Are Rewards Credit Cards Worth More Than Cash Rewards?

Find out how to choose a rewards credit card.

Rewards credit cards are just like regular credit cards with the added bonus that you can earn miles or points that you can redeem for travel, goods or services. Cash-back cards are those that let you earn dollars or points you can redeem for money or a statement credit.

Whether rewards credit cards are worth more than cash-back cards depends on the specific programs you’re comparing and how you put it to use. Read on to find out if rewards credit cards are worth more than cash rewards, and which circumstances might make one a better option than the other.

Cash-Back Credit Card Overview

Cash-back credit cards work similarly to rewards credit cards in that you receive some form of value back from your spending. In the case of cash-back cards, your reward is a percentage of cash-back based on the amount you purchased using your card. Many cash-back cards let you earn 1 percent on all your purchases. That means for every $100 you spend, you’ll earn $1 back. If you spend $20,000 in a year, you earn $200 in cash.

Commonly, some cash-back credit cards reward you more in certain spending categories. For example, you might have a card that lets you earn 3 percent cash back on groceries and 1 percent on everything else. If you spent the same $20,000 per year, but $12,000 of that was on groceries, you’d earn $440 in cash.

Always look into the way in which you redeem your cash reward. Some credit cards provide your cash-back as a statement credit. Others will allow the cash to be redeemed via direct deposit or check to deposit in your bank account.

Travel Rewards Credit Card Overview

With the best travel rewards credit cards, you receive rewards points rather than cash-back from your credit card purchases. With rewards credit cards, you can redeem your points in a variety of ways depending on the card such as gift cards, merchandise, travel perks, airline miles, hotel stays and more.

Most travel rewards cards come with a sign-up bonus and then you can earn between one and five travel points for every dollar charged to the card. For the purpose of this comparison, imagine you get a card with a signup bonus of 25,000 points if you spend $1,000 in the first three months. After that, you earn three points for every dollar spent on travel and one point on everything else. Assuming you spend the same $20,000 per year and $5,000 of that is on travel, you would earn:

  • 25,000 points from the sign-up bonus
  • 15,000 points for the travel
  • 15,000 points for the other spending

Added all together, you’d have a total of 55,000 points. The value of your points depends on how you redeem them, but most programs have redemption values starting at a minimum of 1 cent per point. That would be a minimum value of $550 in this scenario. In this case, the rewards card has a higher value than the cash-back assuming factors such as the annual fee are equal, which in reality may not be the case.

Related: The Best Hotel Rewards Credit Cards

Rewards Credit Card Vs. Cash-Back Credit Card: Which Is Better?

As with most aspects of finance, your personal preference and usage will determine which credit card is best for you. Cash-back credit cards are very straightforward in terms of what you get back for your spending, typically a percentage of each dollar spent. This means that cash-back cards avoid what’s called the burn rate or redemption rate that occurs with rewards credit cards. When you go to redeem your rewards, you might find the redemption rate underwhelming in terms of what you can get versus how much you spent. For those who prefer a straight forward dollar value reward for purchases, a cash-back credit card could be best.

On the other hand, all other things being equal, rewards points tend to be worth slightly more than cash-back points or earnings if you know how to redeem them. For instance, redeeming rewards points as cash or a statement credit could produce little value compared to using them to redeem for travel rewards or airline miles, which tend to have better redemption rates. Travel rewards cards also come with other valuable perks such as:

  • Companion or other complimentary fares
  • Free checked bags
  • Access to airport lounges
  • Free hotel nights
  • Complimentary upgrades at hotels or on airlines
  • Travel insurance and protection options

For anyone who will put these perks and rewards to use regularly and knows how to maximize point earnings, rewards credit cards are probably worth more in the long run. If you’re not able to put the travel or other rewards to work, a cash-back card is probably more valuable. While you might earn less over time, you’ll actually use what you earn.

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