Summer is here, and that means many are finalizing plans for their late summer and early fall getaways. Travel credit cards are an excellent tool to help you save money and upgrade your overall travel experiences, but the best travel cards often come with annual fees that are generally only worth it if you plan on making at least two or three trips each year. This is because the rewards structure for these cards offers higher returns on travel-related expenses such as flying and hotel stays.
For those who only take larger trips (where flying and multiple-night hotel stays are required) once every few years, a travel card probably won’t make the most sense for your wallet. However, that doesn’t mean you can’t use credit card rewards to fund those trips.
Using cash back credit card rewards to fund your vacation
A cash back card might make more sense financially if you are only taking a trip once a year or once every few years. That way you can use your rewards to save money on more than just travel expenses throughout the year.
Typically, cash back cards offer more diverse bonus categories for maximizing rewards outside of travel purchases. For instance, the Blue Cash Preferred® Card from American Express earns bonus rewards at U.S. supermarkets, on select U.S. streaming services and more. However, that doesn’t mean you can’t use the cash back you earn on your everyday spending on your travel expenses. If you strategically save your cash back rewards in the months leading up to a trip, you can use them as a statement credit to cover flight costs, hotel or Airbnb bookings and other travel expenses.
Cash back cards that are great for funding travel
The Freedom Unlimited is a versatile cash back card — with the card’s first-year 3 percent rewards structure (on the first $20,000 spent; 1.5 percent cash back after), it will give you a great return on pretty much every purchase. You can also unlock a lot of value by pairing this card with another cash back card or a travel card to maximize rewards across multiple bonus categories. For example, the Capital One Savor Cash Rewards Credit Card offers a really competitive 4 percent cash back on entertainment, but it doesn’t offer rewards for travel. You can use the Chase Freedom Unlimited to earn a higher return in the categories your other cards don’t offer bonus rewards for.
Chase Sapphire Preferred Card and Chase Sapphire Reserve cardholders can redeem their points through the Chase travel portal with a 25% or 50% bonus, respectively. Even though the Freedom Unlimited isn’t eligible for that bonus, you can still utilize the Chase Ultimate Rewards travel portal to book your flights and accommodations. An issuer travel portal usually allows you to make the same travel selections as you would directly with the airline or hotel chain, and you can occasionally find really great deals that aren’t available through other third-party outlets that help you save even more on your trip.
If you decide later on that you want a travel-specific card, you can apply for the Chase Sapphire Preferred or Reserve and transfer your Freedom Unlimited points over to take advantage of the increased value of your rewards.
If you don’t mind paying an annual fee but simply don’t spend a lot on travel each year, the Savor card should be at the top of your list. Its bonus categories focus on dining and entertainment, and it offers a competitive $300 sign-up bonus for new cardholders who spend $3,000 within the first three months of getting the card. The card does come with a $95 annual fee, but it’s waived your first year.
Spending just $500 each month on dining and entertainment purchases alone is worth almost $250 in cash back annually. Add that on top of regular 1 percent cash back spending and the $300 sign-up bonus, and you can easily save up enough money for a roundtrip economy fare plane ticket abroad.
American Express recently gave the Blue Cash Preferred a value-boosting update, adding bonus categories and raising the welcome bonus to a $250 statement credit after spending $1,000 in the first three months. You’ll get 6 percent cash back on the first $6,000 you spend at U.S. supermarkets each year (1% after), 6 percent back on select U.S. streaming services, 3 percent back on transit and at U.S. gas stations and 1 percent cash back on everything else.
That’s one of the most competitive rewards structures on the market right now. The card now offers the highest rate of rewards out there on select U.S. streaming services, If you’re maximizing the bonus categories each month, you could potentially rack up hundreds of dollars in cash back each year.
You can’t transfer cash back rewards over to your Amex Membership Rewards program (which offers benefits like transfer partners and exclusive travel discounts) if you happen to get a travel card in the future, but that isn’t a dealbreaker for this phenomenal cash back card. You can pair this with other cash back cards if you want to maximize rewards in other categories; for example, you could supplement with the Savor to earn additional cash back on dining and entertainment.
Things to consider when using cash back for travel
While cash back can just as easily be used to fund travel as points and miles, there are a few things to consider before forgoing a traditional travel card.
Foreign transaction fees
Many cash back cards come with a 3 to 5 percent fee for purchases made abroad. This will almost or completely negate any rewards you would earn with your card. Before using your card outside of the U.S., double check the terms and conditions for a foreign transaction fee. Some cash back cards, such as cards issued by Capital One, don’t charge them.
If your card does charge a foreign transaction fee, use your cash back to fund prepaid bookings, but not purchases made while on your trip.
Fewer hoops to jump through
Points and miles earned with travel cards can typically be redeemed for a higher rate than cash back, but that oftentimes come with caveats like availability limitations or blackout dates. For frequent travelers, this is usually worth the hassle. However, it could be a major source of frustration for families who want to book multiple seats on a flight or those who don’t travel enough to reap the outweighing benefits of a travel-specific card.
When a travel card is more beneficial
At the end of the day, a travel card will offer you the best value on your travel purchases. If you are a frequent traveler (or plan to become a frequent traveler within the next year), it’s worth looking at travel credit cards like the Chase Sapphire Preferred Card or Capital One Venture Rewards Credit Card. Travel cards typically come with more competitive welcome bonuses, travel insurance and perks like a TSA PreCheck application fee credit or annual statement credits for travel. Even if you don’t spend the majority of your budget on travel, cards like the American Express® Gold Card offer optimal travel redemptions with a more diversified set of bonus categories.
However, if you’re looking for a way to use credit card rewards for occasional trips or vacations, a cash back card could be exactly what you’re looking for.
**The information about the Chase Sapphire Reserve card has been collected independently by Bankrate.com. The card details have not been reviewed or approved by the card issuer.
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