Cash back vs. Points: Does It Make a Difference?

When choosing your next credit card, the typical question is cash back vs. points, which is better?  And does it really make it difference.

Two of the three major types of credit card rewards, along with miles – is that points have a value set by the credit card issuer. And they won’t always tell you what that is, at least not clearly. You can spend points for many different things, but cash back will always be more versatile and consistent, as there are no restrictions on what you can use it for. Cash back is real money and, as such, keeps its value.

But points can still be better for people who like to travel. That’s because a lot of points credit cards give more points for travel purchases and offer the best value when you redeem those points for travel. You can usually redeem points for not just travel, but also cash back, merchandise, or charitable donations. But you’ll typically get much less for the non-travel options.

Cash Back vs. Points: What’s the Difference?

  • Options: Citi Double Cash is your best bet for a cash back card, while  Chase Sapphire Preferred is best for points.
  • Rewards: You’ll probably earn 1% cash back or 1 point per $1 spent on most purchases. Credit card points are usually worth about a cent each, so they’re about even on average.
  • Drawbacks: Points can be devalued by the credit card issuer, and they can be redeemed for fewer things. Cash back cards may hold back frequent travelers from getting as many rewards as they could with a points card.

Let’s take a look at two high-profile cards for examples of the best cash back and points rewards.

Citi Double Cash tops the cash back offerings with 2% cash back on all purchases and 18 months of no interest on balance transfers. It also doesn’t charge an annual fee, and requires good credit to get.

But if you have excellent credit and you’re a frequent traveler, Chase Sapphire Preferred is a more attractive option. It gives 2 points per dollar on travel purchases and 1 on everything else. It has an initial bonus of 50,000 points when you spend $4,000 in the first 3 months. Points are worth 1 cent each normally or 1.25 cents when you redeem them for travel. There’s a $95 annual fee, which is waived the first year. It requires excellent credit.

For both cash back and points cards, you can expect to lose your rewards if your account closes. Most cards don’t let your rewards expire over time, although Citi Double Cash’s cash back expires if you don’t use your card for 12 months. And on points cards alone, your points can be devalued if the issuer decides to charge more points for its rewards, so frequent redemption is essential.

So the bottom line is frequent travelers should check out points cards. Otherwise, cash is king.