Ah, the tale is as old as time itself, cashback or points. If you’ve had a credit card for some time, I’m sure you likely have an idea as to what camp you fall into — but today, we’re going to break down some of the differences, and the situations one may be better than the other.
Cashback Cards
Cashback cards are exactly what they sound like. You earn a percentage cashback on purchases made with the card, The cashback rewards earned can be redeemed in various forms, such as statement credits, gift cards, or even as a check, providing flexibility in how the rewards can be used. The cashout rules differ from card to card, some require you to accumulate a minimum amount of cashback before you can redeem, others give it back to you at a specific time every year (like the Amex SimplyCash line).
As we know, cash is king, and you’re able to take the cashback you earn, and apply it to anything of your choosing, which provides much more flexibility than points at times. You earn a guaranteed amount of rewards, and don’t need to worry about your points sitting in an account unused, or deal with certain complex redemption options with points.
Another key advantage of cashback credit cards is that many of them do not have annual fees, making them a cost-effective way to earn rewards. They are ideal for consumers who want to earn rewards without incurring additional costs.
Unfortunately, cashback cards tend to have worse earn rates than points cards, specifically travel cards. If you tend to travel often, you may want to consider getting a points card. Additionally, the welcome bonuses on cashback cards tend to not be as attractive as those on rewards cards, which may be another consideration.
Rewards Cards
Rewards cards on the other hand earn points for each dollar you spend, instead of cashback.
How to Decide What’s Best for you?
Credit cards have become a ubiquitous part of modern life, and choosing the right one can be a confusing task. Two popular types of credit cards are cash back cards and points cards, each offering its own set of rewards and benefits. In this article, we will dive deep into the world of credit cards and help you understand the key differences between cashback and points cards, so you can make an informed decision.
Cashback Cards
Cashback cards offer a simple and straightforward rewards program where you earn cashback on every purchase made using the card. The cashback rewards earned can be redeemed in various forms, such as statement credits, gift cards, or even as a check, providing flexibility in how the rewards can be used. The cashout rules differ from card to card, some require you to accumulate a minimum amount of cashback before you can redeem, others give it back to you at a specific time every year (like the Amex SimplyCash line).
Pros:
- Super simple: With cashback cards, there’s no need to keep track of points or worry about redemption options. You simply earn cashback on every purchase.
- Flexibility: Cashback can be redeemed for cash or statement credit, giving you the flexibility to use the rewards in the way that works best for you.
- No restrictions: There’s no need to worry about point devaluation or restrictions on redemption options with cashback cards.
- Tend to have lower annual fees.
Cons:
- Lower earn rates: cashback cards tend to have worse earn rates than points cards, specifically travel cards.
- Less attractive welcome offers.
- Minimal travel perks, usually tend to have limited insurance and airport perks.
Points Cards
Points cards, on the other hand, offer rewards in the form of points that can be redeemed for travel, merchandise, gift cards, or cash. The earn rate is generally higher compared to cashback cards, and you have the flexibility to redeem your points for a wide range of options. The value of each point can vary, and it’s important to understand how the point system works to get the most out of your rewards.
Pros:
- Higher earn rate: Points cards typically offer a higher earn rate compared to cashback cards on everyday purchases, as you’re locked into the points system
- Wider range of redemption options: Points can be redeemed for a variety of options such as travel, merchandise, gift cards, or cash. (Although travel tends to be best value)
Cons:
- Complex reward system: Points cards can have a more complex reward system, and it’s important to understand how the points are earned and redeemed to get the most out of the rewards.
- Point devaluation: Points can lose value over time, and some redemption options may no longer be available.
- Redemption restrictions: There may be restrictions on when and how points can be redeemed, such as blackout dates or limited availability for popular travel options.
- Higher Annual Fees
Conclusion
In conclusion, choosing between a cashback card and a points card depends on your personal spending habits and the type of rewards you prefer. If you are looking for a simple and straightforward rewards program or don’t travel much, cashback cards may be the best fit for you. If you travel quite a bit, and don’t mind taking some time to learn how different rewards systems work, rewards cards can be a very lucrative option for your spend.