Cash back vs. points: How to choose the best credit card

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Choosing the best rewards credit card for you often boils down to whether you want to earn cash back or points.

If you prefer simplicity and the flexibility of cash, a cash back card might be the way to go. If you enjoy maximizing rewards or travel frequently, a points-based card could offer more value via travel perks or other rewards.

Earning and redeeming credit card rewards should be fun, but only if it fits your lifestyle. Here’s how cash back and points work and how to find the best rewards card for you.

How cash back cards work

Cash back cards give you a percentage of your spending back as cash rewards, typically between 1% and 5%.

For example, let’s say you have a cash back card that offers 2% cash back on all purchases. If you spend $100 on groceries, you’ll earn $2 in cash back.

Different cash back cards have various reward structures:

• Flat rate: These cash back cards earn a fixed amount for every purchase. For example, you’d earn 1.5% back on all purchases.
• Tiered: Other cash back cards offer elevated cash back on specific spending categories. For example, you may get 3% back on groceries and gas but only 1% back on all other purchases.
• Rotating: Some cards offer bonus cash back for rotating categories. For example, you may earn 5% cash back on groceries one quarter and 5% back on gas the next. The bonus category is different every quarter but is predictable from year to year.

Many cash back cards don’t come with an annual fee. If you pay off your balance in full each month, the cash back rewards can be a nice perk to take advantage of.

How to redeem cash back

Cash back redemptions are often much more straightforward than other rewards cards. If you want to keep things simple, getting a cash back card may be worth it. Here are some common ways to redeem your cash back:

• Statement credit: Some cards apply cash back directly as a credit toward your credit card balance. For example, if you’ve earned $50 in cash back rewards, you can use it as a credit to your following statement, reducing the amount you owe.
• Gift cards or merchandise: Cash back can also be redeemed for gift cards or merchandise.
• Direct deposit or check: Some cards allow you to deposit your rewards directly into your bank account.

Cash back credit cards to consider

Here are a few popular cash back credit cards to consider:

• Chase Freedom Unlimited®: This card offers a flat cash back rate on all purchases, making it simple to earn rewards. It typically provides 1.5% cash back on every purchase, with no annual fee. Plus, you’ll earn elevated cash back on Lyft purchases (through March 2025), dining, and drugstore purchases. Additionally, it often comes with a sign-up bonus for new cardholders.

• Capital One Savor Cash Rewards Credit Card: If you enjoy dining out or spending on entertainment, this card may be a good fit. It offers 3% cash back on dining, entertainment, popular streaming subscriptions, and grocery store purchases (excluding superstores). You’ll earn 1% on other purchases.
• Blue Cash Preferred® Card from American Express: This card is ideal for those who spend a lot on groceries and gas. It offers 6% cash back on eligible U.S. supermarket purchases (up to $6,000 per year, then 1%) and select U.S. streaming services. You’ll earn 3% cash back at U.S. gas stations and on transit and 1% back on all other purchases. Cash back is received in the form of Reward Dollars that can be redeemed as a statement credit or on Amazon.com at checkout.There is an annual fee, but if you maximize the rewards in these categories, it can outweigh the fee.

How rewards cards work

Rewards cards are a bit more complicated but offer the potential for much greater value in how you earn and redeem rewards.

These rewards cards offer you points on your spending. You can redeem points for benefits like travel discounts, merchandise, or cash back.

You can earn a certain number of points based on your spending. For example, if your card offers two points per dollar spent and you make a $100 purchase, you'll earn 200 points. The more you spend, the more points you accumulate.

Different cards have different redemption options and point values. Some cards have a fixed point value, meaning each point is worth a set amount when redeemed. For example, 1 point might equal 1 cent, so 100 points would be worth $1.

Other cards have variable point values, where points vary depending on how you redeem them.

Many reward cards come with an annual fee. But they also may come with added perks like travel insurance or airport lounge access that can offset the yearly cost.

How to redeem points

To redeem your points, you typically have several options:

• Statement credit: Many cards allow you to redeem your points as a statement credit, which reduces your outstanding balance. This is similar to how cash back rewards work.
• Travel rewards: Points can be used for flights, hotels, car rentals, and other expenses. Some travel credit cards have a travel portal where you can redeem points directly. You can also transfer points to partner airlines or hotel loyalty programs for potentially even greater value.
• Gift cards and merchandise: Another popular option is to redeem your points for gift cards or store merchandise.
• Cash back: Some credit card rewards programs also allow you to redeem points for cash. This can be a direct deposit to your bank account or a check sent to you.

Rewards credit cards to consider

Here are some of the best credit cards that earn points.

• Chase Sapphire Preferred® Card: This card is popular among travel enthusiasts. It offers flexible points that can be transferred to airline and hotel loyalty programs. You earn 5X points on travel booked through Chase Ultimate Rewards, 5X on Lyft (through March 2025), and 3X on dining, select streaming, and online grocery purchases. You’ll also earn 2X points on travel and 1X points on everything else.
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• The Platinum® Card by American Express: This card is known for its premium travel perks. While it has a high annual fee, it provides access to airport lounges, airline fee credits, and hotel elite status. It earns points in the Membership Rewards program, which can be transferred to numerous airline and hotel partners. It offers 5X points on flights booked directly with airlines and on eligible hotels (up to $500,000 per calendar year) and 2X points on prepaid car rentals through American Express Travel. You’ll also earn 1X points on all other purchases.
• Capital One Venture Rewards Credit Card: This card offers simplicity and flexibility. It earns 5X miles on hotels and rental cars booked through Capital One Travel and 2X miles on all other purchases. The miles can be redeemed for travel expenses at a fixed rate, and there's no need to worry about transferring points to loyalty programs. It often has a sign-up bonus and comes with travel-related benefits like Global Entry or TSA PreCheck fee credits.

Choosing the best rewards credit card for you

Choosing a card comes down to what you want to get out of it. Do you want simple cash back rewards? Or do you want a more complex system that could maximize the rewards you earn? That’s the biggest difference between cash back and rewards credit cards.

Here are some steps to help you make the right choice:

• Evaluate your spending patterns. Choose a card that will earn you the most rewards based on your spending. If you spend the most on groceries, choose a card that offers a bonus on groceries. Other categories you can look at include groceries, travel, dining, drugstore purchases, and more.
• Compare reward structures. Look at the earning rates offered by different cards. Some cards have a flat-rate structure, providing the same rewards for all spending, while others have tiered or rotating categories.
• Evaluate reward redemption options. Understand how you can redeem your rewards. Some cards offer flexibility, allowing you to use rewards in various ways, such as statement credits, travel bookings, or merchandise. Others may have more limited options.
• Look at fees and interest rates. Consider annual fees, foreign transaction fees, and any other costs. If you plan to carry a balance, pay attention to the interest rates. Balance any potential fees against the value of the rewards you expect to earn.
• Check for additional perks. Some cards offer benefits like travel insurance, airport lounge access, or concierge services. If these perks are important to you, factor them into your decision.

When you should consider a cash back card

Cash back cards are best for those who like a simple, straightforward way to earn and redeem rewards. You don’t have to track what stores or categories earn the most points. Nor do you need to research how to maximize your rewards redemption.

Cash back cards are a good choice if you want to avoid being tied to specific loyalty programs.

When you should consider a rewards card

Rewards cards are best for those who enjoy maximizing earnings and optimizing rewards. These cards often offer more redemption options, providing higher value for your rewards.

If you're willing to invest time in researching and planning, you can use points strategically to get the most out of your travel experiences. These cards are ideal if you have specific travel goals, enjoy loyalty programs, and are willing to navigate their intricacies.

The bottom line

Ultimately, choose the card that aligns with your spending patterns, goals, and preferences. If you prioritize simplicity and immediate cash savings, a cash back card may be the way to go. If you enjoy travel and want to maximize your rewards, a points credit card can provide you with more options and potentially greater value.

Editorial disclaimer: Opinions expressed are author's alone, not those of any bank, credit card issuer, or other entity. This content has not been reviewed, approved, or otherwise endorsed by any of the entities included in the post.