Choosing a rewards credit card means picking a side in an ongoing debate: cash back or travel benefits?
Both have advantages. Cash back is flexible and easy to redeem. Points or miles dangle the possibility of a paid-for vacation and, sometimes, a higher reward value per dollar spent. Nowadays, 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.
“I look at it as, ‘How hard do you have to work to get the rewards from your card?’” says Jim Miller, senior director of banking services at independent ratings firm J.D. Power. “If you don’t want to work at it, cash back is the easy decision. You get good rewards and you don’t really have to worry about it. If you go with a miles card, you have to pay more attention to it.”
With a cash-back card, rewards come in dollars, not points or miles. You can redeem rewards for a credit on your statement and may also be able to redeem for gift cards, a check or a direct deposit to a bank account.
Why get it? Cash-back cards are the go-to for a low-maintenance wallet. Most don’t charge annual fees, and redeeming rewards is dead simple.
“You never feel cheated. You know what a dollar is worth,” Miller says. This explains, in part, why the cards are so popular, he says. In a 2017 J.D. Power survey, cards with cash-back programs earned the highest customer satisfaction ratings.
It’s also not uncommon to see cash-back cards with generous introductory 0% interest promotions.
Why skip it? Because few cash-back cards charge annual fees, their sign-up bonuses tend to be modest. If you’re on the prowl for a huge welcome bonus, that could be a deal-killer. They lack the perks of some travel cards, and they often charge foreign transaction fees.
Travel credit cards give you points, miles or some other rewards currency. They come in two main flavors:
- General travel cards. These are bank-branded cards with rewards that can cover a range of travel expenses. An example is the Capital One® Venture® Rewards Credit Card.
- Co-branded cards. These are cards branded with an airline or hotel chain. They typically allow you to redeem rewards within one loyalty program.
Why get it? For those who want to earmark rewards for vacation, a travel card can help — and might offer extra benefits, too.
Travel cards are appealing because “people like to know that they’re saving up for something bigger,” says Mike Abbott, the North American digital lead for Accenture Financial Services, a banking advisory firm. “They’re setting a goal, they’re looking for something in the future.”
Certain benefits, such as free checked bags or airline fee credits, might outweigh these cards’ annual fees. These cards also rarely charge foreign transaction fees.
Why skip it? With co-branded travel cards, the value of a point or mile can vary widely depending on how you redeem it. Airlines and hotels may also limit availability for award flights and hotel stays, making points harder to redeem. With many U.S. airline programs, in particular, the value of rewards has dropped in recent years.
“As they’ve made those programs harder and harder [to use], people slowly ascribe less value to them and more and more value to hard currency,” Abbott says of airline rewards versus cash back.
General travel cards offer much greater flexibility: Book travel however you want, then use rewards to pay for it. But if you rarely travel, they aren’t a good option.
Which is better?
When choosing a card, be realistic about how you’re going to use it. Assuming you don’t plan on carrying a balance — or interest rates don’t matter to you — 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.