Is It Better to Get Cash Back or Points If I Don't Travel Much?

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"Reader Questions" are answered twice a week by TPG Associate Editor Brendan Dorsey.

Plenty of credit card obsessives try to accumulate hoards of points and miles to fund their globetrotting travels. But what about people who don't travel a whole lot — what are the best credit card options for them? That's what TPG reader Michael asks...

[pullquote source="TPG Reader Michael"]If we don’t travel much, what is better: cash back or travel points?[/pullquote]

Trying to figure out what credit card I personally want next is always an important question. I'm usually focused on points and miles since I love to travel — but for those who travel only once a twice a year or prefer to drive instead of fly, cash-back cards may be a better bet.

Now, it's difficult to judge Michael's individual situation, but for someone who maybe flies twice a year, a travel rewards credit card can still make sense over a cash-back one. For instance, a card like the Chase Sapphire Preferred Card or the Chase Sapphire Reserve can be great even for infrequent travelers, since those cards earn flexible, transferable points, which can also easily be redeemed at a decent value through Chase's travel portal.

The real value of Ultimate Rewards points comes when you transfer them to partners and redeem for premium cabin awards or luxury hotels. But if Michael wants to keep it simple, he can also receive solid value when redeeming through the Chase travel portal, getting 1.25 cents per point with the Sapphire Preferred and 1.5 cents a point with the Sapphire Reserve. So if he's spending just $1,000 a year on travel — say, two $300 flights a year plus a hotel on each trip — he'd only need 80,000 Ultimate Rewards points with the Preferred and 67,000 Ultimate Rewards points with the Reserve. Those numbers are pretty easy to hit if you factor in a 50,000-point sign-up bonus.

But what if you've already gotten the sign-up bonus? Well, in his story "One Year of Earning and Burning with Chase Sapphire Reserve," TPG Editor-at-Large Nick Ewen analyzed a year of spending on the CSR, using US government numbers for what an average American household spends in a year in different categories ($31,272 total). Not counting the sign-up bonus but factoring in the 3x points on dining and travel, the average household would earn 40,070 points, worth about $841 according to TPG's latest valuations. After subtracting the effective $150 annual fee, you'd be left with $691 worth of points, which is a pretty decent annual return.

It's relatively easy to earn travel points with cards that have broad catch-all bonus categories like travel and dining, and you're going to be getting more value out of them when redeeming those points for travel then you would be for cash back. However, depending on your spending habits, it still might make sense to go with a cash-back card if you don't want any points to begin with or you don't need them for your type of travel, especially considering many travel cards come with an annual fee.

Let's take that same average US household spend and put it on two different no-annual fee cash-back cards — the Citi® Double Cash Card, which earns 2% back on every purchase (1% when you buy and 1% as you pay for purchases), and the Chase Freedom (No longer open to new applicants), which earns 5% back on rotating categories up to $1,500 per quarter. If you can maximize the 5% back on the $6,000 annual in quarterly spend for the Freedom (which should be feasible), and put everything else on the Citi® Double Cash Card, you can rack up a whole lot of cash back — $300 from the Freedom and $505 from the Citi® Double Cash Card. That's $805 total in actual cash, not in points! issuer.

Then if you throw in other cards with no annual fee, such as the Uber Visa card that earns 4% on dining and 3% back on airfare and hotels, or the Blue Cash Everyday® Card from American Express (see rates & fees) with 3% cash back at US supermarkets on up to $6,000 per year in purchases, (then 1%) that could bump up your account even more. You could even be really bold and add in another cash back card with different 5% rotating categories, like the Discover it Cash Back, to maximize your return (enroll every quarter to earn 5% cash back on up to $1,500 in quarterly purchases made in various categories throughout the year). Plus, 1% cash back on all other purchases.

Of course, if you're adding more than one credit card to your wallet, that opens up options back over on the points and miles side. The Chase trifecta of cards can rev up your points earning on categories outside of travel and dining, leading to even more value than a handful of cash-back cards. But to really maximize the return on those points, you need to be prepared to take the time to do some research and find award space for point transfers to Chase's travel partners. You can get fantastic value for your points that way — much better than any cash back combination — but you have to be ready to do some homework to get there.

Finally, it's important to keep in mind the value of many travel cards perks, whether it's lounge access, rental car insurance, travel credits, price protection, baggage fee-waivers or free hotel nights. Even using these perks once a year can lead to significant value. And as we've noted in our guide to "The Best Cash Back Cards for 2018," it's important to determine if a cash-back card is a good fit for you. Comparing factors like earning rates, ease of redemption, additional perks and annual fees are all quite important.

So, it's really an individual decision. Even if you consider yourself a person who doesn't travel a lot, one or two sign-up bonuses alone could fund a year's worth of travel. On the other hand, if you don't want to go through the hassle of meeting minimum spends or finding award space and you think cash is king, a trio — or quartet — of no-annual fee cash-back cards could very well work for you.

Thanks for the question, Michael, and if you're a TPG reader who'd like us to answer a question of your own, tweet us at @thepointsguy, message us on Facebook or email us at info@thepointsguy.com.

For rates and fees of the Blue Everyday card, click here.