Which Is Better, 2% Cash Back Or Southwest Points?

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Million Mile Secrets reader Rick Castorani writes on Twitter:

Are points really better than cash back? I can’t quite figure out which is better, 2% cash back or Southwest points.
Which Is Better 2 Cash Back Or Southwest Points

Which Would You Choose, Cash Back Or Southwest Points?

Let’s take a look…

How Much Are Southwest Points Worth?

Which Is Better 2 Cash Back Or Southwest Points

Southwest Wanna Get Away Award Flights Cost 70 Points per Dollar

Southwest points have an advertised fixed value of 70 points per dollar.  That means 1 Southwest point is worth 1.42 cents ($1 / 70 Southwest points).  But they are often worth more because the points cover the cost of taxes as well!

Which Is Better 2 Cash Back Or Southwest Points

Southwest Points Are Worth At Least 1.42 Cents per Point

How Much Are Cash Back Points Worth?

With a card like the Fidelity AMEX you get 2% cash back on all purchases.  So you get 2 cents for every $1 you spend.

And with the Barclaycard Arrival Plus™ World Elite MasterCard® you earn ~2.1% back if you redeem for travel.

2% Cash Back Vs. Southwest Points:  An Example

Let’s say Rick has a $20,000 home improvement project coming up.  Should he put this spending on his Southwest card or his 2% cash back card?

Note that you are almost always better off using your spending towards getting new sign-up bonuses.  But sometimes you will have to make purchases which you can’t use towards a credit card sign-up bonus.

If Rick uses a 2% back card like the Barclaycard Arrival Plus™ World Elite MasterCard®, Rick will get 40,000 points ($20,000 in spending X 2 points per $1 spent).  And these Barclaycard miles are worth ~1.05 cents per point if use them towards travel.  That’s because you get 5% miles back when you redeem for travel.

So Rick’s $20,000 in spending will get him $420 (40,000 points X 1.05 cent per point) towards travel.

Or with the Fidelity AMEX, Rick would get $400 deposited into his Fidelity account ($20,000 X 2% cash back).

Note: You can only get cash back deposited into certain Fidelity accounts.

But what if he puts his $20,000 in spending on his Southwest credit card?

Rick will only earn 1 Southwest point per dollar spent on his Southwest card.  So he will earn 20,000 Southwest points ($20,000 home improvement spending x 1 point per dollar).  Southwest points are worth at least 1.42 cents per dollar.  This means Rick’s Southwest points are worth ~$284 (20,000 Southwest points x 1.42 cents per point).

Clearly, $440 in cash back towards travel is worth more than a ~$284 Southwest flight!

Double the Value of Southwest Points With the Companion Pass!

However, if Rick can use the $20,000 spending to earn the Southwest Companion Pass, his Southwest points will be worth much more.

Emily and I love our Southwest Companion Pass because it has given us the ability to visit family and friends around the country for close to free.

Which Is Better 2 Cash Back Or Southwest Points

Emily and I Used Our Companion Pass to Travel to Key West

Rick can go a long way towards earning the Companion Pass by signing-up for 1 personal Southwest credit card and 1 business Southwest card (when the offer is for 50,000 miles after completing the minimum spending).  With the Companion Pass, your companion travels with you for free for up to 2 years anytime you fly Southwest.

This is 1 of the best deals in travel because it doubles the value of your Southwest points!

With the Southwest Companion Pass, Rick’s Southwest points are worth 2.84 cents per point  (1.42 cents per Southwest point x  2 people flying for free).

Rick’s 20,000 Southwest points will now be worth $568 (20,000 points x 2.48 cents per point) towards Southwest flights.

This is worth ~30% more than the $420 he would get back towards travel with the Barclaycard Arrival Plus™ World Elite MasterCard®.  And ~40% more than he’d earn in cash back with the Fidelity AMEX!

But once he has earned the Southwest Companion Pass he is better off with the 2% cash back cards.

Bottom Line

Typically, 2% cash back is worth more than Southwest points.

However, with the Southwest Companion Pass you double the value of your Southwest points.  So if you can use your spending to earn the Companion Pass, it will be worth more than 2% cash back.  But once you earn the Companion Pass, you are better off with 2% cash back.

When do you prefer to earn points and when do you prefer cash?

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20 responses to “Which Is Better, 2% Cash Back Or Southwest Points?

  1. This is really quite sad. This post is ridiculously long, sprinkled with affiliate links, and an obligatory Emily picture just to say that 2 (or 2.2) is a bigger number than 1.42.

    Saying as much and adding a paragraph about the companion pass should have been sufficient.

  2. MMS, I don’t believe your comparison with the comparison pass is accurate. The Barclays $440 is also worth double if one has the companion pass. The only difference is if spending the $20K helps you to get he pass. Once you have the pass, it doubles your value whether you use points or cash.

  3. farnorthtrader

    This is a very strange way of looking at the Southwest companion pass. It does not increase the value of Southwest points, it has a value all by itself, so the first 110,000 Southwest points are worth more than 1.42 cents, but once you have the companion pass, any additional points have no additional value beyond 1.42 cents. For example, if you have a flight worth $100 per person, two of you (you and your companion) will be able to fly for 7000 points. Sounds like you are getting $200 of value for your 7000 points, right? Wrong, because you could also have just paid $100 cash and still gotten the two flights worth $200. So your 7000 points still only save you $100 cash and are still worth 1.42 cents. So it makes sense to go ahead and get the two cards and make the additional spend to get to 110,000 points, then put the rest of your spending on one of the cash back cards.

  4. Absolutely, Scuta. The conclusion of this post doesn’t consider that you don’t have to use miles for the companion pass. Dollars is just as good as miles.

    I think what he was trying to mention but didn’t really get across is that when you use miles, you are only charged $5/round trip ticket on taxes/fees whereas with dollars, a sizeable chunk of the ticket may be taxes and fees. But the math would have to bear that out.

  5. Although, it doesn’t look like you could use the Barclay’s card points for SW travel because the statement credit option is .5x instead of travel being 1.1x. And if you are using Barclay’s for travel, you aren’t using it for SW. (based on what I’m reading)

  6. I agree with the others about the comparison. The Southwest card should be used only to clear the enrollment bonus on the card itself and to bring spend up to the level needed to earn the companion pass. For any spending beyond that, a cashback card is better. That’s one of the differences between the Southwest card other rewards cards. For others there may often be category bonuses or strategic uses of miles and points that make them superior to 2.2 cents cashback. For Southwest the value of the points is fixed at 1.42 cents, and that’s not very good in its own right.

  7. I think you should try to compare Avios points because the cost to Asian countries. Only need 35k for one way tickets to Hong Kong

  8. Assuming your home remodel is a DIY, how about using your Chase Ink Bold at an office supply store such as Office Depot, Office Max or Staples to buy gift cards for Home Improvement Stores. The Bold card earns 5x at Office Supply stores, so on $20K you would earn 100,000 Ultimate Rewards points which can be transferred to Southwest at 1:1. Using your valuation of 1.42 cents per point, one would get $1420 in Southwest flights this way with or without a companion pass.

    Southwest points are worth more than 1.42 cents because the 70 points per $1 is computed on the base fare before taxes and fees. For example, a $344 rt fare MCI-BOS-MCI includes 44.46 in taxes and fees. This fare can be purchased for 20,968 Southwest point plus $5. The 20,968 points save you $339 or 1.62 cents per point.

    • @Scuta @farnorthtrader @Joel @DaveS – I’ve edited the post to be clearer. It is better to put $20K in spending on the 2% cash back card, UNLESS you can put the $20K in spending on the Southwest card and get the Companion Pass. Once you get the Companion Pass, you’re better off with 2% cash back again.

  9. Tom’s right that you can get 1.62 value out of SW points on some flights, which Daraius alluded to as well. The range seems to be about 1.42 – 1.7 now.

  10. I am comparing the various options with our Chase Ink Bold and Plus cards. I used to automatically just transfer to Southwest because they fly where we like to go. Now Southwest has increased the numbers to the point where I am unsure.

    I now have 100,000 points waiting to transfer somewhere. I have no idea which airline is the best value. And I know from our trips to Hawaii on Alaska how very difficult it is to get award seats in First Class because we go twice per year, and I am lucky to get just one seat both coming and going. Southwest is less hassle in that respect.

    We only stay in hotels about 4 days per year, usually in Seattle, one night at a time, on our way to Maui or Kauai. But if that is a good value, I would tranfer to a hotel program. I guess I am just unsure of my next move. The points are building fast, too.

  11. Don’t forget that Southwest gift certificates can be purchased at office supply stores with your 5x earning Ink Bold!

  12. I had a question on the SW cards for the companion pass. Would it work to get 2 SW cards now, complete the spend, but not put the additional points needed on until after the first of the year, so I would get the companion pass January 2015? I have a companion pass that will expire the end of 2014. Or, am I better off waiting to get the SW cards until later in the year?

  13. FlyingWonderer

    The Companion Pass does not change the value of Southwest points. The Companion Pass equally applies to paid tickets.

  14. Cindy and Rick – most people find that they get the most value with United Airlines and Hyatt when using UR points. Around 2 cents per point or more.

  15. Also using British Airways points domestically on American Airlines is a great value.

  16. Juli, the companion pass is earned by accumulating 110K points IN A CALENDAR YEAR, so if you completed the spend now you would have to reach 110K points this year in order to qualify. If you don’t make the 110K in a calendar year, you start over from 0 CP qualifying points on Jan. 1. (This doesn’t affect your point balance available for purchase of tickets, just the number of points applied toward your CP progress.) You’d definitely be better off waiting to apply.

  17. Cindy and Rick

    Joetraveler, that is something I hadn’t thought of before. I could pay for SW flights with the gift cards, earn 5X, and put my points elsewhere.

    Rob P., I think I will transfer to United. United flies in/ out of DEN to places we travel. Are award seats pretty easy to get on United? That might work out.

    I just don’t want to put miles somewhere and regret the decision.

    I will check out Hyatt. I haven’t looked at any hotel cards, except the Starwood Amex, and that card I use for Alaska miles.

    Thanks for the advice!

  18. Another advantage of Southwest points is their flexibility. Southwest award bookings are fully refundable; Southwest “Wanna Get Away” revenue bookings are not (if cancelled they can be reused with no change fee, but with significant restrictions). For me this flexibility makes building up a significant stash of Southwest points in my account worthwhile, even though on paper I could get more by spending on the Barclay Arrival card.