Cash back vs. travel rewards: How to choose a credit card

cash-back-vs.-travel-rewards:-how-to-choose-a-credit-card

Editor’s note: This is a recurring post, regularly updated with new information and offers. 

If you’re new to credit card rewards, one of the first questions you’ll need to answer for yourself is: Should I get a card that earns travel rewards or a card that earns cash back?

The good news is you can find reliable options among the top cash-back credit cards and the best travel credit cards. In the end, you may want both a cash back and a points card.

Below, we’ll break down the pros and cons of different types of cards and their associated rewards programs. We’ll dive into things like rewards value, welcome offers, redemption, ease of use and perks. Considering these options will help you choose the best card for you.

Related: How to choose the best credit card for you

Your spending and goals

The number of credit card options is both the best and most challenging part of choosing a card. Before we dig into what different cards offer, you’ll want to think about your own spending habits and goals.

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First, take a look at where your money is going right now. Are you renovating a home and spending a large portion of your money at home improvement stores? Maybe you’re traveling a lot for work or spending your weekends trying out all the new restaurants nearby. Whatever you’re doing, you can find a card that will maximize your rewards in your highest spending categories.

Then, determine what you would like to get out of your credit card rewards. Do you want to use points and miles to visit family over the holidays or book a dream vacation? Or are you hoping to help cover the cost of a large upcoming expense?

These answers are unique to you, and determining them upfront will help you decide which options will work best for you.

Related: Why there’s no such thing as the ‘best’ credit card

Types of cards

Generally, we designate credit cards as either travel rewards cards or cash-back cards. The names are pretty self-explanatory: they are cards that either earn travel rewards or simple cash back.

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However, some cards offer more flexibility and allow users to choose how they redeem their rewards. Cards that earn transferable points, such as American Express Membership Rewards or Chase Ultimate Rewards, allow the cardholder a variety of options for redeeming the points they earn. While some redemptions are more valuable than others (more on that below), it can be nice to have the option to change your redemption strategy in case your goals change in the future.

Related: How (and why) you should earn transferable credit card points

Welcome offers

What you earn on credit card spending is essential, but nothing beats a card’s welcome bonus when it comes to accumulating rewards quickly. The first few months of card ownership are potentially the most valuable since these bonuses can be worth hundreds or even thousands of dollars.

Travel rewards cards almost always offer higher welcome bonuses than cash-back cards. For example, The Platinum Card® from American Express currently offers a welcome bonus of 80,000 Membership Rewards points, which are worth $1,600 (according to TPG’s November 2024 valuations).

However, a higher bonus on a travel rewards card usually comes with a higher spending requirement. In order to get the bonus on the Amex Platinum, for instance, you’ll need to spend $8,000 in the first six months of membership. Terms apply.

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Cash-back cards, on the other hand, generally offer a much lower bonus but also require a much lower spend in order to receive it. For example, the Capital One Quicksilver Cash Rewards Credit Card provides a one-time $200 bonus but only requires you to spend $500 on purchases within the first three months of opening your account to unlock the bonus.

Related: 10 easiest credit card welcome bonuses to earn

Reward categories

When you consider a card’s reward categories, it’s helpful to identify where you spend the majority of your money.

While it makes sense that most travel rewards cards earn the most on travel purchases, you can find both travel rewards and cash-back card options that will reward you for everyday spending at places like supermarkets and gas stations.

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The Chase Sapphire Reserve®, for example, is a travel rewards card. Using it, you’ll earn 3 points per dollar on all travel spending. Apart from travel, though, the card also earns 3 points per dollar on dining and 10 points per dollar on Lyft rides (through March 2025). Since TPG’s November 2024 valuations place Chase Ultimate Rewards Points at a value of 2.05 cents each, you’ll effectively earn a value of about 6.2 cents per dollar spent on travel and dining, as well as a very lucrative return of about 21 cents per dollar spent on Lyft rides.

But if travel isn’t a big spending category for you or if you want to earn your rewards in cash back, there are some excellent cash-back cards with different reward category options.

The Blue Cash Preferred® Card from American Express, for example, gives you 6% cash back at U.S. supermarkets (on up to $6,000 per calendar year in purchases, then 1%) and 6% cash back on select U.S. streaming services (with no cap), 3% cash back at U.S. gas stations and transit, while giving 1% back on other purchases. That means for every dollar you spend at U.S. supermarkets (up to $6,000 each calendar year), you’ll earn 6 cents that can be applied to a statement credit. Cash back is received in the form of Reward Dollars that can be redeemed as a statement credit or at Amazon.com checkout.

Related: Comparing flat-rate with bonus-category cash-back credit cards

Annual fee

An important element to consider as you make your credit card decision is whether a card has an annual fee and, if so, whether it is worthwhile to pay.

Travel rewards cards have a reputation for carrying higher annual fees, and sometimes for a good reason. Many premium travel rewards cards have annual fees of $350 or more. The welcome bonuses and perks of these cards generally offset the cost of the annual fee, but the cost itself may not be something you want to pay right now if you’re on a tighter budget.

The good news is that plenty of lower and no annual fee travel rewards cards are available.

The Chase Sapphire Preferred® Card, for example, has an annual fee of only $95 and still comes with a welcome bonus of 60,000 Ultimate Rewards points after you spend $4,000 on purchases in the first three months of account opening. It also still earns you 2 points per dollar on travel, 3 points per dollar on dining, and 5 points per dollar on Lyft rides (through March 2025). With our 2.05-cent-per-point November 2024 TPG valuation, that’s a lot of value for a relatively low annual fee.

Customer paying bill using a credit card.
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Furthermore, the Capital One VentureOne Rewards Credit Card (see rates and fees) has no annual fee and offers 20,000 bonus miles after spending $500 within the first three months from account opening. You also earn 1.25 miles per dollar on every purchase.

While the perks aren’t as abundant as the perks of cards with higher fees, these cards, along with other low and no-annual-fee travel cards, are a great way to earn travel rewards with lower out-of-pocket costs.

With cash-back cards, you’ll find even more options if you want to avoid annual fees. Some of our favorite no annual fee cash back cards are the Citi Double Cash® Card (see rates and fees) and the Chase Freedom Unlimited®. If you’re looking at a cash-back card that does carry an annual fee, though, make sure your earning potential makes the fee worth it. An annual fee on a cash-back card can quickly eat into the rewards you’ll earn with the card.

Related: Earn rewards for free with these no-annual-fee credit card strategies

Card perks

Big welcome bonuses and hefty annual fees tend to lead to valuable perks, which is a point in favor of points and miles cards. The Chase Sapphire Reserve, for instance, includes a $300 annual travel credit reimbursement and complimentary access to Priority Pass lounges.

Other card benefits to look out for include baggage insurance, primary car rental insurance and purchase protection.

A line of rental cars at St. Louis Lambert International Airport
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Cash-back cards tend to have fewer benefits, but you should still be able to find a card that offers some industry-standard benefits, like these:

  • Purchase protection: Covers your new purchases for a limited amount of time against damage or theft up to a certain amount per claim and per account
  • Extended warranty: Extends the period of a U.S. manufacturer’s warranty (typically up to a year) on eligible warranties (of up to three to five years typically)
  • Zero Liability: You won’t be held responsible for unauthorized charges made with your card or account information. Federal law generally limits your liability to $50

Related: Are cash-back credit cards worth it?

Ease of using rewards

While many travel rewards cards offer excellent bonus categories and perks, keeping up with everything takes effort. Especially if you end up with multiple cards, it can be easy to get overwhelmed as you figure out which cards to use for different purchases to maximize your benefits. Then, once you have your points and miles in hand, you’ll need to figure out how you want to redeem them. If you’re able and willing to put some work into your strategy, you’ll be able to get some excellent value with these rewards.

However, not everyone wants or is able to put much energy into maximizing their credit card rewards. If that’s you, a cash-back card may be a better choice.

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If you’re looking for simplicity, cash-back cards are hard to beat. The most work you’ll likely have to put in for one is activating the quarterly 5% bonus categories on the Chase Freedom Flex®.

But if you don’t even want to deal with rotating categories, you can opt for a card like the Citi Double Cash Card, which pays 2% cash back (1% cash back on all purchases and another 1% back when you repay on time) on all purchases. Paying on time and in full (one of TPG’s 10 credit card commandments) means you’ll enjoy an almost effortless 2% cash-back reward on all purchases with this card. That’s a pretty good deal for everyday spending and very little effort.

Related: How to maximize cash back with your credit card

Redeeming points for cash back or travel

Cash-back cards win again for simplicity on redemption since one cash-back percentage point equals 1 cent per dollar spent. But when it comes to value, points and miles cards almost always come out on top.

An Emirates plane parked on the tarmac.
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When redeeming points and miles, 1 point or mile is almost always worth more than 1 cent. Furthermore, a point is often not a fixed-rate commodity. The value of currencies like Amex Membership Rewards, Chase Ultimate Rewards and Citi ThankYou points are hard to pin down since you can transfer these rewards to various travel partners and get much more value for a first-class flight.

There’s certainly a learning curve, but referencing our monthly valuations is an excellent way to see if you’re getting a good deal, especially if you’re considering traveling soon.

Related: The best time to book flights for the cheapest airfare

Is it better to redeem points for cash or travel?

Generally speaking, it’s better to redeem your points for travel. You’ll likely get more value from a travel redemption than cash back for the same number of points. It’s best to aim to get at least 1.5 cents value from each point.

Related: How (and why) to calculate award redemption values

Is it better to get cash back or gift cards?

It depends. It’s hard to beat the simplicity of a cash-back redemption since most cards offer this redemption in the form of a statement credit.

Woman using a laptop while holding a credit card
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However, sometimes, gift card redemptions are offered at a higher value than cash back. If you can find a good deal on a gift card you’ll use, a gift card redemption may make sense.

Is there a downside to cash back?

Cash back is great if cash flow is what you need or want right now or if you don’t have the energy to keep up with a more complex credit card strategy. However, you’ll generally get more value for travel redemptions using a rewards credit card rather than a cash back card.

Related: How to pick the right travel credit card for you

Are airline miles worth more than cash back?

Yes. Cash back is usually valued at 1% or 1 cent, whereas most airline miles are worth more than 1 cent.

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However, some airlines like Hawaiian Airlines and Spirit Airlines have poorly-valued miles, so cash back is better in these cases.

Bottom Line

If your top priority is getting the most value out of a credit card — no matter the blood, sweat and tears required — you should get a travel rewards card and maybe a premium one at that. You’ll get far more value out of one of these cards from the bonus, the points, the perks and the redemption options than you’ll get from a cash-back card.

But not everyone has the time or inclination to put this much effort into tracking spending and returns, which is where cash-back cards come in. There’s nothing wrong with either perspective.

The only major misstep you can take — if you pay your credit cards off every month — is not to take advantage of the free money issuers will throw at you in the form of welcome offers.

Related: The pros and cons of cash-back credit cards

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