Are Cash Back Credit Cards or Travel Rewards Credit Cards Better?

Last Updated: April 4, 2020   MoneyHacker

When you’re considering what credit card to get, the benefits attached to them are crucial in choosing a match. This involves doing some analysis of your spending habits. Let’s say you’re an avid Amazon shopper, and a significant amount of your disposable income goes to it. You might consider getting an Amazon card, which will reward you with rebate money to use on Amazon, depending on spending. It might disproportionately reward your spending on Amazon itself.

However, even if you love buying things on Amazon, this might not be the most efficient way to earn rewards through your credit card. Shopping on Amazon has a lot to do with lifestyle. And as we know, lifestyles can change drastically in a matter of days or weeks. So what’s the safest bet in a credit card that will also maximize return on your spending?

In short, whether a type of credit card or specific card is better for you depends on your spending habits and needs.

Two major ways credit cards organize the returns they give customers are through cash back cards and travel reward cards. Let’s take a look at each.

Cash Back Cards:

  • Often require applicants to have at least a 700 credit score (out of a possible 850) to be accepted.
  • Generally offer you 1-2% of the purchases you make in cash back rebates.
  • So for example, at the low end you’d get $10 for every $1,000 you spend.
  • Some cards that are considered cash back cards offer you higher rewards on certain kinds of purchases. However, to differentiate between cash cards and other forms of reward cards (like travel rewards) we’ve delineated between them here.
  • These cards also often come with a signup bonus. The terms will likely encourage you to spend a predetermined amount of money on your card in the first month or few months of ownership in exchange for $100-500+ of cash back depending on the card.
  • You can usually earn extra cash back during this opening promotional period if you get friends and family to sign up for the card, or if you get cards that are tied to your account in their name and they make even just one small purchase with them.
  • However, don’t be completely taken by signup bonuses. There are likely options that feature smaller signup bonuses but a higher percentage rate of cash back, which will net you more money in the long run.
  • Pay close attention to the APR and fees attached to your card. These are purposely complicated and full of pitfalls to trap unsuspecting customers. One way you can safeguard against being taken advantage of is by setting up automatic payments that pay your entire credit balance when it’s due in each credit period.
  • Keep in mind that it’s common to find credit cards that give you points on purchases. Those points can be redeemed for cash. So let’s say every dollar you spend gets you 1 point. Then you’d be able to exchange every 100 points for $1 in cash back. OR:
  • You might be incentivized to exchange those points for a specific purchase because your credit card will value points used, let’s say travel, at a higher level than they will for straight cash back.
  • Cash Back cards are generally organized into flat-rate cards (you get a flat rate back on all purchases), different rates for different spending areas (so a flat rate supplemented by a higher rate — think 5-6% — for preset categories), and rotating categories (you activate categories that change quarterly for higher return rates).
  • You’ll receive money back either through mailed checks, direct deposit to bank accounts, applying the reward to your credit balance, charitable donations, or a gift card to a popular store. You’ll usually have some choice in this.
  • For the most part, the cash back you rack up won’t expire, although it can. Make sure to check the terms for any credit card you’re looking at.
  • Cash Back cards are best for people with strong credit, predictable spending habits, and those who know they can pay their balance back each month.

Now let’s take a look at travel reward cards:

  • Some cards are specifically tailored for travel. They might award you travel miles instead of points. Some cards offer you a higher percentage of your spending back towards travel than they will in straight cash.
  • If you frequently travel for work or pleasure, this might be your best bet.
  • Some of these cards are tied to specific airlines and may come with introductory bonuses to give you miles.
  • If your card awards you credit card miles, they’ll often be work one cent per mile. If so, 10,000 travel miles will net you $100 in rewards.
  • Some travel reward cards have appealing introductory bonuses, AND disproportionately award you for traveling.
  • Take, for example, the Chase Sapphire Preferred card. It gives you a 25% redemption bonus if you use the points you garner for travel through Chase Ultimate Rewards. So, for example, 60,000 points would get you $750 in travel but only $600 in cash. You can also transfer these points towards frequent flyer and hotel programs at a 1:1 ratio.
  • This card also gives you 60,000 bonus points if you spend $4,000 in the first three months after receiving it.
  • Unless you only fly on one airline, if you want a travel reward card you should make sure it’s not tied to a specific carrier.
  • Another great travel reward card option is the Capital One Venture Rewards Credit Card. It nets you 2x miles for every dollar you spend. You also get a signup bonus of 50,000 miles or $500 in free travel if you spend $3,000 in the first three months after getting the card.

There are many differences between cash back cards and travel reward cards, and of course, each card has its own specific terms. Make sure to do your research and protect yourself from predatory interest and fee terms at all costs. Make credit work for you!