Cash back vs. points and miles credit cards
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Rewards credit cards come in many different forms: some offer cash back and others offer points or miles. If you’re wondering which type of credit card rewards to choose, it helps to understand how these different card types work.
Cash back cards offer cash rewards as a percentage back on your purchases. These cards are often easy to use and primarily feature cash redemptions, though you may be able to choose some additional options. Cards that offer points and miles typically have more flexible redemption options, though they’re usually most valuable when redeemed for travel. Used wisely, points and miles can go a long way to helping you save for a coveted vacation.
The type of rewards credit card and rewards structure that’s best for you will ultimately depend on your spending habits and lifestyle. These are some of the pros and cons of different types of credit card rewards:
Pros and cons of cash back cards
In general, cash back is the better choice for simplicity-seekers hoping to earn flexible rewards on everyday purchases.
Cash back credit cards offer a percentage of cash back on each dollar you spend, with some cards offering a higher rate in some categories than in others. For example, some cash back cards offer a flat 1.5 percent to 2 percent cash back for every purchase you make, but others offer higher bonus rewards (usually ranging from 3 percent to 5 percent back) in fixed or rotating categories.
One major benefit of cash back cards is their flexibility when it comes to redeeming rewards. Depending on the cash back card you sign up for, you may be able to redeem your rewards for a check in the mail, a direct deposit or a statement credit to your account. Some of the best cash back cards also let you cash in your rewards for gift cards, merchandise or travel rewards through your card’s travel portal.
Cash back credit cards tend to be a good value for consumers who rarely travel and/or prefer to see save money along the way, rather than save for a future experience. Cash back rewards are generally worth 1 cent each. For instance, a 2 percent cash back card yields $2 per $100 spent.
Pros and cons
Here are some advantages and disadvantages to consider when comparing cash back cards to points and miles credit cards.
- Earning and redeeming cash rewards is simpler and more immediate.
- Cash rewards value tends to be straightforward.
- There are many no-annual-fee cash back cards to choose from.
- Cash back credit cards may offer hefty welcome bonuses.
- Most cash back credit cards don’t come with any notable travel benefits (but you may be able to earn rewards on certain types of travel purchases).
- Cash back credit cards may deliver inferior rewards value compared to travel credit cards.
- You may have limited redemption options — or no redemption options other than statement credits — depending on the card you choose.
Pros and cons of points and miles cards
In general, a points or miles card is the better choice for those who travel often or wish to start earning travel rewards. Many different types of rewards credit cards fall under the umbrella of “points and miles” cards. For example, points and miles cards include airline credit cards that let you earn frequent flyer miles in a specific frequent flyer program. But they also include flexible rewards cards that let you redeem points for travel in more than one way.
Points and miles cards may also come with important travel benefits like airport lounge access, travel credits, an application fee credit for Global Entry or TSA PreCheck or built-in travel insurance benefits — although cards with the most benefits tend to charge high annual fees.
Some of the best travel credit cards on the market today offer a ton of flexibility when it comes to redeeming your rewards. If you have a travel credit card that earns Chase Ultimate Rewards points, for example, you may be able to redeem your points for cash back, gift cards, statement credits, merchandise, travel through the Chase Ultimate Rewards portal or even 1:1 points transfers to Chase airline and hotel partners.
Travel rewards tend to be worth more than cash back, and some of the best travel rewards currencies can be worth up to 2 cents each or more. However, your redemption value depends on how you redeem your travel rewards. For example, if you cash in flexible points for a statement credit to your account, you may only get 1 cent per point in value (or less). But if you transfer your points to a high-value travel partner, your points may be worth up to 2 cents each. You may also get more than 1 cent per point in value if you redeem your points for travel through your issuer portal.
Pros and cons
The pros and cons of points and miles cards can vary depending on the specific card you use. However, some general rules of thumb can help guide you regarding the advantages and disadvantages of choosing a points or miles card over a cash back card.
- Travel rewards provide more value than cash back if you travel often.
- If you like fancy travel accommodations, travel rewards cards are more likely to come with perks like priority boarding, free checked baggage, airport lounge access or free nights at hotels.
- Many travel credit cards come with travel insurance and no foreign transaction fees.
- Travel credit cards generally have higher rewards rates and higher welcome bonuses.
- Travel credit cards tend to have higher annual fees than cash back credit cards.
- Airline credit cards and hotel credit cards often have limited redemption options.
Which rewards are best for you?
If you don’t travel much or care about using your rewards strategically toward lofty travel goals, you’re best suited for cash rewards. To make things easier, you may want to opt for a flat-rate cash back card so you won’t have to keep up with rotating bonus categories or activating your rewards. No matter which type of cash back card you choose, this move will benefit you due to the sheer simplicity of earning rewards. And you’ll still get something back from your credit card spending, even if you don’t get the most value for your rewards.
However, if you get a rush out of turning $500 worth of credit card rewards into $750 or $1,000 worth of travel, then you’re a perfect candidate for a card that offers rewards in the form of points or miles. Specifically, you’d benefit from travel cards that give you plenty of options for boosted points or miles values and travel upgrades. If you travel often every year and want access to benefits that make air travel more comfortable, then an elite travel card may be an even better fit.
The bottom line
To determine whether a cash back, points or miles card is better for you, you’ll need to know what kind of cardholder you are and what type of rewards structure most closely matches your spending profile. Keep in mind that it’s not uncommon for cardholders to pair a few different credit cards to maximize their rewards, so trying out different credit card combinations and rewards structures could also be an option.