Sunday Reader Question: Cash Back Versus Travel Credit Cards?

by on June 17, 2012 · 13 comments

in American Express, Capital One, Cash Back Rewards, Chase, Credit Cards, Discover, Sunday Reader Questions

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Update: The offer mentioned below for the Platinum Card from American Express has expired. View the current offer here

Update: The offer mentioned below for the Capital One Venture Rewards Card has expired. View the current offer here

This question comes from TPG reader Jason who asks:

“Can you discuss the major differences between cash back credit cards and travel points credit cards?  Obviously travel cards are best for people who like to travel, but do you ever find that it makes more sense to use a cash back card rather than a points earning card?”

As usual, the decision between getting a cash back card like the Discover More card or the Capital One Venture Rewards Credit Card and a travel points credit card like the Chase Sapphire Preferred comes down to what exactly you want out of your card.

Cash back cards like the Discover More offer you 1% cash back on most purchases, 5% on certain spending categories that change periodically, and between 5-20% on purchases made through the Discover online shopping mall. This cash back comes in the form of gift cards, merchandise or statement credits. The great thing about cash back like this is you know exactly the amount of return you’re getting on each and every dollar that you spend, and if you’re just looking for a way to get some credit back on your monthly statement, this is a good card for you.

The Capital One Venture Rewards Credit Card is kind of like a cash back and points hybrid card that allots cardholders fixed-value points based on the money that they spend. Cardholders earn 2 points for every dollar that they spend on this card, which can be redeemed for travel at a rate of 1 cent per point. So essentially you’re getting 2% cash back to be used on travel booked through Capital One. The good thing about these points is that there is no blackout dates and you still earn elite status on flights purchased with these points since it’s just like paying for them. However, you can only get 1 cent per point in value, which doesn’t change, so it’s extremely expensive to use them for premium travel. These points are great for travelers who want to travel in economy and need the flexibility of purchasing any seat on any flight on the exact dates that they need.

Where travel credit cards like the Sapphire Preferred excel is in the ability to reap a huge amount of value per point by using these points to book premium awards that would simply be too expensive to purchase using fixed-value points. Cards like this one, or the Amex Premier Rewards Gold or Platinum cards, which bank points to American Express Membership Rewards, have the added bonus of having multiple airline and hotel partners, so you can use them on a variety of airlines or at your hotel chain of choice as long as it’s a partner of the program. These cards present their cardholders with a huge amount of flexibility in terms of the number of rewards and the the number of partners that their points can be used to book.

Two Examples
As I mentioned, a fixed-value card like the Capital One Venture excels when you have exact flights, dates and destinations you need to get to and you want to fly economy. So, for instance, this roundtrip United itinerary from Denver to LAX in August would cost you 25,650 points at 1 cent per point for the $256.50 fare.

It would cost me 26,550 Capital One points to take the exact flights I wanted.

Using Chase Ultimate Rewards points converted to United miles, that same itinerary would cost you 50,000 miles and $5 in taxes because there isn’t low-level award availability for these flights.

Using Chase Ultimate Rewards points converted into United miles would mean spending 50,000 points to get the same exact flights.

Just to look at the opposite scenario. If you remember, I gave myself a birthday present of a one-way business class ticket from Newark to Singapore aboard Singapore Airlines by converting 60,000 Chase points to United miles and redeeming them for their partner airline plus $2.50 in taxes. That same ticket would have cost $4,556, so I got 7.6 cents per point in value. If I were to use Capital One Venture Rewards points, I’d have to spend 455,600 points to get that same ticket – nearly 8 times as many points!

The two examples are stark contrasts. If you like having a fixed value on your points that you can then use for the exact flights you want on the exact dates you want, then you should consider a cash back card like the Capital One Venture. However, if your primary goal is to squeeze as much value as possible out of each point by redeeming for premium awards, then you should consider travel points credit cards such as the Sapphire Preferred and the Premier Rewards Gold.

Disclaimer: The responses below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.

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  • Grant

    Just a small typo: “26,560 points at 1 cent per point for the $256.50 fare”

    The points and dollar amounts don’t match up.

    Great article btw, I prefer travel cards over cash back cards any day

  • marben

    Air travel can be booked through the Ultimate Rewards site at .01 per point + 20% off the fare price, so its a little better than 1%.

  • Dave

    You can also book airfare with AmEx Membership Rewards at .01 per point, and get 20% of the points rebated, at least if you are a platinum card holder. Not sure about the rebate for other cards. I’ve done my last two trips this way as I can rarely find low level rewards when I want to travel.

  • harvson3

    The Amex Blue Cash Preferred gets 6% back at grocery stores. For families whose travel is limited and whose grocery bills (plus spending at stores for which grocery stores sell gift cards) is high, the Blue Cash Preferred makes lots of sense.

  • j-mom

    this is what we use in my household. My husband travels a ton for business but has a corporate amex that he is required to use. We just don’t travel enough to justify the travel benefits but we do love the 100 cash back a month from the grocery store and 3% on gas.

  • Krivokrasov

    We also use Amex Blue Cash Preferred for all grocery purchases – you can’t beat 6% back. In addition, if we know we’re going to make some larger purchases at Target, Best Buy or any other major chain store, we can buy gift cards at our grocery store and still get 6% back on the gift card purchases, instead of the 1-2% we’d get at the actual store from most other cards. It adds up! For non-grocery purchases, we use the Capital One Venture, because it gets 2% everywhere, and the flexibility to use it like a cash back rebate is fantastic. Note – you do NOT have to book the travel through Capital One, you just need to use the card to purchase your ticket/hotel and then you get a rebate. For restaurants, it’s the Chase Sapphire card just to make sure we’re still accruing points for pricey international tickets.

  • thepointsguy

    Thanks! Fixed.

  • stanolshefski

    Just watch that you’re not shooting yourself in the foot by not using the Amex on things like electronics. Amex’s price matching, purchased protection and extended warranty have a lot of value.

  • PJ

    how many grocery stores let you buy Visa gift cards with $500 denominations / $5 .95 activation fees per card and you can charge on credit cards with 5+% rebates? I dould do it with Chase Freedom card and obviously the strategy works best on Ink Bold at Office Depot or Amex Blues cash Preferred at Grocery stores.

  • studd

    Oh, Schwab 2% how I miss thy

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  • PB

    For the Capital One Venture card, the 2% cash-back rate applies regardless of whether your travel is booked through Capital One. You can make your purchase anywhere (hotel/airline website, OTA, at the car rental counter), and then you can call or go online to have the charges refunded, using your points.

  • MCB

    TPG, For the average flyer/spender, what do you think is better, the AMEX Blue Cash preferred or AMEX Blue Sky preferred?

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