Travel Rewards Vs Cash Back: How To Choose!

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Travel Rewards Vs Cash Back: How To Choose!

ChooseFI Favorite: top rewards card for beginners

Chase Sapphire Preferred Card​

Looking for the best credit card to start earning travel rewards points? The Chase Sapphire Preferred is our pick. With a 50,000 point signup bonus (after spending $4,000 in the first 3 months), the $95 annual fee waived the first year, and ultra-flexible points (transfers to 13 airlines & hotels!), this is our top choice!

ChooseFI Favorite: top rewards card for beginners

Chase Sapphire Preferred Card​

Looking for the best credit card to start earning travel rewards points? The Chase Sapphire Preferred is our pick. With a 50,000 point signup bonus (after spending $4,000 in the first 3 months), the $95 annual fee waived the first year, and ultra-flexible points (transfers to 13 airlines & hotels!), this is our top choice!

The FI community isn’t anti-credit cards, they’re anti-credit card debt. If you use credit cards responsibly, the rewards you can gain can earn you free vacations, access to exclusive clubs, or just extra cash.

Today, I’ll break down the difference between the two major reward categories: travel rewards and cash back.

Travel Rewards Vs. Cash Back

What are travel rewards?

Travel rewards are rewards you earn from your travel credit card that you can then use for other travel purchases.

You can earn travel rewards in a number of ways, depending on the kind of credit card you have.

Some credit cards, like the The Platinum Card from American Express, give you travel points on your everyday purchases, while cards like Capital One Venture Rewards Credit Card, earn you rewards or discounts on any purchases you make for travel.

How to use travel rewards

Travel rewards are typically redeemed for travel purchases such as: flights, hotel stays, rental cars, and baggage fees.

For a better understanding of how travel rewards work, let’s take a look at the card I mentioned above–the Capital One Venture Rewards Credit Card.

With the Capital One Venture Rewards Credit Card, you get two miles for every $1 you spend. You also get 10 miles for every dollar spent at Hotels.com/venture. That's a big deal!

When you open a new account, you will receive a bonus of 50,000 miles if you spend $3,000 within the first three months of opening the account.

Redeeming Venture Miles is easy too. They offer a “purchase eraser” which means that you can log in to your Capital One account and select travel purchases that you would like to “erase” using your rewards miles. You effectively pay for those purchases with miles rather than cash.

Click here to compare travel cards.

What are cash back rewards?

Cash back rewards are literal cash back on your spending.

Like travel rewards, you can earn cash back rewards in a couple different ways. You can get a cash back rewards card, like the Wells Fargo Cash Wise Visa Card, that offers one cash back rate (1.5% to be exact) for all purchases. It also offers a sign up bonus of $200 if you spend $1,000 within the first three months of owning the card.

Or, you could get a card like Chase Freedom which may offer more cash back but with a more complicated rewards program. Chase Freedom offers 5% cash back on select categories that rotate each quarter, up to a quarterly maximum. Plus 1% cash back on every other purchase.

How to use cash back rewards

Cash back rewards are aptly named because you can redeem your rewards for physical cash deposited into your bank account, or you can redeem your cash in a few other ways:

  • Towards you credit cards balance
  • For gift cards

Click here to compare cash back cards.

Which should you use?

The answer, of course, depends on your spending habits and goals. Let’s start by talking about travel rewards.

Travel rewards

You should use a travel rewards credit card if you, well, travel a lot.

If you’re looking for a straightforward, easy-to-use card, stick with a travel rewards card that offers rewards on all purchases.

Examples of this type of credit card:

  • Capital One Venture Rewards Credit Card
  • The Platinum Card(R) from American Express

If you’re looking for a travel rewards card that offers you the most possible rewards, you may want to consider a higher caliber card that offers you rewards when you make travel purchases–these typically offer higher rewards rates.

Our favorite on ChooseFI is the Chase Sapphire Preferred Card.

Related: How To Save Money On Travel With The Right Credit Card

Cash back

Cash back cards are best for those who want a simple rewards credit card. You don’t have to worry about how your points transfer over and how to use rewards to get the best travel deal.

If you want a straightforward cash back card, look for one that offers the same cash back no matter the purchase.

But, if you don't mind activating your card each quarter and want to get as much cash back as possible, consider a 5% back credit card like the Chase Freedom card mentioned above.

These cards, however, only offer 5% in select categories, like groceries, gas, Amazon.com, etc. So, if you don't spend a lot in those 5% categories, go with one of these cards you might do better with a simple cash back program like the Wells Fargo Cash Wise Visa Card provides.

Click here to compare cash back cards.

A few things to know before applying for travel rewards or cash back credit cards.

You need good credit

For many of these credit cards, you'll need good to excellent credit. So, those on the bottom of the good credit scale, or those with poor credit will need to look for different credit cards (and use them responsibly) to start building credit.

Related Article: My Five Biggest Travel Rewards Mistakes

There are annual fees associated with some of these cards

Some of the cash back credit cards, and nearly all of the travel rewards cards mentioned in this article have annual fees.

Typically, those annual fees are $95 a year, with it being waived the first year. For those who travel frequently or earn significant cash back, this fee won't matter much. But, if you can't earn enough in rewards to pay off the fee, these cards may not be worth your time or money.

Some travel rewards programs only apply to one airline

When it comes to travel rewards cards, you'll likely want to avoid airline credit cards.

Airline credit cards are best for those who travel solely through one airline, but since many people no longer do, and with the invent of discount airlines, you can get a better deal with a card like the Chase Sapphire Preferred Card.

Final thoughts

Whether or not you get a travel rewards vs cash back credit cards depends if you want an easy-to-use credit card with less rewards or whether you want a card that will earn you the most, but takes a few extra steps.

It also depends, of course, if you travel a lot. If you do, obviously one of the travel rewards credit cards we mentioned will work best for you. If not, go with a cash back credit card.

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Travel Rewards Vs Cash Back: How To Choose!

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7 thoughts on “Travel Rewards Vs Cash Back: How To Choose!

  1. Flexibility is important! My wife and I have used nearly $1k in sign-up bonuses from AMEX cards to pay for home repairs/upgrades. Cash back is definitely more flexible for those who have trouble scheduling travel around point redemption.

  2. I just started “credit card hacking” this year. I first read about the idea on MMM’s comment section of a particular post earlier this summer, but I was a bit hesitant to try it out myself. I finally decided to try it out after realizing that I could “steal” money from the “evil” credit card companies. I expect to receive $700 in cash back this year thanks to the cash back bonuses offered by the Capital One Savor card and the Wells Fargo Cash Wise card. That’s a full week’s worth of my salary! I call it a win! I don’t care much for the travel rewards cards because I don’t fly for vacation. I prefer staycations which are easy on my wallet and will allow me to reach FI faster.

  3. I started this recently and have run in to a problem. I decided to start easy with a cash sign on bonus card. Spend 500 get 150 as the sign on bonus reward.

    I quickly spent the 500 with regular occuring bills and then applied for another similar card and got declined. I have an 810 credit score and only own 2 credit cards. Do I need to wait longer in between applying or close one card before applying for the next?

  4. I think choosefi readers are looking for a more in depth analysis here. How about some quantitative comparisons: yield on spend, value of reward currencies vs cash, devaluation of points, limitations on points, or double dip opportunities? I know this is not a travel hacking site, but if you do an article, then do it.

    Here is my quick analysis.

    Travel reward points are for retirees and old folks. They get to travel more, and have way more flexibility. Try getting a biz or F class seat for two anywhere and you will see that award seats are very hard to find if you don’t plan a year in advance and can leave on a Tuesday. Hotel rewards are normally a poor return on spend. The best way to do travel rewards is to use chase UR and book with the sapphire reserve using the portal at 1.5 cpp. Totally flexible and you still earn airline miles like a paid flight.

    Cash back on the other hand, means you have cash which is fungible. You can turn cash into investing dollars, paid flights, Airbnb, etc. I look at cash back as dividends paid on my spending. I then Reinvest then into stocks. I’m religious about it. All points acrue in savings portion of the FI journey. Focusing on travel cards with perks is a better deal. The Amex platinum for instance, costs $150 after credits. It gives you the ultimate lounge access, Hilton and Marriott gold for free breakfast and faster earning, Amex offers for a ton of savings (20% average) on Hilton, Hulu, Amazon, hello fresh, etc. Also you get fancy hotel perks through Fhr. Other cards with cool perks are the Hilton aspire, and Alaska airlines visa. Hilton diamond, lounge access, tons of credits, weekend free night annually. Alaska companion pass, free bags. Perks are what really add up and get you to keep cards long term.

    The best earning cards:
    Amex gold – 4x dining, 4x groceries, 3x flights
    Amex plat schwab – 25% bonus cash back on redemptions of MR, 5x flights
    Amex blue biz plus – 2x everything
    Citi Costco visa – 4x gas stations , 3x “travel”
    Chase freedom – 5x various things

    If you use the plat schwab, you get 5x dining, 5x grocery, 6.25 flights, 2.5x everything else.

    • I disagree that travel rewards points are for old people an retirees. My husband and I had been able to utilize travel rewards points/miles to the fullest and neither one of us is retired. His schedule actually only allows us to travel during school breaks, when it’s really hard to find availability but they key is advance planning. I’ve also gotten much better value than 1.5c/point by transferring UR points to partners like United and Hyatt. The more you do it and the more you learn about travel rewards the better you become at finding hidden sweet spots, best redemptions etc. It does take some work though but the payout can be enormous.

      • Sure you can get better values, well out in the future. Perhaps 2cpp or so on flights. But those reward flights lack the ability to earn miles on the flight, which lowers the value. If you pay $1000 for a round trip flight on Alaska air, say a transcon that is 2,000 miles each way, you’ll earn at least 4,000 Alaska miles, which are on their own worth at least 1cpp. So those miles lower the cost by $40, and acrue toward status. If you’re like me and have status, you’ll get twice that value, or $80 off. I then spend my Alaska miles to book award flights. It’s maybe better to use transferable points if you travel infrequently and don’t get much value of status or airline point accrual. Better to use the travel portal to boost the 1.5cpp by the value of airline miles you earn.

        On the other hand, if you need to save up your points all year to use for a big trip, then you are allowing your points to depreciate. There’s an opportunity cost. You could have banked the points as cash, and invested them in a company like realty income or att that pay you 4.5-7% dividends. You are then compounding your rewards. I don’t know your personal situation, but we are working and saving at the moment, and travel for leisure only a few times a year. I use Alaska airline miles and Hilton points for that. You can’t turn those points into cash anyway.

        Most folks are likely to maybe spend about $3000/year on travel give or take. So if you can turn that $3k into $0 by using points, then great, but it’s only worth it if you then put $3k into savings. I doubt you could earn points worth that much on a typical FI spending budget though. Not through points earned from spending alone. You can only get so many signup bonuses.

  5. I also forgot to mention above the value of the double dip.

    Say you pay cash for that $1000 2,000 mile flight. You get 4,000 Alaska miles (or 8,000 with mvp gold). You also will use the Amex platinum schwab card to earn 5x MR points, for a total of 5,000MR.

    Value of 5,000 MR= $62.50 schwab cashout
    Value of 4,000 Alaska mileage plan= $60 (1.5cpp)

    So you lowered your cost by $62.50 into your brokerage account, and $60 towards your next flight.

    Now that is an expensive flight. No mark cost is half that, so this would be the math for two people:

    8,000 Alaska miles= $120
    5,000 MR = $62.5 cashout

    If you have mvp gold= 16,000 Alaska miles = $240

    So by using chase points, and flying southwest or jet blue, you may be leaving at least $182.5 on the table, plus the tax and fee cost of the award flight.

    Two transcon Alaska flights will cost about 120,000 Alaska miles to book. Say you use United or southwest or Jet blue, it will be similar. 120,000 UR points are worth $1,200 in cash. 120,000 MR are worth $1,500. Maybe you can get better value on first class seats internationally. Domestic though, you won’t get much better than 1.5cpp. Might as well get that through the portal and earn back miles.

    One more tip is that you can sometimes triple dip using Amex offers: spend $300 get $60 back at Hilton or Marriott. You should also
    use the airline mileage dining plans to earn extra points on dining.

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