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.
Here is a breakdown of the difference between the two major reward categories: travel rewards vs. cash back.
Let's begin by taking a look at how travel rewards work and when to use them.
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 Platinum Card from American Express, give you travel points on your everyday purchases. Cards like the Capital One® Venture® Rewards Credit Card, on the other hand, 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.
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.
Sign Up For Our Free Travel Course
If you're looking for more tips for how to use travel rewards, you may want to check out our free travel course.
In the course, you'll learn all the ins and outs of how to get the most value out of travel rewards points.
And Ed, who teaches the course, doesn't just talk the talk. He walks the walk. He's redeemed more than 5 million miles and points to travel the world with his family.
Do you want to start making amazing travel memories? The tactics that you'll learn in the travel course could make your travel dreams a reality sooner–and for less money–than you thought possible! Sign up for our free travel course now.
Cash Back Rewards
Ok, now that we've explained travel rewards, let's dive into how cash back rewards work.
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 of 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 $150 if you spend $500 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
Travel Rewards vs. Cash Back: Which Cards are Best?
The answer, of course, depends on your spending habits and goals.
You'll almost always get more dollar value out of a travel card. To learn why check out our free travel course. But you can't use your travel points to pay your electric bill or your mechanic.
Do you want that kind of ultimate spending flexibility? If so, a cash back card may be worth it, despite the lower redemption value.
Let's take a look at some of the best cards in either category.
Best Travel Rewards Cards
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:
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.
Best Cash Back Cards
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 or the Blue Cash Preferred From American Express.
|Chase Freedom||Blue Cash Preferred From American Express||Wells Fargo Cash Wise Visa Card|
|Sign-up Bonus||$150 bonus after spending $500 in the first three months||$250 statement credit after spending $1,000 in the first three months||$150 bonus after spending $500 in the first three months|
|Everyday Earning||1% cash back on all purchases||1% cash back on all purchases||1.5% cash back on all purchases|
|Bonus Categories||5% cash back on categories that rotate quarterly, up to $1,500 in purchases||6% cash back on select streaming services, 6% cash back at groceries stores on the first $6,000 in purchases per year, 3% cash back at gas stations and transit||1.8% cash back on qualified digital wallet purchases for the first 12 months.|
|Learn how to apply here.||Learn how to apply here.||Learn how to apply here.|
Getting the Best of Both Worlds
Ultimately, if you want the best of both worlds, you should go with a card that offers points that can be converted to cash OR travel.
Chase Ultimate Rewards points, for instance, can be converted into cash at a 1:1 ratio. Or you can more value for your Chase Ultimate Rewards points by redeeming them for travel.
What Else You Need to Know
Before you apply for a travel rewards or cash back credit card, there are a few things that you'll want to be aware of.
Many Of These Cards Require 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.
Some Of These Cards Come With Annual Fees
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. 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 Work With 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 advent of discount airlines, you can get a better deal with a card like the Chase Sapphire Preferred Card.
Whether or not you get a travel rewards vs. cash back credit card depends on your personal preferences and goals.
Do you want an easy-to-use credit card with lower redemption value? Or do you want a card that will earn you more but requires a little more legwork?
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.
- How Chase Ultimate Rewards Actually Work
- 4 Ways To Hit Minimum Spend On Travel Rewards Cards
- How To Use 0% Intro Offers To Get Out Of Debt Fast
To maximize your travel rewards check out ChooseFI's free travel rewards course.