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Cash back vs. travel rewards points: How to choose a credit card

Sept. 19, 2022
13 min read
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If you’re new to credit card rewards, one of the first questions you’ll need to answer for yourself is: Should I get a card that earns travel rewards or a card that earns cash back? The good news is you can find reliable options among the top cash-back credit cards and the best travel credit cards. And in the end, you may want both a cash back and a points card.

Below, we’ll break down the pros and cons of different types of cards and their associated rewards programs. We'll look at things like rewards value, welcome offers, redemption, ease of use and perks. Considering these options will help you choose the best card for you.

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Your spending and goals

The number of credit card options is both the best and most challenging part of choosing a card. Before we dig into what different cards offer, you'll want to think about your own spending habits and goals.

First, take a look at where your money is going right now. Are you renovating a home and spending a large portion of money at home improvement stores? Maybe you're traveling a lot for work or spending your weekends trying out all the new restaurants nearby. Whatever you're doing, you can find a card that will maximize your rewards in your highest spending categories.

Then, determine what you would like to get out of your credit card rewards. Do you want to use points and miles to visit family over the holidays or book a dream vacation? Or are you hoping to help cover the cost of a large upcoming expense?

These answers are unique to you, and determining them upfront will help you decide which options are going to work best for you.

Types of cards

Generally, we designate credit cards as either travel rewards cards or cash-back cards. The names are pretty self-explanatory: they are cards that either earn travel rewards or simple cash back.

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However, some cards offer more flexibility and allow users to choose how they redeem their rewards. Cards that earn transferable points, such as American Express Membership Rewards® or Chase Ultimate Rewards, allow the cardholder a variety of options for redeeming the points they earn. While some redemptions are more valuable than others (more on that below), it can be nice to have the option to change your redemption strategy in case your goals change in the future.

Welcome offers

What you earn on credit card spending is essential, but nothing beats a card’s welcome bonus when it comes to accumulating rewards quickly. The first few months of card ownership are potentially the most valuable, since these bonuses can be worth hundreds or even thousands of dollars.

Travel rewards cards almost always offer higher welcome bonuses than cash-back cards. For example, The Platinum Card® from American Express is currently offering a welcome bonus of 100,000 Membership Rewards Points, which is worth $2,000 (according to TPG calculations).

Along with a higher bonus on a travel rewards card, however, usually also comes a higher spending requirement. In order to get the bonus on The Platinum Card, for instance, you'll need to spend $6,000 in the first six months of membership. (Terms apply.)

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Cash-back cards, on the other hand, generally offer a much lower bonus but also require a much lower spend in order to receive it. For example, the Capital One Quicksilver Cash Rewards Credit Card provides a one-time $200 bonus, but only requires you to spend $500 on purchases within the first three months of opening your account to unlock the bonus.

Reward categories

When you consider a card's reward categories, it's helpful to identify where you spend the majority of your money.

While it makes sense that most travel rewards cards earn the most on travel purchases, you can find both travel rewards and cash-back card options that will reward you for everyday spending at places like supermarkets and gas stations.

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The Chase Sapphire Reserve®, for example, is a travel rewards card. Using it, you'll earn 3 points per dollar on all travel spending. Apart from travel, though, the card also earns 3 points per dollar on dining and 10 points per dollar on Lyft rides (through March 2025). Since TPG values Chase Ultimate Rewards Points at 2 cents each, you'll effectively earn a value of 6 cents per dollar spent on travel and dining as well as a very lucrative return of 20 cents per dollar spent on Lyft rides.

But if travel isn't a big spending category for you, or if you want to earn your rewards in the form of cash back, there are some excellent cash-back cards with different reward category options.

The Blue Cash Preferred® Card from American Express, for example, gives you 6% cash back at U.S. supermarkets (on up to $6,000 per calendar year in purchases, then 1%) and 6% cash back on select U.S. streaming services (with no cap), 3% cash back at U.S. gas stations and on transit and 1% back on other purchases. That means for every dollar you spend at U.S. supermarkets, you’ll earn 6 cents that can be applied to a statement credit.

Annual fee

An important element to consider as you make your credit card decision is whether a card has an annual fee and, if so, whether it's worth it to you to pay.

Travel rewards cards have a reputation for carrying higher annual fees, and sometimes for good reason: many premium travel rewards cards have annual fees of $350 or more. The welcome bonuses and perks of these cards generally offset the cost of the annual fee, but the cost itself may not be something you want to pay right now if you're on a tighter budget.

The good news is that there are plenty of lower and no annual fee travel rewards cards available.

The Chase Sapphire Preferred® Card, for example, has an annual fee of only $95 and still comes with a welcome bonus of 60,000 Chase Ultimate Rewards points after you spend $4,000 on purchases in the first 3 months from account opening. It also still earns you 2 points per dollar on travel, 3 points per dollar on dining, and 5 points per dollar on Lyft rides (through March 2025). With our 2 cent per point valuation, that's a lot of value for a relatively low annual fee.

Furthermore, the Capital One VentureOne Rewards Credit Card has no annual fee and still comes with a 20,000-mile bonus once you spend $500 on purchases within the first 3 months from account opening. It will also earn you 1.25 miles per dollar on every purchase.

While the perks aren't as abundant as the perks of cards with higher fees, these cards, along with other low and no annual fee travel cards, are a great way to earn travel rewards with lower out-of-pocket costs.

With cash-back cards, you'll find even more options if you want to avoid annual fees. Some of our favorite no annual fee cash back cards are the Citi® Double Cash Card and the Chase Freedom Unlimited®. If you're looking at a cash-back card that does carry an annual fee, though, make sure your earning potential makes the fee worth it. An annual fee on a cash-back card can quickly eat into the rewards you'll earn with the card.

Card perks

Big welcome bonuses and hefty annual fees tend to lead to valuable perks, which is a point in favor of points and miles cards. The Chase Sapphire Reserve, for instance, includes a $300 annual travel credit reimbursement and complimentary access to Priority Pass™ lounges.

Other card benefits to look out for include baggage insurance, primary car rental insurance and purchase protection.

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Cash-back cards tend to have fewer benefits, but you should still be able to find a card that offers some industry-standard benefits, like these:

  • Purchase protection: Covers your new purchases for a limited amount of time against damage or theft up to a certain amount per claim and per account.
  • Extended warranty: Extends the period of a U.S. manufacturer’s warranty (typically up to a year) on eligible warranties (of up to three to five years typically).
  • Zero Liability: You won’t be held responsible for unauthorized charges made with your card or account information. Federal law generally limits your liability to $50.

Ease of using rewards

While many travel rewards cards offer excellent bonus categories and perks, it can take some effort to keep up with everything. Especially if you end up with multiple cards, it can be easy to get overwhelmed as you figure out which cards to use for different purchases to maximize your benefits. Then, once you have your points and miles in hand, you'll need to figure out how you want to redeem them. If you're able and willing to put some work into your strategy, you'll be able to get some excellent value with these rewards.

However, not everyone wants or is able to put much energy into maximizing their credit card rewards. If that's you, a cash-back card may be a better choice.

If you’re looking for simplicity, cash-back cards are hard to beat. The most work you're likely to have to put in for one is activating the quarterly 5% bonus categories on the Chase Freedom Flex℠.

But if you don't even want to deal with rotating categories, you can opt for a card like the Citi® Double Cash Card, which pays 2% cash back (1% cash back on all purchases and another 1% back when you repay on time) on all purchases. Paying on time and in full (one of TPG’s ten credit card commandments) means you’ll enjoy an almost effortless 2% cash-back reward on all purchases with this card. That’s a pretty good deal for everyday spending and very little effort.

Redeeming points for cash back or travel

Cash-back cards win again for simplicity on redemption since one cash-back percentage point equals 1 cent per dollar spent. But when it comes to value, points and miles cards almost always come out on top.

When redeeming points and miles, 1 point or mile is almost always worth more than 1 cent. Furthermore, a point is often not a fixed-rate commodity. The value of currencies like Amex Membership Rewards points, Chase Ultimate Rewards points and Citi ThankYou points are hard to pin down since you can transfer these rewards to various travel partners and get much more value for a first-class flight.

There’s certainly a learning curve, but referencing our valuations is an excellent way to see if you’re getting a good bang for your buck, especially if you’re thinking about traveling soon.

Is it better to redeem points for cash or travel?

Generally speaking, it's better to redeem your points for travel. You're likely to get more value from a travel redemption than cash back for the same number of points. It's best to aim to get at least 1.5 cents value from each point.

Is it better to get cash back or gift cards?

It depends. It's hard to beat the simplicity of a cash-back redemption since most cards offer this redemption in the form of a statement credit. However, sometimes gift card redemptions are offered at a higher value than cash back. If you can find a good deal on a gift card you'll use, a gift card redemption may make sense.

Is there a downside to cash back?

Cash back is great if cash flow is what you need or want right now or if you don't have the energy to keep up with a more complex credit card strategy. However, you'll generally get more value for travel redemptions by using a rewards credit card, rather than a cash back card.

Are airline miles worth more than cash back?

Yes. Cash back is usually valued at 1% or 1 cent, whereas most airline miles are worth more than 1 cent. However, some airlines like Hawaiian Airlines and Spirit Airlines have poorly-valued miles, so cash back is better in these cases.

Bottom Line

If your top priority is getting the most value out of a credit card — no matter the blood, sweat and tears required — you should get a travel rewards card and maybe a premium one at that. You’ll get far more value out of one of these cards from the bonus, the points, the perks and the redemption options than you’ll get from a cash-back card.

But not everyone has the time or inclination to put this much effort into tracking spending and returns, which is where cash-back cards come in. There’s nothing wrong with either perspective.

The only major misstep you can take — if you pay your credit cards off every month — is not to take advantage of the free money issuers will throw at you in the form of welcome offers.

For rates and fees of the Amex Platinum card, click here.

Featured image by Getty Images
Editorial disclaimer: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airline or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.

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How we chose these cards

Our points-obsessed staff uses a plethora of credit cards on a daily basis. If anyone on our team wouldn’t recommend it to a friend or a family member, we wouldn’t recommend it on The Points Guy either. Our opinions are our own, and have not been reviewed, approved, or endorsed by our advertising partners.
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