Which is better, cash back or travel rewards?

Question

The difference between cash back and points is that the former is the most versatile type of credit card rewards, as it can be redeemed for anything, and there’s never any doubt about how much it’s worth. Points, on the other hand, have a value set by the credit card company and tend to be worth the most when redeemed for travel. Credit card companies won’t always clearly disclose points values, and those values can change over time. It’s possible that points could be worth 1 cent apiece one day and 0.8 cents each the next.… read full answer

You can spend points for many different things. Usually, you can trade them for travel, gift cards, unique experiences, charitable donations or even cash. There are no restrictions on what you can use cash for. You can typically redeem cash back for a statement credit, paper check, or direct deposit to a bank account. One thing credit card shoppers should watch out for are cards advertised as offering cash back that really provide points. For example, the Chase Freedom Flex℠ offers “5% cash back” in certain bonus categories. But what it actually gives is 5 Chase Ultimate Rewards points per $1, which cardholders can then trade for cash back at a rate of 1 cent each.

Cash Back vs Points:

Good cards overall: Citi® Double Cash Card – 18 month BT offer for cash back. Chase Sapphire Preferred® Card for points.

Initial bonus: Bank of America® Cash Rewards credit card - $200 for spending $1,000 in the first 90 days. IHG® Rewards Club Premier Credit Card for points - 125,000 points for spending $3,000 in the first 3 months.

Earning rate: Usually at least 1% cash back or 1 point per $1 spent.

Devaluation: Points can be devalued by the issuer, while cash back can’t.

Redemption options: Statement credit, check or deposit for cash. Travel, merchandise, gift cards, cash and more for points.

When it’s the best choice: Points for frequent travelers. Cash back for everyone else.

Let’s take a look at two high-profile cards in a battle of cash back vs. points.

Citi® Double Cash Card tops the cash back offerings with 2% cash back on all purchases and an introductory APR of 0% for 18 months on balance transfers, with a 3% (min $5) balance transfer fee. It also chases a $0 annual fee and requires good credit to get.

But if you’re a frequent traveler, Chase Sapphire Preferred is a more attractive option. It gives 2 points / $1 spent on travel and dining purchases and 1 point / $1 on everything else. It has an initial bonus of 80,000 points for spending $4,000 in the first 3 months. This card’s points are worth 1 cent each toward cash back or gift cards or 1.25 cents each toward travel. There’s a $95 annual fee and the card requires good credit.

For both cash back and points cards, you can expect to lose your rewards if your account closes for any reason. Most cards don’t let your rewards expire over time. But Citi® Double Cash Card’s cash back expires if you don’t use your card for 12 months. And on points cards alone, your points can be devalued if the issuer decides to charge more points for its rewards. So, frequent redemption is essential.

So, the bottom line is that frequent travelers should check out points cards. Otherwise, cash is king.

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Answer 1 · 2020-06-27 16:45:06

WalletHub, Financial Company

@WalletHub 06/27/20 This answer was first published on 01/16/20 and it was last updated on 06/27/20.For the most current information about a financial product, you should always check and confirm accuracy with the offering financial institution. Editorial and user-generated content is not provided, reviewed or endorsed by any company.

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Choosing between cash back rewards and travel rewards ultimately comes down to your spending preferences, the perks that specific cards offer, and how you plan to redeem rewards earnings. In general, people looking for flexible redemption options and rewards with clear values that can’t be changed by the card’s issuer should choose cash back rewards. But frequent travelers who enjoy perks such as free flights, airport lounge access, and hotel room upgrades have the chance to earn more total value from travel rewards.

With travel rewards credit cards, the number of points or miles you’ll need to redeem for a free flight or hotel night, for instance, varies from issuer to issuer and card to card. Points/miles can also lose their value any time the card’s issuer decides to raise the number needed to get a certain dollar amount in redemption value. Cash back rewards, on the other hand, are easy to understand and will retain their value because they’re already expressed in terms of dollars and cents.

All told, cash back rewards are the better way to go for most people. However, there are a number of variables to consider on both sides. Not everyone always needs to choose between cash back and travel rewards, either. Having both a cash back credit card and a travel rewards card in your wallet can make sense in some situations.

Cash Back vs. Travel Rewards Credit Cards

Category	Cash Back	Travel Rewards	Winner
Average Initial Bonus	$205.48	24,860 points/miles	Travel
Biggest Bonus	Around $300	$500+	Travel
Average Earn Rate	1.08% cash back	1.18 point/mile per $1 spent	Cash Back
Flexibility	More redemption options	More value on travel purchases	Cash Back
Annual fee	Typically $0-$95	Generally higher fees, from $0-$400+	Cash Back
Foreign Transaction Fee	Up to 3%	Mostly 0%	Travel
Overall Value	Rewards never lose value	Rewards may be devalued	Cash Back
Recommended credit score	Offers for all credit scores	Offers for all credit scores	Draw

When choosing between cash back and travel rewards, it’s important to be realistic in how you’re going to use the card. And whichever type of rewards you pick, make sure to pay your bill in full each month, or else you could end up spending more in fees and interest than the rewards are worth.

Bottom Line: Cash Back vs. Travel Rewards

You should get a cash back credit card if you want to earn everyday rewards and enjoy straightforward, flexible redemption options.
You should get a travel rewards credit card if you travel multiple times per year and are confident you’ll earn enough in rewards to cover the cost of the annual fee – without overspending.
You should have both if you can manage more than one account responsibly and want the best collection of earning rates for your biggest spending categories. Just make sure you pay your balances in full each month.

As long as you use your credit cards responsibly, you have the potential to reap lucrative rewards on your everyday purchases. Just be sure to actually put those rewards to use. Rewards that go unredeemed defeat the purpose getting the card in the first place.

Answer 2 · 2020-01-16 07:42:49

Paul Kessler, CFP

@bikercarder 01/16/20 This answer was first published on 02/20/18 and it was last updated on 01/16/20.For the most current information about a financial product, you should always check and confirm accuracy with the offering financial institution. Editorial and user-generated content is not provided, reviewed or endorsed by any company.

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Cash back vs. travel rewards will be a win for cash back credit cards in most cases. For one thing, cash back tends to be more flexible. You can spend cash rewards on anything. But redeeming points and miles for something other than travel often means sacrificing a lot of value. Plus, many travel rewards cards require you to book flights, airfare, etc., through the credit card company’s travel portal. So you miss out on the lower prices potentially available on other sites.

So, all else being equal, cash back rewards are the better option. But in the real world there are always exceptions.

When travel rewards might beat cash back:

Extra value for travel: Some credit cards give you more value for the rewards you earn when you redeem them for travel. For instance, Chase Sapphire Preferred and Chase Sapphire Reserve give you 1.25 cents and 1.5 cents per point, respectively, when you book travel through the Chase website. And Capital One Venture gives you twice as much value when you redeem for a travel statement credit vs. other redemption options.

Attractive perks: Travel rewards cards often come with benefits such as travel insurance, airline fee credits and airport lounge access. For people who travel a lot, the extra convenience and monetary value these perks give may be worth sacrificing some redemption flexibility.

No foreign transaction fees: If you spend a lot of money abroad, or online at merchants located in other countries, foreign transaction fees can add up quickly. Since travel rewards cards rarely charge them, having one can save you money.

Generally, cash back vs. travel rewards is a win for cash. But luckily, it isn’t necessarily a choice you have to make. You can always use a cash back card for your everyday spending and keep a travel card in your wallet for trips. Just watch out for annual fees.

Which is better, cash back or travel rewards?

WalletHub, Financial Company

Paul Kessler, CFP

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