Cash Back vs. Travel Rewards: How to Choose

Choosing a rewards credit card means picking a side in an ongoing debate: cash back or travel rewards?

Each has its advantages. Cash back is flexible and easy to redeem. Points or miles offer the possibility of a paid-for vacation and, depending on the circumstances, higher value for the rewards you earn. Some cards let you redeem rewards for cash or travel at the same value. But if you’re deciding between the two, it comes down to your lifestyle — and the effort you’re willing to put in.

» MORE: Best rewards credit cards

Option 1: Cash back

With a cash-back card, your rewards come as dollars, not points or miles that you have to figure out how to redeem. The easiest way to redeem cash back is for a credit on your statement; you may also be able to get a check or a direct deposit to a bank account.

Easy redemption but fewer perks

Because redeeming cash rewards takes no research and little effort, this option is perfect for someone who wants a low-maintenance wallet. If you're looking to finance a large purchase, many cash-back cards also come with generous introductory 0% APR promotions as well as bonus offers that can kick a couple hundred dollars back you right off the bat.

With a few exceptions, such as cards that pay extra-high rewards rates in certain categories, cash back cards don't usually charge annual fees. Because of that, however, they lack the kinds of perks (including lavish sign-up bonuses) that you'll typically find on travel rewards cards with a fee.

Choosing a card based on your spending

Since the main appeal of a cash-back card is earning money back for each purchase, you'll want to pick a card with a rewards structure that aligns with your spending. For instance:

• People with big grocery bills would do well with the Blue Cash Preferred® Card from American Express. It earns a whopping 6% cash back on up to $6,000 a year in purchases at U.S. supermarkets (1% after that), in addition to terrific bonus rewards on select U.S. streaming subscriptions, at U.S. gas stations and on transit.* It comes at a cost, though: $0 intro annual fee for the first year, then $95. Terms apply (see rates and fees).

• Those who enjoy going out might want to consider the Capital One Savor Cash Rewards Credit Card, which earns 3% back on dining and entertainment, in addition to grocery stores.

• Want the ultimate low-maintenance option? Choose a flat-rate credit card like the Wells Fargo Active Cash® Card, which earns 2% back on every purchase, no matter the category.

» SEE: Credit cards that earn 2% cash back or more on all purchases

Option 2: Travel

Travel credit cards give you rewards in the form of points or miles, the value of which often depends on how you redeem them. Travel rewards credit cards come in two main flavors — general-purpose cards and branded cards, which bear the name of an airline or hotel chain.

The primary advantage with general-purpose travel cards is flexibility. You aren't locked into redeeming your rewards with a specific airline or hotel brand. You can usually use your points to book travel, or you can redeem them for credit against travel purchases you already made.

Unlike with airline or hotel cards, you don't usually run into restrictions on when you can use your points from general purpose travel cards. An airline might have "blackout dates" on which you can't redeem your miles for a free flight, for example. But with a general purpose travel card, what you're really doing is booking your travel on your credit card at the regular price and then using your rewards to offset the cost on your credit card bill. As far as the airline is concerned, you paid for the flight like anyone else.

Some of the most popular and most widely marketed credit cards are general purpose travel rewards cards. The Capital One Venture Rewards Credit Card, for example, gives you 2 miles per dollar on most purchases, while the Chase Sapphire Preferred® Card gives you up to 5 points per dollar depending on where you use it. Each allows you to redeem your rewards, or transfer them to airline or hotel partners. They both charge an annual fee, though. By contrast, the $0-annual-fee Wells Fargo Autograph® Card gives you 3 points per dollar at restaurants and gas stations, as well as on travel and transit, electric vehicle charging, popular streaming services and select phone plans. All other purchases earn 1 point per $1.

Branded travel cards don't offer as much flexibility, but they can provide perks that general purpose cards can't. Airline credit cards, for example, often let you check a bag for free when you use the airline's card to book travel. You might get priority boarding or even airport lounge access. A co-branded hotel card might entitle you to a free night each year, or room upgrades, or automatic elite status.

Outsized rewards through transfer partners

Many general purpose travel cards give you the option to transfer your rewards to specific airline and hotel rewards programs, which can give you even more bang for your buck, if you're willing to put in a little effort. A point can be worth more than 1 cent apiece in some circumstances.

Let's say you have the Capital One Venture Rewards Credit Card. You can use Capital One Miles earned on the card to book travel directly in the Capital One travel portal, usually for a value of 1 cent each. But transferring miles to travel partners could unlock a higher value.

For example, booking two nights at a Wyndham hotel in Newport, Rhode Island, for October 2022 cost $700.45, or 70,045 miles, through the Capital One travel portal (as of May 2022). But in this case, transferring the miles to Wyndham rather than booking through Capital One could be a better move. By transferring Capital One Miles to Wyndham (1 Capital One Mile = 1 Wyndham point), you could book that same hotel for the same two nights for a total of just 30,000 points. That boosts the value of your miles to 2.3 cents each.

That's not a small difference if you're trying to decide between a 2% cash-back card like the Wells Fargo Active Cash® Card and the Capital One Venture Rewards Credit Card, which earns 2 miles per dollar on most purchases. If you spent $2,000 a month, you'd earn roughly the same amount back with both cards per year: $480 or 48,000 miles, respectively.

But if you were able to redeem all of your Capital One Miles at 2 cents apiece, your rewards value jumps from $480 to $960, effectively giving you 4% back on all purchases.

Extra perks

Most travel credit cards come with an annual fee. But in exchange, you're more likely to find a card with valuable perks like a statement credit to cover the cost of TSA PreCheck, airport lounge access, and automatic status with certain hotels and rental car companies.

Which is better?

When you're picking a card, be realistic about how you're going to use it. Assuming you don't plan on carrying a balance and don't need to worry about interest rates, go for a card that offers a high rewards rate and redemption options that complement your lifestyle.

A travel card is an excellent choice if you travel frequently and can take full advantage of the side perks. A cash-back card, though, is usually less expensive and comes with more versatile rewards. For many, that makes it a clear winner.

What's next?

• It's totally OK if travel rewards aren't for you

• Beginner's guide to points and miles

• What are travel points worth and why do they matter?

• How do cash-back credit cards work?