Rewards Cards Vs. Cash Back Cards

Rewards cards vs. cash back cards is a debate that has been going on for years. While many people swear by rewards cards and the value you get from them, there’s no denying that cash back cards are incredibly convenient.

Which one you choose is ultimately up to you, but knowing how they compare can make your decision easier.

What is a rewards credit card?

Rewards credit cards earn you points that you can redeem for flights, hotels, gift cards, merchandise and more. While this is highly appealing to many people, the value of each redemption differs depending on the points program.

Generally speaking, there are five types of rewards cards.

General rewards, also known as lifestyle rewards or everyday rewards. You’ll earn points on daily shopping categories, such as gas and groceries. General rewards cards often feature some of, or a mix of, the perks seen on more specific types of rewards cards.
Travel rewards. You’ll earn points that you can redeem for any type of travel.
Airline rewards. You can use the points you earn for a specific airline and its partners, such as Air Canada’s Aeroplan.
Hotel rewards. You’ll earn points that you can redeem at specific hotel chains, such as Marriott, when using your credit card.
Store rewards. Many retailers offer credit cards where you can earn points on every purchase.

When choosing a rewards credit card, you need to look at the benefits of the card. For example, some rewards credit cards might give you an increased earn rate at select merchants, while all other purchases have a base rate. Some rewards cards come with additional perks, such as travel insurance, free checked bags, extended return/exchange times, loyalty program status and more, which can be helpful if you need to use a credit card when travelling

Additionally, you should also consider how the rewards program works. For example, you’ll want to see what your points are actually worth or if there are any travel or hotel blackout dates when you want to make a redemption. Collecting points is useless if you can’t get anything of value out of them.

When a rewards card makes sense

With so many options available, choosing a rewards card can be difficult. Sometimes it’s best to take a step back and look at why you may or may not want a rewards card.

When to get a rewards card

You’re looking to travel for less. Travel rewards cards can help offset the cost of future travel.
There’s a specific perk you want. Some rewards credit cards have attractive benefits, such as a welcome bonus or instant discount.
You have a specific goal in mind. If you have a dream holiday coming up, saving your points can help you reach your goals.

» DISCOVER: Credit card loyalty programs for Canadians who love to travel

When not to get a rewards card

You don’t travel. There’s no point in getting a travel rewards card if you don’t want to travel or can’t travel often.
You prefer simplicity. Some rewards programs have blackout and expiry dates to worry about. It can also be difficult to figure out what reward program points are worth, which makes it hard to know if you’re really getting a good deal when you redeem your points for a flight or whether you’d be better off redeeming points for a statement credit or merchandise.
You typically carry a balance on your card. No rewards are worth the interest you’ll pay.

What is a cash back credit card?

Cash back cards give you money back on every purchase. These cards are highly attractive since they’re easy to understand. However, how much cash back you’ll earn depends on the card you have and the merchant you’re shopping. For example, some cards give you an increased earn rate on groceries and gas purchases.

Every cash back card has a different payout date. It could be monthly, yearly or when you hit a minimum balance.

Additionally, many cash back cards now come with benefits, such as roadside assistance and mobile device insurance.

» MORE: How does credit card travel insurance work?

When a cash back card makes sense

Since cash back cards pay you for every eligible purchase, they may seem like an obvious choice. That said, they’re not the best fit for everyone, which is why you want to consider a few different scenarios before applying.

When to get a cash back card

You want simplicity. There’s no need to worry about blackout dates or the value of your points with a cash back card.
You want to maximize your spending. Getting a cash back card that gives you an increased earn rate where you do most of your spending, like grocery stores, can pay big.
You want something with no annual fee. Many cash back credit cards have no annual fee.

When not to get a cash back card

You want to maximize your value. Rewards cards can offer better overall value compared to cash back cards.
You want travel perks. Travel insurance, lounge access and free checked bags typically only come with travel rewards cards.
You want a big welcome bonus. Travel rewards cards typically have a more lucrative sign-up bonus than cash back cards.

» MORE: How many credit cards is too many?

How to choose between rewards and cash back cards

When looking at rewards cards and cash back cards, you need to consider your lifestyle.

For example, suppose you love the idea of getting a luxury trip for cheap. In that case, getting an airline rewards credit card makes sense. On the other hand, if you’re the type of person who doesn’t care about points and you prefer instant rewards, you can’t go wrong with a cash back credit card. Alternatively, you could choose a card that offers both types of rewards, like an AIR MILES credit card that can earn cash and travel rewards.

Regardless if you go with a rewards or cash back credit card, your goal should be the same. Use up your points or cash back as soon as you can.

While it’s tempting to save up so you can cash out later for a big reward, there’s always the possibility that the rewards program will devalue your points.

Now, you might think that a quick redemption doesn’t matter with cash back cards, but putting your cash back into your pocket as soon as possible is also the smart thing to do. Then, you could use that cash for anything else, such as paying down debt or investing.

Once you’ve decided which type of card you want, you still need to look at the details of each individual card. There are a lot of rewards and cash back cards out there. Choose one that lines up with your goals, lifestyle and spending patterns.

» READY?: Here’s how to choose the best credit card for you

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What is a rewards credit card?