if you are like me – a dad who needs to pay for milk powder and diapers, home utility bill, telecommunication bill for myself, my wife, my parents petrol for the family car, and the never-ending list of groceries required.
So, don’t begrudge the auntie who is religiously using her trusty POSB Everyday Card at Sheng Siong and Watson to pay her bill. She is probably using her cards wisely based on the bills she has to pay for each month.
But unless you intend to step up and pay for all the household expenditure, which we are sure is an offer your parents would not turn down; most fresh graduates will find the benefits they get from using cashback cards rather unattractive.
Air Miles Cards Are Unbeatable, Particularly If You Have Big-Ticket Expenses
If you are planning for your wedding, going on a holiday, doing home furnishing for your new home or even waiting to welcome a baby to your family, you are likely to find yourself spending quite a fair bit of money within a short period of time.
For these occasions, an air miles card is pretty unbeatable. Considering the following two situations.
Option A: Using Cashback
You and your spouse are planning for your wedding. You expect to spend at least $15,000 over the next three months.
If both of you use a good cashback card, such as the UOB One Card, and split your bills such that you spend $2,000 per month each, for three months in a row (min 5 purchases), you will be able to earn a quarterly rebate of $300 per card, or $600 in total. Not bad.
Option B: Using Air Miles
However, if both of you apply for a Citi Premier Miles card instead, and split your bills such that you are charged at least $7,500 each within the first 3 months, you will be able to earn 30,000 bonus miles per card.
Add that to the 1.2 miles per S$1 spent and you would have accumulated at least 39,000 miles per card, or 78,000 miles in total.
This is enough to redeem a pair of round-trip business tickets to Perth or Maldives for your honeymoon. 78,000 miles is also enough for 2 pairs of round-trip SQ economy tickets to Maldives for your honeymoon – something which we pretty confident $600 will not be able to get you.
Financial blogger Budget Babe, who is probably Singapore’s biggest cashback advocator, even admitted (reluctantly) in a Facebook Post that there are certain occasions where you are should definitely use an Air Miles card, instead of a cashback card.
As a young working adult, planning for a wedding, buying furniture for your new home, going for an annual end-of-year holiday trip, buying a new laptop or even delivering a baby are all big-ticket items that you are likely to make, at one point in time or another. So be smart and charge your expenses to an air miles card so that you can enjoy savings in the future when you travel.