Is it better to get cash back or airline miles when choosing a credit card?

Let’s compare:

Discover
-1% cash back (5% on gas)
-no annual fee
-medical assistance
-valuable document delivery

American Express
-1 airline mile for each $1
-$95 annual fee
-online transfers to most frequent flyer accounts
-extended warranty (doubles manufacturer’s warranty)
-purchase protection
-emergency check cashing
-overnight card replacement.

Discover also lets you choose 1 mile for every $1 you spend, in lieu of cash back. Both cards offer fraud protection, travel assistance, luggage assistance, car rental insurance and flight accident insurance.

Assuming you put all your day-to-day expenses on your Discover card (of course, you’re paying it off every month) and you spend $24,000 annually with 10% of that being gas, you’d get $336 back.

With American Express, you’d get 24,000 miles which translates to about $240 in travel credit. Also, there might be $25-$50 in fuel charges for using frequent flyer miles.

Discover wins by $191-$241, with a few catches. Far more merchants accept American Express, especially outside the US. Add the ability to save your miles without expiration* and the purchase protection/double warranty, and I still choose American Express.

*In 2007 I flew to Australia and last month to Hawaii, using miles to upgrade from coach to first class both times.