In the world of credit card rewards, the age-old debate of choosing between travel rewards vs cash back continues to confound travelers.
Each option comes with its own set of advantages and considerations, making the decision a pivotal one that could significantly impact your travel experiences.
To make an informed choice that aligns with your travel aspirations and financial goals, it’s essential to dive deeper into the realm of credit card rewards.
In this article, we’ll delve into the intricacies of travel reward points and cash back, providing you with a comprehensive understanding to aid in your decision making process.
Understanding Travel Rewards
There are two different styles of travel rewards. First, there are hotel points and airline miles. The points and miles that are in these accounts most of the time can only be used for hotel rooms and flights.
There are numerous ways to earn airline miles and hotel points but the two most common ways are flying with an airline or staying at a hotel chain.
The other common way to earn points and miles is by getting a co-branded credit card. For example, you could get the Southwest Premier credit card to earn Southwest Rapid Reward points or you could get the World of Hyatt credit card to earn Hyatt points.
The other kind of travel rewards are transferable points. When it comes to transferable points, there are a few different programs to choose from. There are the Citi ThankYou Points, CapitalOne Venture Miles, American Express Membership Rewards, and Chase Ultimate Rewards.
Each one of these programs has airline and hotel partners that you can transfer your points to so you can book flights and hotel stays. They also have travel portals that you can book travel through.
Some other common ways that you can use the points are converting the points into cash or buying gift cards. Converting the points into cash or gift cards are usually the least valuable ways to use the points.
Let’s explore the nuances of credit card points and the advantages they offer to travelers:
Pros of Travel Rewards:
- Greater Travel Value: One of the standout advantages of travel rewards is the potential for higher travel value. When redeemed for travel expenses, credit card points can offer more value per point than their cash back counterparts.
For instance, if 50,000 points translate to a flight that would cost significantly more in cash, you’re effectively getting more bang for your buck.
- Access to Travel Perks: Many credit cards that offer travel rewards also come with a range of travel related benefits and perks. These could include coveted privileges such as access to airport lounges, priority boarding, complimentary upgrades at hotels, and comprehensive travel insurance coverage. These perks can greatly enhance your travel experience, making your journey smoother and more enjoyable.
- Transfer Partners for Flexibility: Certain credit card programs provide the option to transfer your accumulated points to various airline and hotel loyalty programs. This feature can be a game changer as it allows you to diversify your redemption options. By transferring your points strategically, you can potentially unlock higher redemption values and gain access to premium travel experiences that might otherwise be out of reach.
- Large Sign Up Bonuses: Most travel credit cards come with large sign up bonuses that can be very valuable. For example, the CitiPreimer card signup bonus has been as high as 80,000 points and the Chase Sapphire Preferred has been as high as 100,000 points. If you cashed out the points you would get $800 and $1,000 respectively.
Cons of Travel Rewards:
- Complex Redemption Process: While travel rewards offer the potential for incredible value, their redemption process can be complex and time consuming. Navigating point valuations, transfer partner rules, and the intricate world of blackout dates can be a daunting task, especially for those new to the world of rewards.
- Annual Fees: Most cash back credit cards don’t have an annual fee while travel rewards cards do. The fees can cost as much as $695. That is a lot of money but you can offset the cost of the cards if you take advantage of the different perks that come with the card.
- Points Devaluation: Hotel and airline programs are known to devalue the points or miles of their programs. This means the amount of points or miles that you will need to book a flight or room will cost you more. There are times where they will give people a heads up about the devaluation and other times they don’t.
One way to work around this problem is to have flexible rewards. That way if a particular hotel or airline devalues their points or miles, you can transfer your points to a different program.
Evaluating Cash Back Rewards
Cash back rewards, on the other hand, provide a straightforward and tangible benefit by giving you a percentage of your spending back in cash. Many cash back credit cards earn 1% to 2% cash back.
For example, the Citi Double Cash Back card earns 2% cash back. You earn 1% on every purchase and 1% when you pay off the card.
Some cash back cards can earn cash that can be converted into travel points. For example the Chase Freedom Flex and Chase Unlimited cards are cash back cards. The Flex has quarterly rotating categories where you can earn 5% cash back. The Unlimited earns 1.5% on all purchases.
If you have the Chase Sapphire Preferred or Sapphire Reserve, you can transfer the money from the cash back cards to one of them. They then are considered Ultimate Reward points that can be used for travel through the Chase travel portal or transferred to one of the transfer partners.
Here’s a closer look at the benefits and drawbacks of cash back rewards for travelers:
Pros of Cash Back Cards
- Simplicity and Transparency: Cash back rewards are known for their simplicity and transparency. The concept is straightforward. You can earn a percentage of your spending back as cash. This simplicity makes it easier to understand the value of your rewards and how they contribute to your overall financial picture.
- No Annual Fees: Most cash back cards come with no annual fees. This is one of the best features of these kinds of cards. You can hold onto the card for years which increases the average age of your account. This helps with your credit score.
Plus, with an annual fee card you have to try to use the perks of the card to get your money’s worth out of it. This isn’t the issue if you have a credit card with no annual fee.
- Flexibility in Use: One of the most significant advantages of cash back rewards is the flexibility they offer. Unlike credit card points, which are often tied to travel related expenses, cash back rewards can be used for virtually anything. Whether it’s flights, accommodations, dining, or even non-travel expenses, you have the freedom to allocate your cash back as you see fit.
- Effortless Redemption Process: Redeeming your cash back rewards is usually hassle free. Most cash back credit cards provide user-friendly redemption options, such as receiving the funds as a statement credit, a mailed check, or a direct deposit into your bank account.
Cons of Cash Back Cards
- Potential for Lower Travel Value: While cash back rewards offer simplicity, they might not provide the same value per dollar spent when used for travel related expenses. This means that earning $100 in cash back might not cover the cost of a flight that could have been redeemed for an equivalent point value.
- Lack of Travel Perks: Cash back credit cards generally lack the travel related perks that some credit cards offer. If you’re someone who places great value on premium travel experiences and additional travel perks, you might feel that cash back rewards fall short in this department.
- Foreign Transaction Fees: Most cash back cards have foreign transaction fees. What that means is when you use your credit card overseas, you will usually pay up to 3% fee to use your card. So, a $100 purchase will cost you an extra $3.
So, if you plan on traveling overseas, you will want to know if your card has foreign transaction fees or not. The bank isn’t going to waive the fees if you call in after the fact asking them to remove them.
What Kind of Card Should You Choose?
The pivotal question remains: travel rewards or cash back. The answer lies in understanding your unique preferences, travel style and financial goals.
Choose Travel Rewards If:
- You’re a frequent traveler who places great importance on premium travel experiences and the additional travel perks that often come with credit card points.
- You’re willing to invest time and effort into researching point valuations, understanding transfer partner rules, and navigating potential blackout dates to maximize the value of your points.
- You value flexibility and the potential to transfer points to partner programs, which can provide additional redemption opportunities and enhance your overall travel experience.
Choose Cash Back If:
- You prioritize a straightforward and transparent rewards system that doesnt require delving into complex redemption rules or calculations.
- You want the freedom to use your rewards for a wide range of expenses beyond just travel related ones. Whether it’s funding your next adventure or covering everyday expenses, cash back rewards offer versatile options.
- You prefer a hassle free redemption process that doesn’t involve the intricacies of point valuations or navigating transfer partners.
One Other Option
When you go to the grocery store, there are usually so many different options when selecting an item. So, in that spirit there is another option when it comes to cash back versus points credit cards and that is having both types of cards.
For example, I mentioned earlier the Chase Freedom Flex and Freedom Unlimited card, as well as the Chase Sapphire Preferred card.
So, by having all 3 cards you would earn 5x the points on rotating categories with the Freedom Flex, 3x the points with either of the Freedom cards for dining and drugstores, 2x the points on travel with the Sapphire Preferred and 1.5x the points on all purchases with the Freedom Unlimited.
Since the Flex and Unlimited cards points can be transferred to the Sapphire card, those points become flexible and can be used for travel through the Chase Travel Portal or by transferring the points to transfer partners.
If that still doesn’t sound appealing or too much work. You could still take all the points you earn from these cards and turn them into cash. I wouldn’t recommend that but hey, this is a free country.
Final Thoughts
In the ongoing debate of travel rewards vs. cash back, there is no definitive winner. Instead, the choice between the two hinges on understanding your travel aspirations, spending habits and priorities. Travel reward points offer the potential for enhanced travel experiences, added value, and the allure of premium perks.
On the other hand, cash back rewards provide simplicity, transparency, and the versatility to use your rewards as you see fit. The third option is combining both cash back and points credit cards to get the best of both worlds.
As you embark on your decision making journey, remember that responsible credit card usage can transform your everyday spending into extraordinary travel experiences.
By selecting the option that aligns with your goals, you’re setting the stage for unforgettable adventures that are fueled by your strategic credit card choices.
If you want to learn more about how to select the right travel card, you can read my post titled “Picking the Best Travel Card.” If you have any questions or comments, please feel free to leave them.
