Cash Back vs. Travel Rewards: Which Credit Card Should You Go For?

ByG. Dautovic
September 02, 2021

Before pulling the trigger on a credit card, there are a few things you need to do your homework on. One of these is the rewards program. Most cards offer rewards through cash back or flexible points. The latter can be redeemed for a range of compelling options including travel.   

Our cash back vs. travel rewards comparison will help you decide which of these is more suitable for your lifestyle and spending habits. To ensure that you’re getting the most out of your credit card rewards, let’s check out the difference between these options. 

What Are Credit Card Points?

Credit card points are typically the main currency with these rewards programs, and you can exchange them for a variety of prizes. The points are earned in a number of different ways and can come in the form of a sign-up bonus with every purchase you make or when you reach a certain milestone with a particular card. From there, you can redeem these for miles or cash back rewards, depending on their value and your preferences. 

Of course, the value of credit card points varies from one provider to another. Some credit cards with mileage rewards offer greater miles value, whereas others give you better deals if you use the points to shop at third-party retailers or pay for certain services. You should make your pick depending on whether earning these points requires you to change your spending habits and the extent to which you can benefit from the rewards program. 

What Are Cash Back Rewards?

Cash back rewards are essentially an incentive program through which credit card companies pay back customers a percentage of the amount they spend. This can be received as a check, applied to a credit card bill, or simply deposited into your account. 

The cash back percentage typically ranges between 1% and 5% of the transaction. This can equate to a considerable amount over time, which is why this is an important factor to consider when applying for a cash back credit card

So can you get cash back on your credit cards, and if so how much? To get the highest possible amount of money back, you should check whether your spending habits match any requirements the card might have. The requirements vary depending on the card, but these generally involve a minimum monthly spending amount and purchases at particular stores. 

One of the potential pitfalls is being a consumer who prefers shopping online but signs up for a card that tailors to those who favor brick-and-mortar shopping. In such instances, you may not be able to earn enough cash back to make it worth your while. In this particular scenario, you’d need to identify cards that accommodate online shoppers and offer their rewards accordingly.

What About Mileage Rewards?

Miles rewards are a common currency with travel credit cards. But unlike frequent flyer miles, these aren’t always linked to the distance you’re covering. Instead, cardholders can earn miles or points on anything from ticket purchases to buying gasoline and hotel dining. These points can then be redeemed on airline tickets, hotel rooms, and even rental cars. You can also get access to particular airport lounges, have baggage fees waived, and much more. 

So how do airline miles work on a credit card when your lifestyle involves a lot of travel? Here, it’s important to keep in mind that these cards offer different reward rates, and your points might be subject to specific limitations. For instance, you can’t use these points to book flights during peak season, and they can only be used in specific hotels. 

Typically, a single mile or point is worth one cent. It’s important to do the math and figure out whether you’ll meet the spending requirement in order to earn the desired number of points. For example, many travel credit cards will require you to spend $3,000 within the first three months to make $500 in miles. 

You should also conduct a thorough cash back vs. travel rewards comparison before you sign up for a travel card. Occasionally, a cash back credit card will give you enough cash back to cover those $500 in miles without the high spending requirement. It boils down to redemption rates.

What Are Redemption Rates?

The rules governing redemptions are determined by individual card issuers. If we use travel miles as an example, it’s safe to assume that most consumers would be thrilled about the prospects of earning 50,000 miles or points. But what if you need to spend piles of cash before you can redeem these points?   

That’s why it’s crucial to examine the fine print and check out exactly how miles and points work. Issuers requiring customers to have a certain number of rewards before cashing in on any of them can make it difficult for you to get your money’s worth on the points earned.  

It’s also important to understand the value of the points. Depending on the card, using your points for a trip to the Caribbean can provide greater value than exchanging them for cash back.      

Which Is Better, Cash Back Or Miles?

The answer to this question depends on your lifestyle, the card’s so-called rewards rate and, of course, the redemption options. Still, if traveling is your thing, you should definitely choose a travel credit card, which comes with plenty of benefits, including more affordable flights. Even if you don’t plan on traveling any time soon, it can be a good idea to add the card to your wallet if you find an excellent offer. It might also prove to be a perfect incentive for that vacation you’ve been postponing for years.

Of course, the miles vs. cash back showdown isn’t that clear-cut, and the latter offers its own set of perks. While travel credit cards can be limited when it comes to using your hard-earned points, cash back cards offer much more flexibility in that respect. 

Once you get the check in your mailbox, you can use it however you please, even to fund your next vacation. The cash back rewards program is also much easier to track, calculate, and include in your budget planning. 

In all fairness, you can’t go wrong whether you choose cash back or travel rewards. Do your research, and select the card that matches your spending habits while offering the best rewards in exchange for your purchases and transactions. 

FAQ
What should I do with my cash back rewards? +

Cash rewards are earned when you make purchases with your card. These can be redeemed for a check, deposited to a linked account, or even applied to your credit card bill. This is effectively cash being put back in your pocket so you can use it on anything from travel to small purchases. A cash-back comparison is always a good idea when trying to find the right redemption option, which won’t devalue your cash back.

Can I convert miles to cash? +

Whether or not you can convert your miles into cash depends entirely on your credit card’s reward deal. Some banks offer this option, and others don’t. If they do, you’ll likely end up getting 50% less than you would if you used this reward for traveling. In that case, you should also check whether the rewards program has gift cards for stores you usually shop at and exchange miles for those - you’ll probably get much more than if you opted for cash back.

Are travel or cash back credit cards better? +

In the cash back vs. travel rewards debate, the clear winner is always the one that matches your lifestyle needs. A frequent traveler will be able to appreciate all the perks associated with travel credit cards, such as cheaper flights, hotel rooms, or rental cars. On the other hand, you can spend your cash back rewards anywhere and even use them to reduce your credit card payments, which can be more appealing to some credit card holders.

About author

I have always thought of myself as a writer, but I began my career as a data operator with a large fintech firm. This position proved invaluable for learning how banks and other financial institutions operate. Daily correspondence with banking experts gave me insight into the systems and policies that power the economy. When I got the chance to translate my experience into words, I gladly joined the smart, enthusiastic Fortunly team.

Leave your comment

Your email address will not be published.


There are no comments yet