When I first started traveling more seriously, I had to make a decision that a lot of people struggle with. Do I get a cash back card and keep things simple or do I go all in on travel rewards and learn how to maximize points?
For a long time I used a cash back card and it worked fine. On a family trip out west we had $2,000 in cash back to use toward the trip. That felt pretty good at the time.
But here is what changed everything. On that same trip we also had over 300,000 credit card points to use. Seeing the difference in what those points could do compared to the $2,000 in cash back was eye opening. It was after that trip that I made the decision to go all in on travel rewards and never looked back.
Since then my wife Tonya and I have visited a dozen national parks together and used points and miles to help make a lot of those trips happen.
Cash back cards are not a bad choice. For some people they are genuinely the smarter move. But let me break down both options so you can decide which one is the right fit for you.
How Travel Rewards Cards Work and What They Are Worth
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. The following are transferable programs.
- Chase Ultimate Rewards
- CapitalOne Venture Miles
- American Express Membership Rewards
- Citi ThankYou Points
- Bilt Points
- Wells Fargo 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.
Cash back cards do exactly what they sound like. You spend money and you get a percentage of it back. No portals, no transfer partners, no strategy required. Many cash back credit cards earn between 1% and 2% cash back on purchases.
Pros of Travel Rewards:
- Greater Travel Value: One of the best advantages of travel rewards is the potential for higher travel value. When redeemed for travel expenses, credit card points can offer much more value per point than cash back ever could.
This past summer my wife Tonya and I booked business class flights to Europe and back. The combined cost of those tickets was just over $12,000. We used 210,000 points and paid $466 in taxes and fees.
That is the kind of redemption that changes how you think about credit card rewards. Most people would spend years accumulating cash back to afford business class flights to Europe. We got there with two credit card sign up bonuses.
- Access to Travel Perks: Many credit cards that offer travel rewards also come with a number of different travel perks. A few examples include: TSA Precheck/Global Entry credit, airport lounge access, hotel room upgrades, and travel insurance. These perks can save you money, time and make your travel experience better.
One of my favorite protections is the Chase Sapphire’s Preferred primary rental car insurance. It’s not sexy but it has saved me hundreds of dollars over the years. The primary rental car insurance allows me to deny the rental car companies expensive rental car waiver.
- Transfer Partners for Flexibility: Transfer partners are where travel rewards cards really separate themselves from cash back cards. Instead of redeeming points at a fixed rate through a travel portal, you can transfer them directly to airline and hotel programs and often get significantly more value per point.
I have found over the years that people feel a little apprehensive when it comes to transferring points to transfer partners. It’s just something that they have never done before. I totally get it, since I felt the same way. I have a post that walks you through how to transfer credit card points that will take the guess work out of it for you.
- Large Sign Up Bonuses: Sign up bonuses are another area where travel rewards cards shine. Sign up bonuses usually range from 50,000 to 300,000 points. You earn these points or miles when you spend a certain amount of money in a given amount of time. For example, with the Chase Sapphire Preferred you earn 75,000 points after spending $5,000 in the first three months.
If you are interested in learning more about the Chase Sapphire Preferred credit card, I have a post about all of the benefits of the card.
Cons of Travel Rewards:
- Complex Redemption Process: A drawback for most people when it comes to transferable points is that they can seem complex and there is a learning curve to them. Trying to figure out point values, transfer partners, and blackout dates can be confusing, especially if you are just getting started with points and miles.
There are a number of tools that will help you find flight deals. These sites take a lot of the leg work out of finding flights on points. All of these sites have free and paid versions. You can always checkout the free version and see if paying for it makes sense for you. Some of my favorite sites include: Pointsyeah, Seat.aero, and Awardtool.
Some points award tools can be a little intimidating if you have never used them before. I have a post on how to use Pointsyeah. In the post, you’ll see how to do searches so that you can find the best points deals.
- 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 $895. That hurts just typing it. It 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 you will need to book a flight or room will go up. There are times where they will give people a heads up about the devaluation and other times they do not.
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.
How Cash Back Cards Work and Who They Are Best For
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 Chase Freedom Unlimited earns 1.5% cash back on every purchase with no annual fee. Simple, straightforward, and easy to use.
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.
If you are interested in learning more about the Chase Sapphire Preferred credit card, I have a post about all of the benefits of the card.
Here’s a closer look at the benefits and drawbacks of cash back rewards for travelers:
Pros of Cash Back Cards
- Simplicity: Most people like how straightforward and simple cash back rewards are. You know that when you use the card you are getting a certain percentage back on that purchase. You do not have to worry about transfer partners or trying to get the most value out of the points that you have.
- 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. You can use the cash back on travel or anything else you want.
- Effortless Redemption Process: Redeeming your cash back rewards is usually hassle free. Most cash back credit cards have different ways to use or receive your cash, 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 perks that travel credit cards offer. If you’re someone who values 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.
Cash Back vs Travel Rewards: Which One Is Right for You?
| Category | Travel Rewards | Cash Back |
|---|---|---|
| Best For | Frequent travelers | Occasional travelers |
| Annual Fee | Usually yes | Usually no |
| Redemption | Points and transfers | Statement credit or deposit |
| Travel Perks | Yes | Rarely |
| Complexity | Moderate | Low |
| Foreign Transaction Fees | Usually no | Usually yes |
| Potential Value | Very high | Moderate |
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:
Travel rewards are probably the right fit if:
- You travel at least a few times a year and want to stretch every dollar further
- You are open to spending a little time learning how points work, it is not as complicated as it sounds
- You want perks like lounge access, travel insurance, and transfer partners that cash back cards simply do not offer
Choose Cash Back If:
Cash back is probably the right fit if:
- You travel occasionally and want something simple you can set and forget
- You want to use your rewards on anything, not just travel
- You would rather avoid annual fees altogether
The Strategy Most Smart Travelers Actually Use
There is actually a third option that a lot of experienced travelers use and it is the one I personally recommend. Instead of choosing between cash back and travel rewards, you combine both.
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.
The beauty of this setup is that you are never locked in. You can use the points for travel when you want and cash them out when you need flexibility. That is the best of both worlds.
Final Thoughts
There is no wrong answer in the cash back vs travel rewards debate. It really comes down to how you travel and what you want out of a rewards card.
If you are someone who travels a few times a year and wants to keep things simple, a cash back card is a perfectly solid choice. You will earn money back on every purchase and never have to think about point valuations or transfer partners.
But if you have any interest in getting more out of your travel budget, I would encourage you to at least explore travel rewards. I have visited 25 national parks and used points and miles to cover roughly half of those trips. That is real money that stayed in my pocket instead of going toward airfare and hotels.
The sweet spot for a lot of travelers is actually combining both. A travel rewards card like the Chase Sapphire Preferred paired with a no annual fee card like the Chase Freedom Unlimited gives you the best of both worlds. You earn flexible points on everyday spending and can redeem them for real travel value when you are ready.
If you want help figuring out which card setup makes the most sense for your situation, check out my post on picking the best travel card.
