Rewards credit cards come in many different forms: some offer cash back, others offer points or miles. If you're wondering which type of credit card rewards to choose, it's helpful to understand how these different types of credit cards work.
Cash back cards offer cash rewards as a percentage of your purchases. These cards are generally easy to use and primarily offer cash exchange, but you can choose from a few other options.
Cards that offer points and miles usually have more flexible redemption options, though they're usually most valuable when redeemed for travel. Using points and miles wisely can go a long way in helping you save for that dream vacation.
The type of rewards credit card and rewards structure that is best for you ultimately depends on your spending habits and lifestyle. Here are some pros and cons of different types of credit card rewards:
Pros and Cons of Cash Back Cards In general, cash back is a better option for simple seekers who want flexible rewards on their everyday purchases.
Cash back credit cards offer a percentage of cash back for every dollar spent, and some offer higher interest rates in certain categories than others.
For example, some cash back cards give you a fixed 1.5% to 2% cash back on every purchase, while others offer higher rewards in fixed or rotating categories (usually between 3% and 5%) between).
Redemption flexibility A major benefit of cash back cards is their flexibility to redeem rewards. Depending on which cash back card you're enrolled in, you can redeem your rewards as a check in the mail, by direct deposit, or into your account. Some of the best cash back cards also allow you to redeem rewards for gift cards, merchandise, or travel rewards through the card's travel portal.
Redemption value Cash back credit cards are often a good value for consumers who don't travel often and/or prefer to save money on the go rather than saving for future experiences. Cash back rewards are usually worth 1 cent. For example, a 2% cashback card returns $2 for every $100 spent.
Pros and cons Here are some pros and cons to consider when comparing cash back cards to points and miles credit cards.
advantage: Collecting and redeeming cash rewards is easier and more straightforward. The value of cash awards is usually straightforward. There are many cashback cards with no annual fee to choose from.
Cash back credit cards can offer generous welcome bonuses. shortcoming: Most cash-back credit cards don't offer significant travel benefits (but you can earn rewards on certain types of travel purchases). Cash back credit cards may offer less reward value than travel credit cards.
Depending on the card you choose, you may have limited redemption options - or no redemption options other than statements. Pros and Cons of Points and Mileage Cards
In general, point or mileage cards are a better option for people who travel a lot or want to rack up travel rewards. Many different types of rewards credit cards fall under the term "points and miles" cards.
Points and mileage cards include, for example, airline credit cards that allow you to earn frequent flyer miles in certain frequent flyer programs. But they also include flexible rewards cards that allow you to redeem travel points in more than one way.
Points and miles cards can also offer major travel benefits, such as airport lounge access, travel credits, Global Entry or TSA PreCheck application fee credits, or built-in travel insurance benefits—although the cards that offer the most benefits often have high annual fees.
Redemption flexibility Some of the best travel credit cards on the market today offer a lot of flexibility when it comes to redeeming rewards. For example, if you have a travel credit card that earns Chase Ultimate Rewards points, you can redeem points for cash back, gift cards, statements, merchandise, travel through the Chase Ultimate Rewards portal, and even 1:1 point transfers between Chase Airlines and hotel partner.
redemption value
Travel rewards are often worth more than cash back, and some of the best travel rewards currencies can be worth as much as 2 cents or more. However, your redemption value depends on how you redeem your travel award. For example, if you redeem Flex Points as a credit to your account, you might only receive 1 cent (or less) per Value Point. However, if you transfer your points to a premium travel partner, your points can be worth up to 2 cents. You can also earn over 1 cent per Value Point when you redeem points for travel through the Publisher Portal.
pros and cons
The advantages and disadvantages of point cards and mileage cards may vary depending on the card used. However, some general rules of thumb can help you determine the pros and cons of choosing a points or miles card versus a cash back card.
advantage:
If you travel a lot, travel rewards are worth more than cash back.
If you like luxury travel accommodations, travel rewards cards are more likely to offer benefits like priority boarding, free checked bags, airport lounge access or free hotel nights.
Many travel credit cards include travel insurance and have no foreign transaction fees.
Travel credit cards typically have higher premium rates and larger welcome bonuses.
shortcoming:
Travel credit cards often have higher annual fees than cash-back credit cards.
Airline and hotel credit cards often have limited redemption options.
Which reward is best for you?
If you don't travel much or want to use your rewards strategically to high-risk destinations, cash rewards are the way to go. For your convenience, you can choose a flat-rate cash back card so you don't have to keep up with ever-changing bonus categories or activate your rewards. No matter which type of cash back card you choose, this step will work in your favor since earning rewards is so easy. Even if you're not getting the most value from your rewards, you'll still get some return on your credit card spending.
But if you're in a rush to convert a $500 credit card reward into $750 or $1,000 in travel, you're a great candidate to use a credit card that offers rewards in the form of points or miles. In particular, you'll benefit from travel cards that give you options for adding points or mile value and travel upgrades. If you travel frequently each year and want the benefits of more convenient air travel, the Elite Travel Card may be better.
final result
To determine whether a cash-back, loyalty, or miles card is right for you, you need to know what type of cardholder you are and what type of rewards structure works best for your spending. Keep in mind that it's not uncommon for cardholders to mix and match several different credit cards to maximize rewards. So experimenting with different credit card combinations and bonus structures is also an option.