Cash back credit cards offer one of the most flexible forms of rewards. But if you want to squeeze more value of your rewards, you may want to consider a travel credit card instead. Here’s how to make the switch.
Cash back credit cards offer one of the most flexible forms of rewards. If you can get cash back in the form of a direct deposit or paper check, you can use the money for just about anything you want.
But if you want to squeeze more value of your rewards, you may want to consider a travel credit card. Some travel rewards programs give cardholders a handful of redemption options that allow them to stretch each point or mile a little further, plus some valuable perks that can save you money.
The advantages of having a travel credit card
There’s nothing inherently wrong with cash back rewards programs, especially if you prefer the simplicity they provide.
“Every situation is different,” says Riley Adams, a CPA and owner of personal finance blog Young and the Invested, and depending on your preferences, a cash back card may be a better choice.
However, there are some benefits of using a travel credit card that can make your everyday spending more rewarding.
Dynamic redemption options
With most cash back credit cards, what you see is what you get. If a card offers 1.5 percent cash back, for instance, you’ll earn $1.50 for every $100 you spend.
With some travel credit cards, however, you could get more than one cent per point or mile, depending on how you redeem. With the Chase Sapphire Preferred Card, for example, you’ll earn 2 points per dollar on travel and dining, plus 1 point per dollar everywhere else.
When it comes time to redeem your points, you’ll get 25 percent more value if you use them to book travel through Chase Ultimate Rewards. That gives you an effective rewards rate of 2.5 percent on travel and dining and 1.25 percent on everything else.
What’s more, you can transfer your points to one of Chase’s airline or hotel partners. According to CreditCards.com data, redeeming this way can get you up to 2.36 cents per point on average — that’s an effective 4.72 percent rewards rate on travel and dining and 2.36 percent rate on everything else.
“Frequent travelers will reap the most benefits of a travel card,” says Tammy McIntosh, senior vice president of customer rewards for PNC Bank, “both from an earning as well as a redeeming standpoint.”
Don’t leave your points or miles to gather dust, though, says Jim Miller, vice president of banking and credit card practice at J.D. Power.
“Over time most points or miles become less valuable,” he adds, especially with airline and hotel rewards programs.
Many credit cards offer basic travel protection benefits, including rental car insurance and roadside dispatch. But with some travel credit cards, you may be able to get a lot more than that. One example is the United Explorer Card. With it, you’ll get:
- Trip cancellation and interruption insurance: If your trip is canceled or cut short by sickness, injury or another covered situation, you can get some or all of your passenger fare reimbursed.
- Trip delay reimbursement: If you’re traveling on a common carrier, such as an airplane or train, and your travel is delayed 12 hours or more or requires an overnight stay, you may be covered for certain unreimbursed expenses, including meals and lodging.
- Baggage delay insurance: If your luggage is delayed by six hours or more, you can get reimbursed for essential purchases like toiletries and clothing.
- Lost luggage reimbursement: If your luggage is lost entirely, you can get reimbursed up to a certain amount for the items you need to replace.
- Primary rental car insurance: With most credit cards, your rental car insurance is secondary. This means that if you have a personal auto insurance policy that covers rental cars, you’d need to file a claim on that policy first then your credit card coverage will pick up whatever is left over. With primary rental car insurance, your card’s coverage kicks in first.
In addition to trip protections, several travel credit cards also offer extra travel-related benefits that add even more value when you travel. With some cards, the value of these perks easily outweighs the cost of the annual fee.
“Airline cards can get you early boarding and improve the odds of getting overhead space for your carry-on,” says Miller. “Baggage fees are expensive, and most airline cards have free baggage benefits. Some of the airline cards also offer a free companion ticket.”
With a hotel credit card, you might get elite status with the hotel brand and possibly even a free night’s stay every year.
Some general travel credit cards offer credits for certain expenses, such as airline fees, application fees for Global Entry or TSA Precheck or even everyday travel costs.
If you travel frequently and can afford a steep annual fee, premium travel cards like The Platinum Card® from American Express offer complimentary airport lounge access, rental car discounts and upgrades, private jet access and more.
See related: Make the most of your card’s travel credits
How to make the switch from cash back to travel
Even if you travel even just once or twice a year, it may be worth it to take advantage of the features a travel rewards card provides. Here are some steps to take.
Do your research
With so many travel credit cards and rewards programs available, it’s important you take your time to find the right fit for you. For example, while airline and hotel credit cards offer perks specific to the brand, they don’t offer the same flexibility with redemption as general travel cards.
Even among general travel cards, some programs are more flexible than others.
Run the numbers
While there are some no-annual-fee travel credit cards, most of the best ones have an annual fee. According to McIntosh, though, that’s not necessarily a bad thing. The key is to find one that offers enough value between rewards and perks that the fee is effectively neutralized.
One easy example is the Bank of America® Premium Rewards® credit card — it has a $95 annual fee but also offers an annual $100 airline incidental fee credit. Hotel credit cards that offer a free night’s stay each year can also be an easy way to get your money back, and potentially even more.
Over time, though, consider reevaluating whether the annual fee is still worth it.
“If you forget about [an annual-fee travel card] and no longer use it regularly,” says Adams, “it can sit in your wallet and cost you money.”
Consider using both
Having both a cash back and travel rewards credit card in your wallet can help you potentially maximize the value you get every time you spend money.
That’s especially the case if you have a card like the Chase Freedom or Blue Cash Preferred® Card from American Express, which offer lucrative rewards on certain purchases. When it’s time to swipe, simply use the card that will give you the most value for that purchase.
“You want to choose the credit card that gets you the most rewards for money you’re already spending,” says Adams.