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Frequent flier miles can seem like such an excellent reward for using a particular credit card. Airlines sell their miles to the banks who dole them out to their customers in ever increasing numbers. But at the same time, most airlines now have tiered mileage charts and offer few if any seats at the lowest levels. These developments have led many cardholders to wonder if they should continue to use credit cards that earn frequent flier miles, or if they should examine cards that offer travel benefits through their bank.

When to Choose a Bank Rewards Card Over an Airline Card

Earning rewards from your credit card is actually much like earning dividends from your investments. The key is to examine your risk profile with the knowledge that the higher reward levels require greater tolerance for risk. In this case, cardholders that earn airline miles receive the most valuable rewards while facing the highest risks. Consider a cardholder who earns 25,000 miles that he or she hopes to redeem for a free flight. Such cardholders will do very well if they need to purchase a trip at the last minute that might have cost $1,000 and they can find an award seat at the low mileage level. On the other hand, travelers who are unable to find a low mileage award or they are only able to redeem their miles for flights that could have been purchased at a discount are getting very little value from their credit card spending.

Alternatively, consider some of the travel reward cards that are not affiliated with the airlines. For example, the Venture Rewards card from Capital One and the Escape card from Discover both offers two “miles” per dollar spent. Each of their miles is worth one cent each as a statement credit towards any travel related expenditure. And unlike airline rewards, travelers will receive miles for their award tickets and be eligible for upgrades. At two cents per dollar spent, these cards will often provide more value than airline credit cards whose users rarely see that much value in return for their miles.

In the end, the right decision will be different for each type of traveler. A cardholder who has great experiences with a particular airline will appreciate the miles and other benefits offered by an airline rewards card. Those who are more airline agnostic will prefer a card that earns fixed value rewards that can be redeemed for flights on any airline. And just as investors hold portfolios tailored to their own needs, credit card users should adopt the same practice in regards to the plastic in their wallets.

Image: Joseph Leonardo, via Flickr

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