Cash back credit cards are by far the most popular type of credit cards for consumers (close to 70% of people with credit card rewards preferred cash back). Yet, many people assume they want a travel rewards earning card simply because they like to travel and think that travel rewards benefit them the most when in reality they’d be better off with a cash back card.
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One of the biggest considerations you should think about before choosing between cash back versus travel rewards is if you are savvy enough with travel credit card rewards to actually use them in an effecient way.
Many people find travel rewards just too daunting and understandably so. There are tons of airlines, complex award charts, black-out dates, and other headache-inducing rules and policies to get acquainted with. All of these can make travel rewards overwhelming at times and some folks just don’t have the time or patience for it.
If you feel this way then travel rewards credit cards that earn transferrable points or miles for certain airlines might not be the best option for you. Instead, you might be better suited for cards that earn true cash back or cash back equivalents in the form of travel currency or even gift cards.
True cash back cards would be cards like the Citi® Double Cash Card that earn 2% back on all purchases (1% at the time of purchase and another 1% once you pay off your statement). These cards are very straightforward. You always know you’re earning 2% back and you can apply those savings to any purchase for a 2% rebate. For those attracted to simplicity this might be the best route.
Other cards operate similar to cash back credit cards but limit your redemption options to travel. For example the Barclaycard Arrival Plus World Elite MasterCard® earns 2% back but only when those points are redeemed on travel purchases (in reality it earns slightly more than that due to a 5% rebate). For these cards, you can only redeem statement credits on qualifying travel purchases. This means these cards come with a bit more restrictions than other true cash back cards so they’re not quite as simple to use but they are still easier than dealing with transferrable points.
I should also note that you can generally redeem points earned from travel rewards cards for cash back or through travel portals that allow you to circumvent having to transfer points and use award charts. Some of these travel portals, such as the Chase Travel Portal, will allow you to redeem points for travel bookings like airfare and hotels at pretty decent rates that can offer great value.
However, when it comes to using travel rewards points for cash back earnings, you typically give up a lot of value that could be maximized by transferring those points to travel partners. Thus you usually don’t want to get a travel rewards card just to earn cash back.
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Cash back credit cards are not generally known for having very valuable sign-up bonuses. Where a travel card might easily offer $500+ worth of travel for a sign-up bonus, cash back credit cards will often offer much less valuable sign-up bonuses in the realm closer to $200 (although this is not always the case). In fact, some cash back cards like the Citi DoubleCash don’t offer any sign-up bonus at all.
As explained below, don’t allow the lack of a sign-up bonus to deter you from pursuing a cash back credit card. Some cash back cards don’t have sign-up bonuses but they have great earning structures and no annual fees that make them a lucrative option for long-term use.
Annual fees are important to pay attention to when choosing credit cards but especially cash back cards. This is because there is very little (if any) subjectivity that goes into calculating the value received by cash back credit cards. If your card earns 2% back then you know you’re getting back $20 when you spend $1,000 versus if you earned points on a travel credit card your value received would depend on the valuation of the points and potentially other perks offered by the card.
So when you come across a 2% cash back card offering a $95 annual fee you know you need to spend at least $4,750 annually just to break even on the annual fee since $95 is 2$ of $4,750. If you knew you were only going to spend $4,000 in a year then it would not make economic sense to pay $95 for the annual fee since you’d be at a net loss.
This is why no annual fee cash back cards are so great for use in the long run. There is no annual fee that will cut into your cash back earnings so you know you’re always coming out on top. This is also why the need to downgrade or product change your card might be needed when seeking certain cards since you’ll always want to mitigate the annual fee as much as possible.
Just like many travel credit cards, many cash back cards offer bonus categories for spending. Some like the Discover it and Chase Freedom offer quarterly bonuses up to 5% back on select product categories while others like the Blue Cash Preferred® Card from American Express might give you bonuses for certain categories like: gas, supermarkets, or other categories. These bonus categories can greatly enhance your cash back earnings so you should always try to maximize your earnings with bonus category spend.
Cash back cards can also be a good way to supplement your spend on travel rewards cards. For example, it might be in your best interest to use a cash back card for purchases that won’t code as a bonus category on your travel rewards card in order to maximize your earnings. This won’t always be the case but sometimes it is.
Foreign transaction fees
It’s becoming very difficult to find travel credit cards with foreign transaction fees. However, it’s much more common for cash back cards to have foreign transaction fees so you always need to be on the lookout for these if you like traveling. Issuers like Discover and Capital One are known to offer no foreign transaction fees even with no annual fee credit cards so their cards can be good options.
Cash back cards can be great because they offer simplified ways to earn rebates on your spending. You’re not able to exploit reward points for maximum value but you can still earn a decent return around 2% and won’t have to hassle with confusing and complex reward systems.
Daniel Gillaspia is the Founder of UponArriving.com and the credit card app, WalletFlo. He is a former attorney turned travel expert covering destinations along with TSA, airline, and hotel policies. Since 2014, his content has been featured in publications such as National Geographic, Smithsonian Magazine, and CNBC. Read my bio.