If you aren’t a frequent traveler and you just want a simple rewards program, a cash back card is likely the way to go. But a card that earns points instead of cash back is probably the best choice for those who love to travel.
It’s easy to become overwhelmed with the sheer number of rewards credit cards available today, and that’s especially true if you’re flexible on the type of card you wind up with.
Picking a hotel credit card is simple if you always stay with the same hotel brand, for example. But, what if you’re flexible on where you travel and when? Or, what if you’re not sure if you should go with a travel card at all, or if you’re better off sticking with cash back rewards?
Cash back and points and miles cards each have their own advantages. Cash back cards give you simple, flexible cash rewards that you can use any way you please. Points and miles cards, on the other hand, offer the chance to get extra value out of your rewards by redeeming them for travel. Not to mention, travel rewards cards often include valuable perks such as airport lounge access and travel insurance.
If you’re trying to decide between a cash back credit card or a rewards credit card that earns flexible points or miles, here are some of the details you should consider.
Earning points vs. cash back
Travel rewards credit cards offer points or miles on your spending rather than cash back, while cash back credit cards let you earn a percentage of rewards based on your spending, usually with a flat rate or a tiered rewards program.
Most travel cards come with a variety of redemption options, including cash back or statement credits, gift cards and merchandise. However, you’ll usually get the best value by using points to book travel directly through a portal or for transfers to airline and hotel partners.
Some travel rewards credit cards include valuable perks like primary auto rental coverage, airport lounge membership, trip cancellation and interruption insurance or credits for a Global Entry or TSA PreCheck membership.
You’ll probably notice that most travel credit cards charge an annual fee, although the majority offer first-year sign-up bonuses that more than make up for the fee. However, these rewards programs can be complicated. While having the option to transfer points or miles to airline and hotel partners sounds good in theory, navigating the rules of airline and hotel programs can be confusing, which is why many people stick to cash back instead.
Cash rewards credit cards let you redeem points or miles for cash back or statement credits, and some also let you cash them in for gift cards, merchandise, travel and other options.
Most cash back credit cards don’t charge an annual fee and offer simple rewards and the ultimate flexibility since you can use your cash however you wish instead of being restricted to the options on an issuer’s rewards program portal.
On the downside, cash back credit cards are typically very light on perks, particularly when it comes to travel protection and benefits. In addition, cash back credit cards don’t let you transfer points or miles to airline or hotel partners, where you can often get outsized value.
And last, some cash back cards come with earning caps that drastically limit how much you can earn in rewards each year. These cards usually offer a much smaller sign-up bonus than travel cards.
Earning points is as easy as making purchases with your credit card. Points rates for certain purchases may differ among issuers. For example, The Platinum Card® from American Express offers 5X Membership Rewards points for flights booked directly with airlines using American Express Travel (for up to $500,000 on these purchases per calendar year).
A sign-up bonus is another way to earn a significant number of points; you simply have to meet a spending requirement within a certain amount of time after you get the card. In addition, you can earn points with some issuers by referring friends or family; if they sign up and get approved, you get the reward.
Earning cash back
There are many ways to earn cash back, depending on the card. Flat-rate cash back cards offer the same rate on every purchase, while others might offer a higher rate on certain types of purchases, such as gas or groceries. Still, some other offers boost cash back rates on certain categories that change every quarter. Typically, cards that offer higher rewards on certain purchases have an earning cap, after which they earn 1 percent.
For example, the Blue Cash Everyday® Card from American Express earns 3 percent cash back at U.S. supermarkets, U.S. gas stations, and on U.S. online retail purchases (on up to $6,000 per year in purchases for each category, then 1 percent) and 1% cash back on other purchases.
Bonus rotating category cash back cards, such as the Chase Freedom Flex℠, give more cash back on certain types of purchases that change every quarter and require activation before you can start earning.
There are also cards that enable you to choose your own bonus cash back category, such as the Bank of America® Customized Cash Rewards credit card. It lets you select from six categories that you can earn 3 percent cash back in, including online purchases, drugstores, home improvement and furniture, dining, travel and gas. You’ll also get 2 percent back on groceries and wholesale clubs (up to $2,500 in combined 3 percent and 2 percent category purchases each quarter, then 1 percent) and you can change your category once each calendar month.
Redeeming points vs. cash back
Cash back cards offer a lot of flexibility when you want to redeem your rewards. Many issuers offer a mailed check or statement credit in addition to travel rewards, merchandise and gift cards.
The best travel credit cards are also flexible regarding redeeming rewards. For instance, if your card earns Chase Ultimate Rewards points, you can use them for cash back, merchandise and gift cards, statement credits and travel through the Chase Ultimate Rewards portal. You can even use your points for 1:1 transfers to Chase airline and hotel partners.
It’s important to note that points and miles cards also often come with travel benefits that include things like airport lounge access, credits for Global Entry or TSA PreCheck membership and travel insurance. Additionally, using your travel miles for travel could increase their value to 2 cents or more per mile, compared with using them for something like a statement credit, which might only be worth 1 cent or less.
When it’s time to redeem your points, if your issuer offers a statement credit and you choose that, they will determine and deposit the cash value of your points into your account balance. You can also redeem your points for hotel points or airline miles, gift cards, online shopping or charitable donations.
Redeeming points online is simple — just log into your account and follow the prompts regarding redemption. You can redeem points via issuers’ portals, as well, then use them to book travel, transfer to the issuers’ loyalty programs and more.
It’s essential to be savvy about redeeming your points. For instance, if they work better as a cash back redemption than for gift cards, choose the cash back. And if you get more for your points when you redeem them for travel purchases, use them for that.
Redeeming cash back
You can typically redeem cash back through statement credits, gift cards, online shopping and even a check from some issuers.
Some cards enable you to put your cash back right into your bank account, use it for a charitable donation, book travel through the online portal and even connect your rewards to Amazon or PayPal to pay for your purchases.
Certain cards also allow you to deposit your cash back directly into a bank account or use it to make a charitable donation. And some even let you use your cash back to book travel through the issuer’s own online portal.
How to decide between cash back, points and miles
Whether you travel often or aren’t sure whether you will or not, travel credit cards can easily be the best deal. Their sign-up bonuses can be lucrative, and the ongoing rewards you earn on bonus spending can add up fast. Since you can squeeze more value out of your points or miles when you redeem them for travel rewards, a travel card could leave you significantly ahead with a lot less spending upfront.
Here are some questions to ask yourself as you decide which card to get:
- Do you want the option to transfer points to airlines and hotels?
- Are you willing to do the legwork required to transfer points to airlines or hotels?
- Is earning a significant sign-up bonus high up on your agenda?
- Do you mind paying an annual fee on a credit card?
- How likely are you to use a card’s travel benefits and perks?
Answering these questions should help you decide which type of card is best for you. For the most part, a flexible travel credit card or points or miles card will put you ahead based on the sign-up bonus alone. But plenty of other factors may be in play, so make sure to consider all the pros and cons of each option.
The reality is that cash back credit cards and travel credit cards let you earn something on your spending, and something is always better than nothing. Make sure you compare all the best credit cards on the market today so you wind up with the one that aligns with your spending style and rewards goals.