Updated: October 29, 2024
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Deciding between cash back and points credit cards can feel like choosing between a steady paycheck and a surprise bonus. Cash back cards offer simple rewards that are as good as cash and easy to redeem. Meanwhile, points cards have more nuance to earn and redeem your rewards, but you can potentially get more value from them.
We break down the two card types and recommend cash back cards and points cards to help you find the best option for your wallet.
Cash back credit cards offer a straightforward way to earn rewards on your purchases. They can be particularly appealing if you value simplicity and immediate benefits, but their rewards may be less valuable compared to points cards.
Pros | Cons |
|---|---|
Rewards come as cash | May come with spending caps |
Easy to earn and redeem | Limited perks |
Most cards have no annual fees | May not be as fun or inspiring to collect rewards |
The best part about cash back cards is their simplicity — they let you earn a fixed percentage of the amount you spend as cash back. Most cards offer at least 1% cash back on all purchases, but cards like the Wells Fargo Active Cash® Card offer a flat 2% on all purchases. Some cards provide up to 6% cash back on bonus categories, but that may come with limits or restrictions.
Cash back cards typically come with no annual fees. This can be particularly beneficial for those who use their card for everyday purchases but don't spend enough to justify an annual fee. However, some cards with higher rewards rates might charge an annual fee, like the Blue Cash Preferred® Card from American Express, which costs $95 annually starting the second year but offers up to 6% cash back. In some cases, the annual fee can be offset with the benefits and higher cash back potential for bigger spenders.
High-rate cash back cards offer between 3% to 6% cash back for select categories, but they usually come with a spending cap. Once you hit the cap, the cash back rate drops to the base rate. On the other hand, flat-rate cash back cards provide consistent returns, but the highest rate you can find is only 2%, regardless of the amount spent.
In some cases, points cards can often be more rewarding. Many points cards offer high rates of earning and do not impose spending caps, providing potentially greater value for your large purchases. This makes them especially appealing if you're looking to maximize rewards on big-ticket items, such as airline fares and travel accommodations.
Points credit cards typically offer travel perks and potentially higher rewards, but they have a steeper learning curve than cash back cards. Understanding these pros and cons can help you decide if a points card is right for you.
Pros | Cons |
|---|---|
You can potentially gain more rewards from your purchases | Usually comes with annual fees |
Tend to offer travel-related perks | High rewards may require quarterly activations and category restrictions |
Points can usually be transferred to airline/hotel rewards programs | Points value varies |
Points cards can offer potentially higher rewards on certain purchases. You can find cards that offer high rewards in certain categories, like the Capital One Venture X Rewards card, which provides 10X points on travel booked through Capital One Travel. They also come with higher welcome bonuses compared to cash back cards, which can be worth over $1,000 for some cards. These benefits can make up for the annual fees that typically go with points cards and provide great value for frequent travelers.
Travel-related perks are a major draw for points cards. Many points cards offer benefits such as seat upgrades, free checked bags, priority boarding, access to airport lounges and travel insurance. These perks can enhance your travel experience, providing value beyond monetary savings.
Points systems are often complex, with varying point values depending on redemption choices. Transferring points to travel partners can maximize value but requires a good understanding of the points ecosystem. For those not interested in putting in the time to learn the ins and outs, a cash back card might be a more straightforward option.
Cash back is not the same as reward points; while the former translates into a corresponding dollar amount, the latter does not. For instance, a 2% cash back card offers $2 cash back for every $100 you spend. However, if you spend the same $100 on a card that comes with 2X points on all purchases, the value of those 200 points may vary greatly depending on which card you have and how they are redeemed.
Redeeming cash back is fairly straightforward. Most cash back cards let you use your cash back as statement credit or transfer it to your bank account. Several cash back cards also allow you to utilize your cash back to shop online and get gift cards.
On the other hand, reward points tend to offer the most value when you use them to make travel bookings through your card provider or its partners’ reward programs. For example, 10,000 Membership Rewards Points earned through the American Express® Gold Card are worth $100 when you book flights through American Express Travel. That same amount of points is worth $70 if you use them to make purchases through Amazon.com and $60 when you use them to cover your card charges.
Deciding between cash back and points credit cards involves aligning the card's benefits with your spending patterns and lifestyle needs.
A cash back card makes the most sense if you value simplicity and prefer a no-fuss approach to earning rewards. Cash back cards typically offer straightforward redemption options without the need to understand points valuations or redemption processes.
Moreover, if you sign up for a cash back card with no annual fees, getting it to work in your favor is simple. You make purchases using the card and earn cash in return. Since you’re paying no annual fees, any cash back you earn is a financial win.
Getting a cash back card might also be worthwhile if you opt for one that offers high cash back rates across categories you routinely spend. For example, the Capital One SavorOne Cash Rewards card provides unlimited 3% cash back on restaurants, grocery stores, streaming and entertainment.
You may benefit from a points card if you’re a frequent traveler. Points cards like the Chase Sapphire Preferred® often come with travel perks and higher reward potential for travel-related spending. You may also expect perks such as seat upgrades, free checked bags, priority boarding, access to airport lounges and travel insurance. These benefits are typically hard to find on cash back cards.
If you're willing to navigate the complexities of points systems, points cards can unlock significant value and travel experiences.
If you're considering a points card, opt for one with a flexible redemption program. This strategy ensures good value whether you redeem your points for statement credits or cash. More importantly, when transferred through partner rewards programs, these points offer even greater value.
The Capital One Venture X Rewards card lets you redeem $0.01 per point if you’re getting a statement credit or making purchases through the Capital One Travel portal. Capital One also enables you to transfer your points to over 15 airline and hotel partners, potentially giving you a higher value.
If you’ve already decided what to pick between cash back versus points, we’ve listed the best cash back cards and the best points cards to help you find a card that provides the best value based on your needs and lifestyle.
We answer some commonly asked questions about cash back and points cards to help you make an informed decision.
Redeeming reward points for travel can provide greater value than redeeming them for cash. Always compare cash prices versus award rates because some flight or hotel redemptions offer a poor redemption value when using rewards. You may be better off waiting to redeem your points for a high-value reservation.
Converting the value of points in dollars requires determining your chosen reward's worth. For example, you need 10,000 points to get a gift card valued at $70. You can divide the value of the reward by the points required for redemption to calculate the dollar worth of your reward points. In this case, you’d divide 70 by 10,000, which gives you 0.007. So, each reward point is worth 0.7 cents. On the other hand, if you only need 20,000 points to book an air ticket worth $350, the value of one point is 1.75 cents, which is a much better redemption value.
The best way to use credit card points boils down to your personal preferences. You usually stand to get the best value for your points when you make travel bookings through your card provider's reward program. Other ways to use your credit card points may include getting statement credits, transferring them to partner airline or hotel reward programs, transferring them to other cardholders, shopping online, getting gift cards and donating them to charity.
Depending on the card you get, you may be able to convert your reward points to cash. However, the worth of your points doesn’t necessarily translate into corresponding dollar amounts, as is the case with cash back cards. For example, the value of one reward point earned through the Platinum Card from American Express when redeemed to cover your card charges is $0.006 (you'll need 10,000 points for a $60 credit). By comparison, if you redeemed 10,000 points from the Chase Freedom Unlimited card, they would be worth $100.
For rates and fees of the American Express® Gold Card, please click here.
For rates and fees of the Blue Cash Everyday® Card From American Express, please click here.
For rates and fees of the Blue Cash Preferred® Card From American Express, please click here.
About Doug Milnes, CFA
Doug Milnes is a CFA charter holder with over 10 years of experience in corporate finance and the Head of Credit Cards at MoneyGeek. Formerly, he performed valuations for Duff and Phelps and financial planning and analysis for various companies. His analysis has been cited by U.S. News and World Report, The Hill, the Los Angeles Times, The New York Times and many other outlets.
Milnes holds a master’s degree in data science from Northwestern University. He geeks out on helping people feel on top of their credit card use, from managing debt to optimizing rewards.
