At Experian, consumer credit and finance education is our priority. This post may contain links and references to one or more of our partners, but we provide an objective view to help you make the best decisions. For more information, see our Editorial Policy.
In this article:
When you're deciding between a cash back and travel rewards credit card, know that there's no wrong choice. In either case, you'll reap rewards when you use your card. But one type of program may be better than the other depending on your spending habits, goals and willingness to invest time into getting the most out of your credit card rewards.
If you'd prefer to be hands-off and collect rewards as they come, a cash back program might be best. But if you're intrigued by the idea of optimizing rewards and travel hacking, a travel rewards card could offer more value.
How Rewards Credit Cards Work
Rewards credit cards work like non-rewards cards for the most part, but they offer extra value when you use your card for eligible purchases. Plus, many rewards cards come with additional benefits, such as statement credits that can offset certain purchases and cardholder perks that can make travel more pleasant and less expensive.
The trade-off is that rewards cards often have higher annual percentage rates (APRs) than non-rewards cards. If you don't habitually pay your bill in full every month or if you use credit cards for cash advances, consider looking for a non-rewards, low-rate card instead. If you pay your bill in full or keep balances very low, then learn about how rewards credit cards work so you can make an educated choice on what type is best for you.
One reason rewards cards charge more interest is that they also offer cardholders valuable rewards. Generally, rewards come in several forms:
- An intro bonus: Many rewards cards offer new cardholders bonus points, miles or cash back if you use the card to spend at least a certain amount on purchases (sometimes called the "minimum spend") within the first few months as a cardholder.
- Rewards on purchases: Rewards credit cards will also offer you rewards each time you make a purchase with the card. The amount of rewards you'll earn can depend on the card's program and what you're buying—one card might offer 1.5% cash back on every purchase, while another offers 2 points per dollar spent on travel and dining purchases.
- Extra incentives: Some credit cards occasionally offer extra rewards-earning opportunities. For example, a card issuer may offer bonus points if you use an app it's recently launched, or if you spend a certain amount on purchases with the card.
While the intro bonus can provide a great headstart on rewards, it's generally best to focus on purchase-related rewards when determining which rewards card will be a good long-term fit. Usually, you'll earn purchase-related rewards in one of three ways.
Types of Rewards Programs
Both cash back and travel rewards cards typically offer rewards on purchases in one of three ways:
- Flat-rate rewards: Earn the same amount of rewards on every purchase.
- Tiered rewards: Earn bonus rewards on certain types of purchases (such as dining, travel or gas), and a base rate on purchases that aren't in the bonus category.
- Rotating rewards: Earn bonus rewards on certain types of purchases that rotate throughout the year, and a base rate on purchases that don't fall into the bonus category.
There are also sometimes caps on the bonus rewards you can earn with tiered and rotating rewards programs. For example, the Chase Freedom® card offers 5% cash back on the first $1,500 in combined purchases from rotating categories each quarter you activate. From January through March 2020, for example, the categories are gas stations; internet, cable and phone services; and select streaming services.
Or, there's the tiered-rewards Blue Cash Everyday® Card from American Express that gives you 3% cash back on the first $6,000 you spend at U.S. supermarkets annually (and 1% thereafter). You can also earn 2% cash back at U.S. gas stations and select U.S. department stores, and 1% cash back on other purchases. Compare these types limits to your usual spending when you're deciding between cards.
When to Get a Cash Back Credit Card
Cash back credit cards offer cash rewards and may be best if:
- You want a simple rewards program.
- You don't want any limits on how you'll use rewards.
- You want to avoid annual fees.
Depending on the card and program, you may get your rewards as a statement credit, check or transfer to a bank account. With some cards, you'll need to accrue a certain dollar amount in rewards (such as $25) before you can withdraw the cash.
Cash back cards are often easy to understand and use because you know exactly how much the rewards are worth. And although some cash back cards have annual fees, the fees tend to be lower than travel rewards cards' annual fees.
Some of the best cash back cards, such as the Citi® Double Cash Card - 18 month BT offer (flat-rate rewards), Capital One® SavorOne® Cash Rewards Credit Card (tiered rewards) and Discover it® Cash Back (rotating rewards) don't have an annual fee at all.
When to Get a Travel Rewards Credit Card
Travel rewards cards offer points or miles as rewards and may be best if:
- You frequently travel or want to use your rewards for vacations.
- You're ready to invest time in learning about rewards programs.
- You don't mind paying annual fees in exchange for more rewards and benefits.
You can either get a co-branded travel rewards card, such as an airline or hotel card you can use to earn points or miles in the company's loyalty program, or a general travel rewards card that offers points or miles in the credit card's rewards program.
A co-branded card may be best if you frequently fly or stay with the same few brands. In addition to earning points or miles from your purchases, some cards offer extra perks, such as free checked bags, status in the company's loyalty program or an annual voucher for a free hotel night.
General travel rewards cards offer fewer brand-specific perks, although some do have partnerships with specific brands. They also give you more freedom when it comes to redeeming rewards.
For example, with Chase Ultimate Rewards or American Express Membership Rewards, you can choose to redeem your points for cash back, merchandise, gift cards or travel. You can also transfer your points to partner airline and hotel loyalty programs, which could allow you to book a rewards flight or stay for fewer points than your card issuer would require.
To make the most of your points, you'll want to learn about the many redemption options and which ones offer the most value. Often, it's booking travel with points or transferring the points and then booking rewards travel.
The travel cards with big earning power and extra cardholder perks have annual fees that can range from around $100 to $550 per year. While it can be an expensive investment, frequent and luxury travelers may find the benefits far outweigh the cost.
There are also travel rewards cards that don't have an annual fee, but they often offer a similar level of rewards (or sometimes less) than you can earn with a cash back card that doesn't have an annual fee. Whether you're leaning toward a cash back card or a travel rewards card, consider how you plan on using your card, where you spend the most money and which type of rewards program makes the most sense. Many rewards cards have annual fees, but don't rule out those cards before reviewing the benefits. Often, and especially if you travel frequently, the benefits can justify the cost. Foreign transaction fees can also be important if you travel abroad, but there are cash back and travel rewards options that don't charge this fee. If you want to browse rewards cards, you can use the Experian CreditMatchTM tool to easily compare cards' rewards programs, intro bonus and annual fees. You can also filter the results based on the type of rewards you'll earn.
In Either Case, Consider the Rewards Rates and Fees
Whether you're leaning toward a cash back card or a travel rewards card, consider how you plan on using your card, where you spend the most money and which type of rewards program makes the most sense.
Many rewards cards have annual fees, but don't rule out those cards before reviewing the benefits. Often, and especially if you travel frequently, the benefits can justify the cost. Foreign transaction fees can also be important if you travel abroad, but there are cash back and travel rewards options that don't charge this fee.
If you want to browse rewards cards, you can use the Experian CreditMatchTM tool to easily compare cards' rewards programs, intro bonus and annual fees. You can also filter the results based on the type of rewards you'll earn.
All information about the Chase Freedom® has been collected by Experian and has not been reviewed or provided by the issuer of the card. Offer details may be outdated.