Is it better to earn bonus points or cash back during the pandemic?

Sep 10, 2020

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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: What kind of card (and experience) do I want? 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.

This is especially true during the coronavirus pandemic, when points and miles enthusiasts noticed more cash back offers on their credit cards. But as travel starts to pick up again — TSA figures topped nearly one million in early September for the first time since the beginning of the pandemic — cardholders have more options.

With travel showing signs of life, is it better to earn points for your purchases or earn cash back?

To help you answer the fundamental question posed above, we’ve broken down the pros and cons of different types of cards and their associated rewards programs, looking at things like rewards value, welcome offers, redemption, ease of use and perks. Draw from your own experiences and spending patterns to help make the best decision for you.

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Welcome Offers

What you earn on credit card spending is essential (we’ll get to that next), 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 lucrative since these bonuses can be worth hundreds, if not thousands, of dollars. You’ll find the best credit cards offer points and miles rewards rather than cash back. Some examples:

Pure cash-back cards tend to offer bonuses worth a few hundred bucks. The Capital One® Quicksilver® Cash Rewards Credit Card, for example, provides a one-time $200 bonus after you spend $500 on purchases within the first three months of opening your account. Many cards offer a welcome bonus. Those that don’t tend to be cash-back cards. Be on the lookout for this when making your decision.

The downside to the big bonuses you’ll find with rewards credit cards is they often come with large minimum spend requirements. Making $5,000 in purchases on your card within a few months may be out of your budget’s reach. If you have more modest spending habits, a $500 or $1,000 minimum spending requirement might be easier to complete. Just know you’re not going to reel in massive value from a cash-back card’s bonus, especially if traveling is your goal.

(Photo by GingerInANutShell/Twenty20)
(Photo by GingerInANutShell/Twenty20)

Rewards

You can find both points and cash-back credit cards that offer high-value returns on various categories of spending. How your budget breaks down should determine the type of card you should get. It’s no surprise that points- and miles-earning cards tend to offer top rewards on travel spending while cash-back cards often favor everyday purchases, like at supermarkets and gas stations. Let’s look at two high-performing examples.

The Chase Sapphire Reserve offers 3x Ultimate Rewards points on all travel, 10x on Lyft rides through March 2022 and 1x on everything else. For every dollar you spend on travel, you’ll earn points worth 2 cents, according to TPG’s valuations. That value factors in the many possible redemptions you could get by transferring your points to partners like United, where you could book a first-class flight worth thousands of dollars, and Marriott, where you could book a hotel stay at a vast range of properties.

The Blue Cash Preferred® Card from American Express pays 6% cash back at U.S. supermarkets (on up to $6,000 per calendar year in purchases, then 1%) and 6% 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. The card comes with a $0 introductory annual fee for one year, then $95. Offer Expires 12/10/2020. (see rates and fees). 

(Photo by Parinda Yatha / EyeEm / Getty Images.)
(Photo by Parinda Yatha / EyeEm / Getty Images.)

The bonus categories on a particular card can be either positive or negative, depending on your spending. If you’re a big traveler, 6% cash back at a U.S. supermarket may have little value. Likewise, if your idea of a vacation is sipping a cold beverage while dangling your feet in the backyard pool, you may have little use for those 3x points on travel expenses with the Sapphire Reserve.

One other thing to keep in mind: Some popular cash-back cards offer a pretty meager 1% back on all spending, but boost the value by offering bonus rewards on categories that change periodically throughout the year. 

For example, Chase Freedom (No longer open to new applicants) offers a 5% bonus on Whole Foods and Amazon purchases between July 1 and Sept. 30, 2020. You’ll have to contend with a cap on the bonus, though. In the case of Freedom, the 5% bonus is available on spending up to $1,500 per quarter (activation required).

Annual Fee

Big welcome bonuses often equal a hefty annual fee, but that’s not always the case. Many cash-back cards offer decent rewards (and a modest welcome bonus) that charge no annual fee.

Here is an example:

  • Chase Freedom Unlimited charges no annual fee, pays 1.5% cash back on spending and is currently offering $200 after spending $500 on purchases in the first three months.

Meanwhile, for its big 60,000-point welcome bonus, you’ll pay a $550 annual fee (see rates and fees) for the Amex Platinum. You’ll also get some huge perks, which we’ll get to next. This is one of several premium travel credit cards that charge hundreds of dollars a year just to use the card.

Some notable points-earning cards offer big sign-up bonuses with more modest annual fees:

  • Chase Sapphire Preferred — 80,000 points after $4,000 spent on purchases in the first three months; $95 annual fee
  • Citi Premier® Card — 60,000 points after $4,000 spent on purchases in the first three months; $95 annual fee

The information for the Chase Freedom and Chase Freedom Unlimited has been collected independently by The Points Guy. The card details on this page have not been reviewed or provided by the card issuer.

The bottom line here is that if you’re sensitive about annual fees — no matter what you get in return for paying them — look to either a cash-back card or a starter travel credit card.

Perks

Big welcome bonuses and hefty annual fees tend to lead to big perks. This plays very much in favor of points and miles cards. The Sapphire Reserve, for instance, includes a $300 annual travel credit and complimentary Lyft Pink membership. 

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

Cash-back cards tend to have fewer benefits. There’s been a trend among cash-back cards to reduce or eliminate some popular perks. But you should still be able to find a card that offers some industry-standard benefits, like:

  • 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 Use

If you’re looking for a simple rewards program, most cash-back cards can deliver that for you. Many points and miles credit cards will require a bit (or much) more of your attention. The one glaring cash-back card exception is the type of card that offers rotating bonuses — you have to pay attention to those to get the most value.

But both cash-back and points-based credit cards that offer bonus categories can’t be run on Autopilot. For example, the Citi Prestige® Card earns 5x points on all air travel and restaurant purchases and 3x on hotel and cruise line purchases. But this card earns just 1 point per dollar spent on all other purchases. You’ll need to remember that if you own this card and should probably choose another in your wallet to maximize your return on purchases that wouldn’t earn you bonus points.

The information for the Citi Prestige card has been collected independently by The Points Guy. The card details on this page have not been reviewed or provided by the card issuer.

If that doesn’t sound like an effort you’re likely to make, you should probably stick to a cash-back card with a super simple rewards structure. The Citi® Double Cash Card pays 2% cash back (1% cash back on all purchases and another 1% back when you repay on time). Pay on time and in full (that’s one of TPG’s ten credit card commandments) and you’ll enjoy a 2% cash-back reward on all purchases with this card. That’s a pretty good deal for everyday spending.

Redemption

We saved for last what is an essential distinction between cash-back and points cards. 

Cash-back cards are relatively straightforward when it comes to redemption rates. One cash-back percentage point equals 1 cent per dollar spent. There are a few rewards categories here that no points cards can match, including the Amex Blue Cash Preferred at U.S. supermarkets and the Amazon Prime Rewards Visa Signature Card on purchases at the online retailer (5% cash back online and at Whole Foods). 

The information for the Amazon Prime Visa Signature Card has been collected independently by The Points Guy. The card details on this page have not been reviewed or provided by the card issuer.

But when it comes to miles and points cards, 1 point or mile very rarely equals 1 cent. And 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 a first-class flight.

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

Keep in mind that points used to book travel through credit card portals will generally get you lower value since your points will be worth a fixed rate. When you transfer your points to a partner like Delta SkyMiles, on the other hand, the value of your points depends on the cash price of the flight you’re redeeming for.

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 points card, and a premium one at that. You’ll get far more return 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 mistake you can make — 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.

Featured photo by Tais Policanti / Getty Images

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

Blue Cash Preferred® Card from American Express

WELCOME OFFER: $300 Cash Back Terms Apply.

TPG'S BONUS VALUATION: $300

CARD HIGHLIGHTS: New! Earn 6% cash back on select U.S. streaming services and 3% cash back on transit. Plus earn 6% Cash Back at U.S. supermarkets on up to $6,000 per year in purchases (then 1%) and 3% Cash Back at U.S. gas stations

Apply Now
More Things to Know
  • Limited Time Offer: Earn a $300 statement credit after you spend $3,000 in purchases on your new Card within the first 6 months. Offer Expires 12/10/2020
  • Limited Time Offer: $0 introductory annual fee for one year, then $95. Offer Expires 12/10/2020
  • 6% Cash Back at U.S. supermarkets on up to $6,000 per year in purchases (then 1%).
  • 6% Cash Back on select U.S. streaming subscriptions.
  • 3% Cash Back at U.S. gas stations and on transit (including taxis/rideshare, parking, tolls, trains, buses and more).
  • 1% Cash Back on other purchases.
  • Plan It® gives the option to select purchases of $100 or more to split up into monthly payments with a fixed fee and no interest.
  • Cash Back is received in the form of Reward Dollars that can be redeemed as a statement credit.
  • Terms Apply.
  • See Rates & Fees
Intro APR on Purchases
0% on purchases for 12 months
Regular APR
13.99%-23.99% Variable
Annual Fee
Limited Time Offer: $0 introductory annual fee for one year, then $95. Offer Expires 12/10/2020
Balance Transfer Fee
N/A
Recommended Credit
Excellent, Good
Terms and restrictions apply. See rates & fees.

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

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.