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Update: Some offers mentioned below are no longer available – Citi Prestige Card
If you’re new to credit card rewards — or if you’re just looking to up your game — one of the first questions you’ll need to answer for yourself is: What kind of card do I want? The good news is you can find solid options among the top cash-back credit cards and the best travel rewards cards. And in the end, you may want both a cash-back and a points card.
To help you answer the fundamental question posed above, we’ve broken down the pros and cons of these 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 right decision for you.
What you earn on credit card spending is important (and we’ll get to that next), but when it comes to accumulating rewards quickly nothing beats a card’s welcome offer. 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 biggest bonus offers on cards that offer points and miles rewards rather than cash back. Some examples:
- The Platinum Card® from American Express offers a 60,000-point welcome bonus (worth $1,140, according to TPG’s latest valuations) after you make $5,000 in purchases in your first three months of card ownership.
- The Chase Sapphire Preferred Card offers a 50,000-point sign-up bonus (worth $1,050) after you make $4,000 in purchases in your first three months of card ownership.
Pure cash-back cards tend to offer bonuses worth a couple hundred bucks at most. The Capital One Quicksilver Cash Rewards Credit Card, for example, offers a $150 bonus after you spend $500 within the first three months of card ownership. Although many such cards offer a welcome bonus, those that don’t tend to be tied to a cash-back program. Be on the lookout for this when making your decision.
The downside to these big bonuses 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 a better choice. Just know you’re not going to reel in huge value from a cash-back card’s bonus.
You can find both points and miles 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 groceries and gas. Let’s look at two high-performing examples.
The Chase Sapphire Reserve offers 3x Ultimate Rewards points on all travel (excluding $300 travel credit) and dining purchases and 1x points on everything else. For every dollar you spend on travel, you’ll earn points worth 6.3 cents, according to TPG’s latest valuations. That value factors in the many possible redemptions you could get by transferring your points to partners like Korean Air, where you could book a first-class flight worth thousands of dollars, and Marriott, where you could book a hotel stay at a huge range of properties.
The Blue Cash Preferred® Card from American Express pays 6% cash back at US supermarkets (on up to $6,000 per year in purchases, then 1%), 3% cash back at US gas stations and at select US department stores, 1% back on other purchases. That means for every dollar you spend at the grocery store, you’ll earn 6 cents that can be applied to a statement credit.
The bonus categories a particular card offers can be either a positive or negative attribute depending on your own spending. If you’re a big traveler, 6% cash back at a 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.
One other thing to keep in mind: Some popular cash-back cards offer a pretty meager 1% reward on all spending, but boost the value by offering bonus rewards on categories that change periodically throughout the year. Chase Freedom, for example, offers a 5% bonus on grocery, PayPal and Chase Pay spending from May through July 2018. 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.
Big welcome bonuses often equal a big annual fee, but that’s not always the case. The one thing that is true: There aren’t any popular cash-back credit cards that carry annual fees of $100 or more. The ceiling is typically about $95. What’s also true: There are many more cash-back cards that offer decent rewards (and a modest welcome bonus) that charge no annual fee.
Here are a couple:
- The Chase Freedom Unlimited charges no annual fee, pays 1.5% cash back on all spending and offers a $150 sign-up bonus after you spend $500 on the card within the first three months.
- The Discover it® Cash Back charges no annual fee, pays 1% cash back on all spending and enroll every quarter to earn 5% cash back on up to $1,500 in purchases made in various categories throughout the year. Discover also offers to match all cash back earned at the end of your first year.
Meanwhile, for its big 60,000-point welcome bonus, you’ll pay a $550 annual fee to own the Amex Platinum. You’ll also get some huge perks for this annual fee, which we’ll get to next. This is one of several premium travel rewards credit cards that charge hundreds of dollars a year just for the privilege of using the card.
There are some notable points-earning cards that offer big sign-up bonuses with more modest annual fees:
- Chase Sapphire Preferred — 50,000 points after $4,000 spent in the first three months; $95 annual fee that’s waived the first year
- Citi Premier Card —50,000 points after $4,000 spent in the first three months, $95 annual fee that’s waived the first year
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 rewards credit card.
Big welcome bonuses and big annual fees tend to lead to big perks. This plays very much in favor of points and miles cards.
Although Sapphire Reserve is devaluing a few of its perks, it still has way more going for it in this department than most credit cards. Among the highlights, you’ll receive:
- A $300 annual travel credit (reducing the effective annual fee to $150)
- Priority Pass Select airport lounge access (limited to two guests per visit starting on August 26, 2018)
- Application fee credit for Global Entry or TSA PreCheck (worth up to $100).
Cash-back cards tend to have fewer benefits. In fact, there’s 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 time period of a US manufacturer’s warranty (typically up to a year) on eligiblfe 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 3x points on all airfare and hotel purchases and 2x points on all dining and entertainment 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.
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 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 10 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.
We saved for last what is likely the most important distinction between cash-back and points cards — at least some of them. Cash-back cards are fairly straightforward when it comes to redemption rates. One cash-back percentage point equals 1 cent per dollar spent if you opt for cash back or a statement credit. There are a few rewards categories here that no points card can match, including the Amex Blue Cash Preferred on groceries and the Amazon Prime Rewards Visa Signature Card on purchases at the online retailer (5% cash back online and at Whole Foods).
But when it comes to miles and points cards, 1 point or mile very rarely equals one cent. And a point is often not a fixed-rate commodity. Exceptions include Capital One Venture miles, which are worth a flat 1 cent apiece toward travel, but the value of points such as Amex Membership Rewards points, Chase Ultimate Rewards points and Citi ThankYou points is harder to pin down since you can transfer these rewards to various travel partners and get, say, 6 cents per point in value on a first-class flight.
This all speaks to the complexity of points and miles programs. There’s definitely a learning curve, but referencing our valuations is a good way to see if you’re getting good bang for your points buck. They represent the average value in cents that you should expect to get from your rewards.
Also, keep in mind that points used to book travel through credit card portals, such as American Express Travel, as opposed to points transferred to a hotel or airline loyalty program, 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.
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 travel 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 to not take advantage of the free money issuers will throw at you in the form of welcome offers.
With some great bonus categories, the American Express Gold Card has a lot going for it. The card offers 4x points at US restaurants, at US supermarkets (up to $25,000; then 1x), and 3x points on flights booked directly with airlines or through amextravel.com. It is currently offering a welcome bonus of 35,000 bonus points after you spend $2,000 in the first three months.
- Earn 35,000 Membership Rewards® Points after you spend $2,000 on eligible purchases with your new Card within the first 3 months.
- Earn 4X Membership Rewards® points at U.S. restaurants. Earn 4X Membership Rewards® points at U.S. supermarkets (on up to $25,000 per year in purchases, then 1X).
- Earn 3X Membership Rewards® points on flights booked directly with airlines or on amextravel.com.
- Earn up to $10 in statement credits monthly when you pay with The Gold Card at Grubhub, Seamless, The Cheesecake Factory, Shake Shack, and Ruth's Chris Steak House. This is an annual savings of up to $120. Enrollment required.
- $100 Airline Fee Credit: up to $100 in statement credits per calendar year for incidental fees at one selected qualifying airline.
- Choose to carry a balance with interest on eligible charges of $100 or more.
- No Foreign Transaction Fees.
- Annual Fee is $250.
- Terms apply.
- See Rates & Fees