Cash back vs. travel credit card – that is the question! Credit cards are convenient to have and can be helpful when you need a loan or want to build your credit, but that’s not all. With so many credit cards on the market, there is a lot of competition for members. As a result, companies offer rewards to entice people to use their card. This is great news for us, consumers because it means we get more for our money!
While there are several types of rewards cards, those for cash back and travel are two of the most popular. What are they and which is better for you? Let’s investigate.
Cash Back Rewards Credit Cards
Cashback credit cards allow you to “earn back” a percentage of what you spend in cash. The rewards are often between .5% to 2% of your net annual spendings. Most cards also offer higher cash back rewards of up to 6% on certain purchase categories such as gas, groceries, pharmacy transactions, or even spending on Amazon.
How often you get your cash back rewards depends on the terms of your card company. Some will offer monthly rewards while others give them on an annual basis or when you reach a certain amount.
When it’s time to get your cash back, you can typically opt for a check, direct deposit, or statement credit. Some companies may also allow you to convert your cashback to reward points which can be used for shopping in their portal.
1. It’s simple
You can often get more rewards from a travel credit card, at least when it comes to the sign-up bonus.
However, “it can be confusing and takes more effort,” says Matthew Goldman, founder of Wallaby, an app that helps consumers maximize credit card rewards. He says, “That’s why 64% of Wallaby users say they prefer cash back as their favorite type of rewards.”
With travel credit cards, you have to learn the ins and outs of how to redeem your rewards. In some cases, it can be as straightforward as redeeming rewards for a statement credit on a travel purchase. Even then, however, you and the bank may disagree on what should be considered a travel purchase.
Ultimate simplicity is getting cold hard cash deposited into your checking account and using it however you want to use it.
2. It’s flexible
If you rack up rewards with an airline or hotel credit card, you’re generally restricted to using your points or miles with that loyalty program. Even with general travel cards like the Barclaycard Arrival Plus, you’ll generally get the best redemption rates by using your rewards to pay for travel.
“When the math is considered, the average consumer would have to do an ungodly amount of traveling to get more value out of their [travel] card,” says Trent Silver, CEO of Nerdster. If you’re only traveling once or twice a year, your rewards may sit in your account for a while before you can use them.
With cash back, on the other hand, you have ultimate flexibility. “If you desire to travel with your rewards, then use the cash back you received” to pay for travel, says Silver. But if you want to use the cash back to, say, buy a television or pay for home improvement instead, you can do that too.
3. The ongoing rewards are just as good, if not better
The best travel credit cards come with big sign-up bonuses, many of them worth more than $500 in free travel. However, these cards usually come with high annual fees, and their ongoing rewards rates are no better than what you could get with a good cash-back card.
For example, the Citi Double Cash and the Capital One Venture both offer the same ongoing rewards rate, but the Venture charges an annual fee. Of course, it also comes with a big sign-up bonus, but, over time, that annual fee will eat into your rewards value.
In other words, a travel card may provide more short-term value, but, in the long run, you may get more value out of a no-annual fee cash-back card.
If this sounds like a good fit for your needs, here’s a rundown of the pros and cons.
Here is a list of the benefits and the drawbacks to consider when it comes to cashback cards.
- Allows you to get back money on all of your purchases.
- Enables you to save more on normal, everyday expenses like grocery shopping.
- For those with a score above 720, cash back card rewards are excellent. They can be up to 2% on all purchases with select purchases reaching up to 6%.
- You may even receive a cash bonus for spending a specific amount on your card in a specific period. Sign-up bonuses range from $50 to $200.
- Cashback cards lack the features and benefits offered by niche specific cards so if you fit into a niche (like travel), you may find more value in another card.
- Caps may be placed on cash back so be sure to check.
- Bonus categories often require quarterly online enrollment.
- The cash back cards with the best bonus rates often charge annual fees.
- Cashback cards often have higher interest rates than cards that don’t have a rewards program.
Top Cashback Credit Cards
Now that you know how they work, let’s take a look at some of your top options for cash back cards.
With no annual fee, the Chase Freedom credit card is certainly one to consider. You will earn 1% cash back on all purchases made on the card, while 5% cash back (up to $1500) is offered in specific categories which change every three months.
For example, for the first 3 months of the year you may get 5% back on gas, then the second 3 months you might get it back on groceries. Furthermore, you can earn up to 15% cash back when you shop through Chase.
Other perks include a $150 bonus if you spend $500 within three months of opening your account and 0% APR on purchases and balance transfers for the first 15 months. When it’s time to get your cash, you can opt for gift cards, direct deposit, a check, or a statement credit.
Next up, is the Citi Double Cash Card. With it, cash back comes in the form of 1% on all purchases and an additional 1% when you make credit card payments. There are no caps on cash back, no category restrictions, and no annual fees.
Other features include interest-free balance transfers for 18 months, access to Citi Private Pass where you can purchase tickets to exclusive events, and Citi Price Rewind which helps you get the best deals on purchases you make.
Earn 2% back across the board with some other perks!
As with the other cards above, the Discover It Cashback Match card has no annual fees. It also has the added benefit of no foreign transaction fees.
As for the rewards, you will earn 1% cash back on all purchases made on the card while some quarterly rotating categories enjoy a 5% cash back reward. These include restaurants, gas stations, Amazon, and more.
All rewards can be redeemed at any time in the form of a cash payout or through Amazon.com. Should you choose to let them build up, they will never expire.
Other benefits include a $75 credit on your statement after making a purchase on amazon.com within three months of getting the card, and a cash back match after your first year up to $200.
The card has a 0% APR for the first 14 months for purchases and balance transfers but there is a 3% fee on balance transfers thereafter.
Travel Rewards Credit Cards
If you travel frequently, a travel credit card can be very beneficial. Instead of providing cash back, these cards give you travel-related rewards like free airline miles, free hotel rooms, and access to airport lounges. Many offer great sign-up bonuses but often come with annual fees. However, the annual fees quickly pay for themselves if you travel enough. Let’s look at the pros and cons.
Here is a list of the benefits and the drawbacks to consider when thinking about travel credit cards.
- You earn points for each mile that you travel, which you can redeem for free flights later on.
- Some airlines partner with travel credit cards. You can earn extra points when you purchase their flights.
- Travel credit cards offer discounts, help with accommodations if you have missed a flight, and preferential booking for movies, concerts, and sporting events.
- The rewards usually outweigh annual fees.
- Perks like lounge access and global entry fee waivers can make traveling much more convenient and enjoyable.
- High annual fees are placed on some of the cards.
- Certain offers will come with restrictions, so it is important to read all the terms and conditions in detail.
- The rewards will lose value if your traveling frequency declines.
- Cards with generous rewards often have a high APR.
Top Travel Reward Credit Cards
Here are three of the top travel cards.
This card requires a high credit score, between 690 and 850, to secure. There are no annual fees for the first year after which you will be charged $95 per year.
By spending $4,000 within the first 3 months of opening your account, you qualify for 50,000 bonus points. When converted, these points reward you with $625 which can be used towards airfare or hotel accommodation. The points can also be turned into $500 cash.
Rewards are earned on travel purchases (2x points), restaurants (2x points) and other purchases (1x point per dollar).
Extra features include trip insurance in case you cancel, accident insurance while traveling, lost luggage replacement, trip delay reimbursement, auto rental collision damage waiver, and emergency assistance.
This card is ideal for business owners or freelancers who travel frequently and want to earn rewards on their travel purchases. It offers 2 miles for each dollar spent as well as a 50,000 point bonus if you spend $4,500 in the first 3 months. There are no categories to limit where or what you can buy and your miles never expire.
As for the costs of the card, the annual fee is $59 (but it’s waived for the first year) and there are no foreign transaction fees.
Other features with the card include purchase security, lost luggage replacement, complimentary concierge service, and travel and emergency assistance.
A credit score of between 690 to 850 is needed to apply for this travel card. There are no annual fees or foreign transaction fees which are a huge plus!
By spending $1000 in the first 90 days of opening your account, you qualify for 20,000 online bonus points. These can be converted into $200 on your credit statement which then can be used for any form of travel.
Each $1 spent on the card earns 1.5 points. A point is worth 1 cent. All customers from Bank of America, Merrill Lynch, and Merrill Edge will earn bonuses of between 10% to 75% when any points are redeemed. Points can be put towards any airline flight or hotel chain. There is no cap on how much you can earn and points don’t expire.
With the American Express® Gold Card, there is no annual fee for the first year after which you will be charged $160 per year. There are no transaction fees on foreign purchases, which is always a plus when traveling. If you spend $1,000 within the first 90 days of opening your account, you will earn 25,000 points.
Earn 2x points on any airline ticket purchased directly from the airline itself as well as at restaurants in the United States. All other purchases made with the card earn 1x points. Book at specific hotels, aligned with the card, and you can earn 2x points as well as a $75 credit to spend on dining, spas, or activities at the hotel.
This card has no interest charges because the full balance is due each month.
Extra features include a global assist hotline, baggage insurance plan, car rental damage and loss insurance, and roadside assistance.
Choosing the Best Option for You
So which is the best option for you, a cash back credit card or a travel rewards card? Well, it comes down to where you spend your money and which rewards will benefit you the most. If you are a frequent traveler, having one or two travel cards is a good idea. If you stay home most of the time buy groceries and drive around town, then the cashback card would be better. Savvy consumers have both types of cards in their wallet and use whichever card provides the best rewards on each purchase.
For those who are already a current holder of one or both of these cards, consider if it is truly benefiting you. Is the card you have still the most beneficial to your spending habits? As time goes on, we often change our lifestyles so don’t forget to look through your wallet periodically to see if you have the cards that are still offering you the most for your spending.
“The average consumer probably doesn’t … travel frequently enough to earn more on a travel card than the equivalent general amount of credit card spend on a cash back card,” says Kerri Moriarty, head of development at Cinch Financial, an app that helps you optimize your everyday finances. “You’re better off earning more on a cash back card and using the cash toward travel for your once or twice a year big vacation.”
Also, if you’re not a big spender, chances are you’ll never spend enough money to make up for a good travel credit card’s annual fee.
That said, if you do frequently travel, especially internationally, using a travel credit card could score you great flight options that would cost much more if you were to pay in cash.
Do your due diligence
Before picking a credit card, ask yourself what your most important priorities are when it comes to rewards. For example, if you want flexibility in redeeming your rewards, a cash-back credit card may be your best bet. The same is true if you probably wouldn’t spend enough on the card to make up for an annual fee.
If this is you, check out the top cash-back credit cards to find one that fits your spending habits the best.
If, however, you have a lot of travel plans in the future, know your way around loyalty programs, and have more than a few travel hacks up your sleeve, you may want to consider a travel credit card.
If you find yourself in this camp, shop around for the best travel credit card based on your travel plans and preferences.
Compare Reviews on Travel and Cash Back Reward Cards
Now you know the ins and outs of these two types of cards. You have a good understanding of how they work, the options available, and which one is the right fit for you. Head over to our personal credit cards review and comparison page for detailed reviews and feedback from other users.
Jessica Walrack is a personal finance writer at SuperMoney, The Simple Dollar, Interest.com, Commonbond, Bankrate, NextAdvisor, Guardian, Personalloans.org and many others. She specializes in taking personal finance topics like loans, credit cards, and budgeting, and making them accessible and fun.