Before you get taken in by a great sign-up bonus, make sure you know what reward structure is best.
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It is one of the enduring debates in credit card rewards: Which is better, cash back or travel?
The answer you choose might reveal a lot about your personality and your interests. Are you somebody who likes to put a good system in place and receive rewards with little hassle? Then cash back might be for you. Or are you somebody who likes to master arcane rules in an effort to beat the system, even if it takes time? If that’s you – and you enjoy travel – then a travel rewards card might suit you.
There’s no right answer, because the types of rewards you prefer to receive are a matter of personal preference. Readers often write to CreditCards.com asking what the best kind of rewards card is for X, Y or Z. It is difficult to recommend a card without knowing whether the person prefers cash or travel as a reward.
Polls show that credit card users prefer cash back to frequent-flyer miles. In a 2015 poll commissioned by CreditCards.com, 60 percent of respondents said cash back was their favorite perk, compared with 22 percent who said frequent-flyer miles. An additional 7 percent said “hotel stays.”
Pros and cons of cash back, travel and general rewards cards
Description: There are all sorts of cash back cards, from ones with big category bonuses for certain types of spending, to ones with a fixed earning rate regardless of what you spend.
Pros: The appeal of receiving cash back for your purchases is that you receive money regularly, usually in the form of a credit to your account. It’s an easy way to earn free money. And talk about flexible: Cash can be used for anything. And you don’t have to worry about your points expiring or laboring to figure out a complex reward scheme. Many of these cards have no annual fees.
Cons: Receiving cash into your account isn’t flashy, and the money you are earning can feel like it’s not really a reward, because it gets swept up in your monthly statement. The value of the sign-up bonus is usually smaller, and you might also be receiving less in rewards than other alternatives.
Description: There are many different types of travel cards, from ones tied to particular airlines and hotels, to bank travel programs, to those with more flexible travel rewards that function like cash back cards for travel.
Pros: The idyllic vision of being able to fly around the globe for free and pampering yourself in luxurious hotel rooms can become reality if you stockpile enough travel points or miles. Even if you don’t have that many, travel is more achievable with a travel card than with a cash back card. Many of these cards have compelling sign-up bonuses.
Cons: While some travel redemptions are straightforward, many are subject to blackout dates and other hassles that can make the idea of “free” travel more burdensome than you envision. Complicated networks of airline and bank partnerships can take hours to understand to achieve the best deals. Point programs often expire and routinely are restructured and devalued. Travel cards typically have annual fees.
Description: With general rewards cards, you are awarded points that can be used for travel, hotels or, at a slightly reduced value, you can use them as cash on sites such as Amazon.
Pros: You can choose how you use your rewards. If you don’t have time to travel in a given year, you can use your points for purchases you would normally make. If you want to use points for Amazon.com, make sure it’s a card that allows you to use your points on the site. (If you want to use it mainly on Amazon, however, consider the Amazon Prime Rewards Visa Signature card with a 5 percent cash back rate on Amazon purchases.)
Cons: You won’t necessarily get the best value out of your points by using them for shopping instead of travel. A straight cash back card will give you a better return if you think you will ultimately use your rewards as cash instead of for travel.
Choosing between cash back or travel points can be a tough call. If you like to travel and enjoy the challenge of figuring out complex reward programs, then a travel card might make sense. If you want a reward card that is simple and gives you the most flexible currency – cash – then consider cash back. If you can’t decide, then go for a general rewards card where you can use the points for purchases on Amazon.
Of course, you don’t have to choose. You could apply for one of each to get the best of both worlds.
See related: Cash back or miles? Ask yourself these 6 questions first, Travel credit card reviews, How cash back cards work, Cash back credit card reviews, Best flat-rate cash back cards of 2018, Rewards credit card reviews