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Cheryl in Victoria, BC writes:

Which is a more advantageous way to collect frequent flyer miles: with a credit card that credits points to a specific one of the three top air alliances or with a credit card that uses a travel agent to book flights on any airline? I live in British Columbia and usually fly to
the USA.

First off, kudos for thinking in terms ofalliances, and not just airlines. Many people forget that you can cash in your miles on airline partners. But to your real question:

You ask about the tradeoffs between two kinds of miles-earning credit cards. In reality, there are three kinds of miles-earning credit cards out there which earn three different kinds of points: Single-airline points, transferable points, and proprietary points. Let’s run through the pros and cons of each.

1. Cards with Single-Airline Points
This is the “traditional” miles-earning card, issued by a bank with an airline partner. In general, one dollar charged to such a card earns one mile deposited into your frequent flyer account with that airline. So if you have a Citibank AAdvantage card, your purchases earn miles in the American Airlines AAdvantage program. Every month, the bank transfers the miles over, and those miles fall under the rules of the airline.

This has a few advantages, but also disadvantages. Assuming you have an existing relationship with the airline, your credit card will be one of several earning sources. Combine your spending with flights, hotels, car rentals, and the thousands of other ways to earn miles, and the miles can really add up. The cards often offer sign-up bonuses that can boost your balance to the point you’re nearly at a free ticket. If you are looking to build up your existing airline-linked frequent flyer account, and you charge a lot on your credit card, this kind of card is probably your best bet.

At the same time, though, you’re trapped by the rules of the program you’re collecting those miles with. It’s not always easy to get free tickets to the places you want, when you want, since seats are limited. Planning ahead is necessary. (See here for some tips.)

Plus, airline cards generally come with a fee. If you don’t charge heavily, you shouldn’t bother In fact, if you don’t charge a lot every month, you’re probably better off with a cash-back card (Fidelity Investments offers a good one that refunds 1.5% of purchases.)

2. Cards with Transferable Points
Other cards collect points in an account that’s not attached to airlines, but that you can convert into “regular” airline miles. American Express Membership Rewards and Diners Club are the most famous examples, though the cards linked to some hotel programs like Starwood (link below) are definitely worthy of your consideration.

The way it works: You collect points, and you transfer the points into one of several possible airlines, hotels, or other affinity programs.

The benefit is that you have some flexibility as to where you put your miles. If you manage multiple frequent flyer accounts, perhaps in separate alliances, this might be your best option. Need 5000 miles in British Airways AND in United? Top them both up with a transfer. There are sometimes “bonuses” here too.

The downside: Point conversion rates aren’t always 1:1, and you can only transfer miles at certain thresholds, e.g., 5000 points at a time. Not all airlines participate, or participate at the same conversion rate. An annual fee is typical.

Bottom line: These programs are a great compromise, offering you a range of options.

3. Cards with Proprietary Points
In the United States, you’ve probably seen David Spade hawking CapitalOne’s “No Hassle” reward cards. That’s one of several such cards, but the principle is generally the same: Your purchases accrue points, issued by the card-issuing bank. The points aren’t transferable, and they’re not linked to an airline. You can’t use them to upgrade your flight, or to top up an account that’s just short of a free ticket. Your points are tied to the bank.

What’s appealing about this last option is that customers have a choice in how they redeem their points, within the bank’s rules. You effectively convert your points to cash and buy a ticket with the airline you want, using those points — as long as you use the bank’s in-house travel agent. Another benefit is that those tickets actually earn conventional frequent flyer miles in the airline’s program, once you actually fly with the ticket.

However, in most cases, these cards are a bad deal, and you should stay away. The reason: The value of your miles is based on the cash value of the ticket, and thus is always capped. Take the CapitalOne program’s rules, for example:

The number of miles required by the Cardholder for travel redemption will depend on the cost of the itinerary chosen by the Cardholder at the time of redemption. The mileage requirement is as follows: 15,000 miles are required for tickets up to $150; 35,000 miles are required for tickets from $150.01 up to $350; 60,000 miles are required for tickets from $350.01 up to $600. For tickets over $600 in value, the required number of miles will be determined by multiplying the cost of the ticket times 100 (ex. $768 ticket requires 76,800 miles).

So the maximum value of your points is 1 cent each. While this is marginally acceptable, you can get more value if you took real cash rebates, or if you had received traditional frequent flyer miles. (A first or business class ticket from North America to Australia, using traditional miles, could get you 10 cents/mile, easily.)

So: What kind of card is the best?
If you want miles, but you want those miles to be worth more than one cent each, you should stick to a card that like #1 or #2. Since I’ve been lucky (or skilled?) at getting a lot more bang for the buck mile, I stick with cards that give me real frequent flyer miles. But it’s a little bit of a gamble. If you prefer the flexibility of booking with any airline, skip the “reward points” game entirely, and demand the cold comfort of a cash refund.

Related:
- The value of frequent flyer miles
- Reader mail: Can I use credit card miles to upgrade a ticket?
- Miles or Buy: Pay Cash or Cash in Miles (frequent flyer mile tutorial)
- Starwood Preferred Guest American Express Card (affiliate)