Cash Back vs. travel rewards: How to choose

Choosing a rewards credit card means choosing a side in an ongoing debate: cash back or travel rewards?

Each has its advantages. Cash back is flexible and easy to redeem. Points or miles allow for a paid vacation and, depending on the circumstances, higher value for the rewards you earn. Some cards allow you to redeem rewards for cash or travel of equal value. But choosing between the two comes down to your lifestyle – and the effort you’re willing to put in.

With one cash-back cardyour rewards come as dollars, not points or miles that you have to figure out how to redeem. The easiest way to redeem money back is to get a credit on your statement; you may also be able to get a check or direct deposit into a bank account.

Because redeeming cash rewards requires no research and little effort, this option is perfect for someone who wants a low-maintenance wallet. If you’re looking to finance a big purchase, many cash-back cards also come with generous introductory 0% APR promotions as well as bonus offers that can kick back a few hundred dollars right away.

With a few exceptions, such as cards that pay extra high rewards rates in certain categories, cash back cards usually don’t charge annual fees. Because of that, however, they lack the kinds of perks (including lavish sign-up bonuses) that you’ll typically find on travel rewards cards with a fee.

Since the biggest appeal of a cash-back card is earning cash back on every purchase, you should choose a card with a rewards structure that matches your spending. For example:

• People with large grocery bills would do well Blue Cash Preferred® Card from American Express. It earns a whopping 6% cash back on up to $6,000 per year in US supermarket purchases (1% thereafter), plus great bonus rewards on select US streaming plans, at US gas stations and in transit. However, it costs: $0 intro annual fee for the first year, then $95. Terms apply (see rates and fees).

• Want the ultimate low-maintenance option? Choose a payment card such as Wells Fargo Active Cash® Cardwhich earns 2% back on every purchase, regardless of category.

Travel credit card give you rewards in the form of points or miles, the value of which often depends on how you redeem them. Travel rewards credit cards come in two main varieties – general purpose cards and branded cards that bear the name of an airline or hotel chain.

The primary advantage of travel cards for general purposes is flexibility. You are not locked into redeeming your rewards with a specific airline or hotel brand. You can usually use your points to book travel, or you can redeem them for credit against travel purchases you’ve already made.

Unlike airline or hotel cards, you usually don’t run into restrictions on when you can use your points from general travel cards. An airline may have “blackout dates” when you cannot redeem your miles for a free flight, for example. But with a regular travel card, what you’re really doing is booking your trip on your credit card at the normal price, then using your rewards to offset the cost on your credit card bill. As far as the airline is concerned, you paid for the flight like everyone else.

Some of the most popular and most marketed credit cards are general travel rewards cards. The Capital One Venture Rewards Credit Cardfor example, gives you 2 miles per dollar on most purchases, while Chase Sapphire Preferred® Card earns you up to 5 points per dollar depending on where you spend it. Each allows you to redeem your rewards or transfer them to airline or hotel partners. However, they both charge an annual fee. On the contrary $0– annual fee Wells Fargo Autograph℠ Card earns you 3 points per dollar at restaurants and gas stations, as well as on travel and transit, EV charging, popular streaming services and select phone plans. All other purchases earn 1 point per $1.

Branded travel cards don’t offer as much flexibility, but they can provide perks that general purpose cards can’t. Airline credit cardfor example, often lets you check a bag for free when you use the airline’s card to book travel. You can get priority boarding or even access to the airport lounge. A co-branded hotel card may entitle you to one free night each year, or room upgrades, or automatic elite status.

Many general purpose travel cards allow you to transfer your rewards to specific airline and hotel rewards programs, which can give you even more bang for your buck if you’re willing to put in a little effort. A point may be worth more than 1 cent apiece under some circumstances.

Let’s say you have Capital One Venture Rewards Credit Card. You can use Capital One Miles earned on the card to book travel directly in Capital One travel portalusually worth 1 cent each. But transferring miles to travel partners could unlock a higher value.

For example, booking two nights at a Wyndham hotel in Newport, Rhode Island in October 2022 cost $700.45, or 70,045 miles, through the Capital One travel portal (as of May 2022). But in this case, transferring miles to Wyndham instead of booking through Capital One might be a better move. By transfer Capital One Miles to Wyndham (1 Capital One Mile = 1 Wyndham point), you can book the same hotel for the same two nights for a total of just 30,000 points. That increases the value of your miles to 2.3 cents each.

It’s not a small difference if you’re trying to choose between a 2% cashback card like Wells Fargo Active Cash® Card and that Capital One Venture Rewards Credit Cardwhich earns 2 miles per dollar on most purchases. If you spent $2,000 a month, you’d earn about the same amount back with both cards per year: $480 or 48,000 miles, respectively.

But if you were able to redeem all of your Capital One Miles at 2 cents apiece, your reward value jumps from $480 to $960, effectively giving you 4% back on all purchases.

Most travel credit cards come with an annual fee. But on the other hand, you are more likely to find a card with valuable perks such as a credit to cover the cost of TSA PreCheck, access to the airport loungeand automatic status with certain hotels and car rental companies.

When choosing a card, be realistic about how you will use it. Assuming you don’t plan to carry a balance and don’t need to worry about interest, go for a card that offers a high rewards rate and redemption options that complement your lifestyle.

A travel card is an excellent choice if you travel often and can take full advantage of the side benefits. However, a cashback card is usually cheaper and comes with more versatile rewards. For many, this makes it a clear winner.