Cashback or points: which is better?

It’s easy to be overwhelmed by the sheer number of rewards credit cards available today, and that’s especially true if you’re flexible about the type of card you end up with.

Choosing a hotel credit card is very easy, for example, if you always stay at the same hotel brand. But what if you have the flexibility to choose where and when you travel? Or, what if you’re not sure if you should even use the pass, or if you’re better off sticking with cash rewards?

Cashback and cards with points and miles have their advantages. Cash Back Cards give you simple and flexible cash rewards that you can use as you see fit. Points and miles cards, on the other hand, give you the opportunity to further benefit from your rewards by redeeming them for travel. Not to mention, travel cards often come with valuable perks like airport lounge access and travel insurance.

If you are trying to choose between a cashback credit card or a rewards credit card that earns flexible points or miles, here are some details you should consider.

Earning points against cashback

Travel Rewards credit cards offer points or miles on your spending rather than cash back, while cash back credit cards allow you to earn a percentage of rewards based on your spending, usually with a flat rate or tiered rewards program.

Most travel cards have a variety of redemption options, including cash back or credit, gift cards, and merchandise. However, you will generally get the most value when you use your points to book travel directly through the portal, or for transfers to partner airlines and hotels.

Some travel promotion credit cards include valuable perks such as basic car rental coverage, airport lounge membership, trip cancellation and interruption insurance, or credits for Global Entry or TSA PreCheck membership.

You’ll probably notice that most travel credit cards charge an annual fee, although most of them offer first year bonuses that more than make up for the fee. However, these reward programs can be complex. While the ability to transfer points or miles to partner airlines and hotels sounds good in theory, navigating through the rules of airline and hotel programs can be confusing, which is why many people choose to get refunds instead.

Cash-reward credit cards let you redeem points or miles for cashback or statement credits, and some also let you redeem them for gift cards, merchandise, travel, and more.

Most cashback credit cards do not charge an annual fee and offer simple rewards and maximum flexibility as you can use your cash as you see fit rather than being limited to the options on the issuer’s rewards program portal.

On the other hand, cashback credit cards tend to have very few benefits, especially when it comes to travel protection and benefits. In addition, cashback credit cards do not allow you to transfer points or miles to partner airlines or hotels, where you can often overcharge.

Finally, some cashback cards have earnings caps that drastically limit how much you can earn in rewards each year. These cards usually offer a much lower signup bonus than travel cards.

Earning points

Earning points is as easy as making purchases with a credit card. Point rates for certain purchases may vary by issuer. For example, the Platinum Card® from American Express offers 5x reward points on flights booked directly with airlines using American Express Travel (up to $500,000 for such purchases in a calendar year).

Sign up bonus is another way to earn a significant amount of points; you just need to complete the spending requirement within a certain period of time after receiving the card. In addition, you can earn points with some issuers by inviting friends or family; if they sign up and get approved, you will be rewarded.

Refund

There are many ways to earn cashback, depending on the card. Cashback flat rate cards offer the same rate for every purchase, while others may offer a higher rate for certain types of purchases such as gas or groceries. However, some other offers increase cashback rates in certain categories, which change every quarter. Typically, cards that offer higher rewards on certain purchases have an earning cap, after which they earn 1 percent.

For example, the Blue Cash Everyday® Card from American Express gives you 3% cash back at US supermarkets (up to $6,000 per year, then 1%), 2% at gas stations in the US, and 1% on everything else.

Rotating category cashback bonus cards like Chase Freedom Flex℠ give you more cashback on certain types of purchases that change every quarter and need to be redeemed before you can start earning.

There are also cards that allow you to choose your own bonus cashback category, such as the Bank of America® Customized Cash Rewards credit card. It lets you choose from six categories where you can get 3% cash back, including online shopping, pharmacies, home and furniture, restaurants, travel, and gasoline. You’ll also get 2 percent back on groceries and wholesale clubs (up to $2,500 on combined 3 percent and 2 percent category purchases each quarter, then 1 percent) and you can change your category once per calendar month.

Using points against cashback

Cashback cards offer more flexibility when you want to redeem your rewards. Many issuers offer postal checks or credit statements in addition to travel rewards, merchandise, and gift cards.

The best travel credit cards are also flexible with regards to repayment of rewards. For example, if your card earns Chase Ultimate Rewards points, you can use them to redeem cash, merchandise and gift cards, credit statements, and travel through the Chase Ultimate Rewards portal. You can even use your points for a 1:1 transfer to Chase Airlines and partner hotels.

It’s important to note that points and miles cards also often come with travel benefits, which include things like airport lounge access, credits for Global Entry or TSA PreCheck membership, and travel insurance. Also, using your travel miles for travel can add up to 2 cents or more per mile compared to using them for something like a credit statement, which can cost as little as 1 cent or less.

Use of points

When it comes time to redeem your points, if your issuer offers a credit statement and you choose to do so, they will determine and deposit the cash value of your points into your account balance. You can also redeem your points for hotel points or air miles, gift cards, online purchases or charitable donations.

Redeeming points online is very easy – just log in to your account and follow the instructions to redeem. You can also redeem points through issuer portals and then use them to book trips, transfer to issuer loyalty programs, and more.

It is very important to know how to spend points. For example, if they are better suited for cash refunds than gift cards, select cash refunds. And if you get more for your points when you use them for travel purchases, use them for that.

Refund

You can usually get cash back through credit statements, gift cards, online purchases, and even checks from some issuers.

Some cards allow you to return cash directly to your bank account, use it for charitable donations, book trips through an online portal, and even connect your rewards to Amazon or PayPal to pay for purchases.

Some cards also allow you to deposit cash back directly into a bank account or use it for charitable donations. And some even allow cash back to be used to book trips through the issuer’s own online portal.

How to choose between cashback, points and miles

If you travel frequently or are not sure if you will be traveling or not, travel credit cards may be the best deal. Their signup bonuses can be lucrative and the recurring rewards you earn from bonus spending can add up quickly. Because you can get more out of your points or miles by redeeming them for travel rewards, a travel card can get you far ahead of the curve with a much lower upfront cost.

Here are a few questions to ask yourself as you decide which card to get:

• Want to be able to transfer points to airlines and hotels?
• Are you up to the painstaking job of transferring points to airlines or hotels?
• Is earning a significant signup bonus high on your agenda?
• Do you mind paying an annual fee on a credit card?
• How likely are you to take advantage of the travel card’s benefits and privileges?

bottom line

The answers to these questions should help you decide which type of card is best for you. For the most part, a flexible travel credit card or a points or miles card will get you ahead based on the signup bonus alone. But there can be many other factors as well, so be sure to weigh the pros and cons of each option.

The reality is that cashback credit cards and travel credit cards allow you to earn on your spending, and something is always better than nothing. Make sure you compare all the best credit cards on the market today to choose the one that suits your spending style and reward goals.