Cash Back vs Points

Cash back and points cards both have similar uses, which reward you for making purchases for your credit card. However, the ways in which you are rewarded differ between the two cards. Cash back cards give you easily redeemable cash that can be used for a variety of purposes. On the other hand, points cards have less flexibility but usually offer greater rewards in specific categories.

Cash back

Cash back cards give you a certain percentage of cash back with each purchase that you make. Some cards alter the cash back rate per category, whereas others offer a flat-rate for all purchases. For example, the Capital One Quicksilver Cash Rewards card offers 1.5% cash back on all purchases, whereas the Blue Cash Everyday card from American Express offers 3% cash back at supermarkets, 2% cash back at gas stations, and 1% cash back on all other purchases. As you can see, there are multiple different cash back structures. People who do not want to deal with complications may choose a card that offers a flat-rate, whereas people who want to optimize their cash back may choose a card that rewards certain categories.

Some of the benefits of cash back cards, as opposed to rewards cards, include that cash back cards are flexible, simple, and many do not have an annual fee. It is way more common for an annual fee to be voided on a cash back card than on a rewards card. Also, earning cash back is simple, as you can easily apply these rewards to your credit card bill, in order to get started on your next payment.

As for the cons of cash back cards, they usually do not make very good travel cards. Many cash back cards do not void the foreign transaction fee and do not give you the most optimal travel rewards to help you save on hotels, flights, etc. Also, the rewards you earn are usually lower for cash back cards than for points rewards cards.

Points

Points cards come in a variety of forms and many have great travel benefits. The premise of these cards is that you will earn a certain amount of rewards points depending on the category. Thus, many travel rewards cards will offer higher point multiples on flights, luggage, rental cars, and other travel-related purchases. For example, the Citi Premier card, which is one of Citi’s more generous travel rewards cards, offers 3x points on travel-related purchases and at gas stations, 2x points on dining and entertainment, and 1x points on all other purchases. Thus, if you are considering a points rewards credit card, you should look into what categories reward you most and try to pick a card that rewards you for categories you already spend a lot of money on.

Redeeming your points is a little more difficult on points rewards cards. You usually have to redeem your points through the card issuer’s portal, but these portals often will offer greater deals toward flights, hotels, or whatever you may book with your points. Thus, you have less flexibility when shopping with a points credit card, but the rewards you earn are usually greater than those of a cash back credit card.

Points credit cards also more commonly contain welcome bonuses, rewarding you initially for using the credit card. An example of a welcome bonus is “earn 50,000 points when you spend $2,000 of purchases within three months of the account opening." Although some cash back cards have this bonus, it is more common in a points rewards card.

Also, points can often be transferred easily, allowing you to use points with a variety of hotel partners and airline partners. Although you have less flexibility on how to use your points, there still are a variety of options for you to choose from. All of these travel benefits come at a cost though. Many travel rewards cards have costly annual fees, making you spend money to earn the plethora of rewards that they offer. Some cash back cards have annual fees, but it is much more common with a points rewards card.

Conclusion

Both of these types of cards have their benefits, but overall, travelers, people who want to maximize rewards, and people who do not prioritize flexibility in how they use their points should consider a points rewards card. However, points cards are much more complicated and are more likely to have an annual fee, which are just two of the downsides. If you want to have flexibility with how you spend your rewards, then a cash back card is probably the better option for you.