Credit Card Rewards: Is Cash Back or Travel Points the Better Choice for You?

KEY TAKEAWAYS

• Cash back is simple and flexible, travel rewards offer higher redemption value.

• Consider your spending when choosing between cash back and travel rewards credit cards and the redemption options and annual fee.

• Know the downsides of each, cash back has lower redemption value and travel rewards are more complicated to earn and redeem.

• Compare sign up bonuses and the spending requirements to see how they match your spending and goals when choosing a card.

Cash Back Rewards

Advantages of Cash Back Rewards

Cash back rewards have several benefits that make them attractive to many credit card users. First and foremost, cash back rewards are easy to understand. You earn a percentage of your purchases back as cash which can be redeemed as a statement credit, a check or a direct deposit into your bank account.

Another benefit of cash back rewards is their flexibility. Unlike travel rewards which are often tied to specific airlines or hotel chains, cash back rewards can be used for any type of purchase. Whether you want to use your cash back to pay for groceries, dining out or a new gadget, the choice is yours. You can redeem your rewards however you want.

Disadvantages of Cash Back Rewards

While cash back rewards have many benefits, they also have a couple of downsides. One of the main cons is that cash back rewards have a lower redemption value compared to travel rewards. For example, a cash back credit card may offer a 0.7% cash back rate, meaning you earn 70¢ for every $100 you spend. But a travel rewards credit card may offer a 1 cent per point redemption value, so you get more value out of your rewards when you use it for travel.

Travel Rewards

Advantages of Travel Rewards

Travel rewards whether in the form of points or miles have several benefits that make them popular with frequent travelers. One of the main benefits is the potential for a better value. Travel rewards often have higher redemption rates than cash back rewards so you get more value out of your points when you redeem for flights, hotel stays and other travel expenses. This can mean big savings and even free travel if you accumulate enough rewards.

Disadvantages of Travel rewards

While Travel rewards have many benefits they also have a few downsides to consider. One of the main cons is the complexity of earning and redeeming rewards. Unlike cash back rewards which are straightforward and easy to understand, Travel rewards often come with restrictions and limitations. Some Travel rewards credit cards may have expiration dates or limited availability for certain flights or hotel stays.

Another disadvantage of Travel rewards is devaluation. Loyalty programs and credit card issuers can change the terms and conditions of their rewards programs which can result to a decrease in the value of your points or miles.

Which Credit Card is Right for You

Now that we have covered the pros and cons of cash back and travel rewards how do you choose the right credit card for your needs? Here are some things to consider:

1. Spending Habits

Before you choose a credit card take a look at your spending habits. If you tend to spend more on everyday purchases like groceries, dining out and gas a cash back credit card may be a better fit. If you travel frequently or have upcoming travel plans a travel rewards credit card can help you maximize your rewards and offset the cost of your trips.

2. Redemption Options

Look at the redemption options of each credit card. Are you more interested in cash back that can be used for any type of purchase or do you prefer the flexibility of redeeming your rewards for travel expenses? Evaluate the redemption rates and options of different credit cards to see which one fits your preferences.

3. Annual Fees

Some credit cards especially those that offer premium travel rewards and benefits may have annual fees. Consider if the rewards and perks you would get justify the cost of the annual fee. If you won’t be able to use the card’s benefits to the fullest, a no-annual-fee card may be better for you.

4. Sign-Up Bonuses

Many credit cards offer sign-up bonuses which can give you a big boost to your rewards earning. Compare the sign-up bonuses of different credit cards and see how they fit your spending habits and goals. Remember sign-up bonuses often come with spending requirements which can be high at times so make sure you can meet the minimum spending requirement before applying for a card.

Click here for a list of my sign-up bonuses credit cards.

Bottom Line

It’s up to you to choose between cash back and travel rewards. Cash back is simple and flexible, travel rewards is free flights and hotel stays.