Before deciding on cash back vs points rewards, you should consider redemption value and your frequency of travel. Cash back is best for people who want easily redeemable rewards with low annual fees. Points are better for regular travelers who want higher redemption value and benefits like lounge access and priority airport screening reimbursement.
When to Use Cash-back Rewards
Cash back is best for people who want to earn rewards with straightforward redemption options like statement credits and direct deposits. Cash-back rewards offer more flexibility than points cards because there are no limitations on what you can use the rewards for. Some of the best business credit cards with cash rewards have lower annual fees along with big rewards. Those who want cash with a guaranteed redemption rate should use a cash-back card.
When to Use Points or Miles Rewards
Points-based credit cards are great for people who travel regularly and want benefits that make traveling more comfortable. Miles-based cards work the same way that points rewards do. They both accumulate rewards that can be used on travel and travel-related expenses and are best for frequent fliers who want to maximize credit card rewards.
Most points and miles rewards credit cards offer travel perks not found on cash-back credit cards, like free access to airport lounges and reimbursement for TSA PreCheck. Redemption values also tend to be higher than cash-back cards when used for flights and hotels. Consumers who want to redeem rewards for travel and yield a higher redemption rate should apply for a card that offers points-based rewards.
“Cards that earn points or miles can be trickier to understand, but when used strategically, can generally provide more rewards value per dollar spent than cards that provide cash back. Usually, these point-earning cards are travel-oriented, and either provide the highest rewards value when transferring points to a partner airline, or will earn more points on travel-related purchases. If you do a lot of business travel, you may be best off with one of these cards, but if travel is not a big part of your business, you’ll likely be better off with a card that earns cash back.”
— John Ganotis, founder of Credit Card Insider
Cash Back vs Points: Pricing & Features
To determine which card type is best for you, you’ll need to decide how often you travel, which card benefits you want, and how much you’re willing to pay in annual fees. Cash-back cards have annual fees between $0 and $95, with some standard benefits like extended warranty protection. Points credit cards can charge annual fees as high as $595 because of travel benefits like airport lounge access.
Cash-back Rewards Pricing & Features
Cash-back rewards credit cards offer a variety of features, including introductory bonuses and ongoing rewards. Cardholders looking to get the best value can get a cash rewards card that offers sign-up bonuses with ongoing rewards as high as 5% and higher on select category spending.
The most common cash-back credit card features are:
The best introductory rewards used to be reserved for credit cards that offer points rewards, since those cards typically have higher annual fees. Consumers can now find cash-back rewards credit cards that offer introductory rewards worth $500—and sometimes more. These offers require that you meet spending requirements of $1,000 to $5,000 or more within the first three to six months of opening the card (to qualify for most bonus offers).
Cash-back credit cards that have steeper spending conditions usually offer larger bonuses. A cash-back card offering introductory rewards of $100 may require you spend $500 in the first three months. In contrast, cash-back credit cards, like the Chase Ink Business CashSM card, offer bonuses worth $500 and higher after spending $3,000 in the first three months.
The best cash-back rewards card is the card that returns the highest rewards based on your spending habits. You can find cash-back cards that offer 5% or more on categories like food and office supplies. Other cards offer fixed-rate cash back of up to 2% on all spending. You can still maximize credit card rewards with fixed-rate cash-back cards. Fixed-rate cards tend to be more useful than bonus category rewards for those who don’t want to track spending categories.
There are two types of cash-back credit cards that earn ongoing rewards:
- Fixed-rate: You’ll earn 1% to 2% on all spending regardless of the category.
- Category bonus: You’ll receive a bonus return of up to 5% on certain spending categories. The Discover it® Cash Back card, for example, pays its highest reward of 5% on rotating quarterly purchases, including gas, groceries, restaurants, Amazon.com, and more.
On average, cash-back rewards earn 1% to 2% on everyday expenses and up to 5% on specific spending categories. Credit card cash-back rewards act as discounts on purchases made using the card. However, statement credits may take two to three billing cycles before the credit is posted. Consumers can choose between a cash-back card with a single rewards rate on all spending or tiered rewards on select spending categories.
Cash-back cards can have annual fees, although there are some that do not. Because cash-back cards typically offer fewer luxury benefits than points cards, they often have smaller annual fees. Annual fees for cash-back cards can range from $0 to $95 and higher on average. Business owners who have the Chase Ink Business CashSM card still get ongoing cash rewards, as much as 5% on select spending, without an annual fee.
Cash-back rewards cards usually come with additional features, like extended warranty and purchase protection. However, there are some cash-back credit cards, like the Citi® Double Cash Credit Card, that offer none of the additional perks that come standard with other cash-back cards.
Cash rewards programs can have fewer card perks than some points-based cards like the Bank of America® Premium Rewards® credit card, which offers a host of travel benefits like baggage delay protection and car rental insurance. With cash-back credit cards, it’s often a trade-off between large introductory offers and available card benefits. If you’re looking for airport lounge access, or even cell phone insurance, you should get a travel credit card that earns points instead.
Maximize Credit Card Rewards Redemption
The redemption value on cash-back credit cards is fairly straightforward. If a credit card offers 2% cash back on all purchases, its redemption value is also 2% when redeemed for cash. This means that for each dollar spent on the card, the cardholder should expect to earn 2 cents. Points rewards programs can be more complicated because your earning rate (how many points you earn on a purchase) may be different than the redemption value (the points you needed to collect an award).
You can usually redeem cash-back rewards in a few ways, including direct deposit, statement credits, gift cards, and travel. Earning cash back offers a less restrictive way to redeem rewards compared to airline miles or points, which earn the best return on travel redemption. If you don’t travel much, getting cash back in the form of a statement credit discount is the better option.
Points Pricing & Features
Points-based credit cards offer the same opportunity as cash-back rewards to save on expenses through earning rewards. Like cash-back cards, points credit cards offer introductory bonuses as well as tiered rewards on spending categories like dining, entertainment, gas, and travel. Cardholders also have their choice of points rewards cards with and without annual fees.
The features that come with points rewards cards are:
Introductory offers for points credit cards often include lump-sum bonus points after meeting certain spending requirements. These rewards usually range from 10,000 points up to 100,000 points. In some cases, introductory rewards may be enough to accumulate more than half the points needed for a free travel ticket. Some co-branded airline cards, like the Alaska Airlines Visa Signature, offer discounted companion passes as a form of membership bonus.
Large bonuses come with higher spending requirements. Points cards that offer big introductory rewards can require as much as $25,000 to $50,000 in purchases in the first six months. However, since the value of the points varies depending on how points are redeemed, the spending requirement may be too much for the average consumer. People who spend large amounts on expenses may consider a points bonus a nice incentive.
Just like cash back, points credit cards also come in fixed-rate and bonus category structures. Fixed-rate points usually earn between 1x and 2x points on everyday expenses, while bonus category rewards can earn up to 5x points on select spending. Maximize credit card rewards with a points card by spending and redeeming on travel-related purchases.
The two types of points rewards credit cards are:
- Fixed-rate: You’ll earn 1x to 2x points on all spending regardless of the category.
- Category bonus: You’ll receive a bonus return of up to 5x on certain spending categories. The American Express® Gold Card, for example, pays its highest reward of 4x points on select categories, up to $25,000 a year in purchases.
Points cards are also distinguished by the types of spending they reward most, including travel and purchases at specific types of retailers, like office supply stores or supermarkets. Cardholders can track points and maximize rewards by using their points credit card when it makes the most sense. Most category bonus cards earn 1x points on everyday expenses, so it wouldn’t be ideal to use that card over a fixed-rate card that earns 2x on all purchases.
Credit cards that offer bonus category points charge annual fees that can range from $0 to $595. Generally, points-based rewards credit cards charge higher annual fees, especially if they offer travel benefits like free airport lounge access or Global Entry reimbursements. However, most points credit cards have an annual fee of $95 or less.
Points credit cards are more likely to come with helpful travel features while also including benefits that are standard for cash-back cards like extended warranty protection. Many points cards are tied to travel so they often have excellent perks like airport lounge access, reimbursement for expedited airport security screening programs, and annual travel credits worth $200 or more.
For example, the American Express Business Platinum Card® offers Priority Pass Select membership, inflight Wi-Fi passes, and discounts on Uber and New York City yellow cabs. This particular card also gives cardholders an annual $200 airline credit toward inflight expenses. Points cards like this one are on the high-end of points rewards and usually come with a hefty annual fee. If you spend at least $20,000 a year on travel, it can be worth the cost.
Points and miles-based programs often allow users to redeem rewards through the card issuer’s website. Points can also be used for merchandise, gift cards, hotel stays, and even cash. Points are usually worth about 1 cent per point, but values can reach up to 3 cents when transferring points to partner airlines and hotels.
However, cash redemption is typically 25% to 50% lower than the value of points redeemed for travel. For example, the Chase Ink Business Preferred® offers a sign-up bonus worth $1250 when redeemed for travel. Consumers who opt for the cash equivalent for that same bonus will only get $800. If you want to redeem for cash, you would do better with a cash-back credit card.
“Cash is good for any business and you can never go wrong with cash back. However, if you travel and are loyal to a travel brand, consider a co-branded airline card, hotel travel card, or fuel card. If you travel and typically pick the low-cost option, it might be best to use a general travel rewards card.”
— Gerri Detweiler, Head of Education for Nav
Cash Back vs Points: Ease of Use
Ease of using cash rewards depends on a few factors like redemption and earning ability. Fixed-rate and bonus category credit cards are offered in points and cash-back credit cards. While you can maximize credit card rewards with both points and cash-back cards, cash-back cards are often easier to track than points-based programs.
Cash Back Ease of Use
Redeeming cash back is pretty straightforward, with options like direct deposit, statement credits, and even gift cards. To maximize credit card rewards with cash back, cardholders will need to pay close attention to what category purchases fall in. Bonus rewards categories like dining, gas, and shipping for businesses can earn up to 5%. Consumers who aren’t fans of tracking spending can stick with a fixed-rate cash-back card instead.
Points Ease of Use
Points credit cards are similar to cash-back credit cards when making purchases. Cardholders can either earn fixed-rate points on all purchases or higher points on select category spending on other points cards.
However, fixed-rate points credit cards like the American Express Blue Business® Plus can present a challenge when it’s time to figure out the best method to redeem points for the highest value. Since the goal is to maximize getting the best rate on travel, cardholders will need to plan ahead to ensure they redeem points for travel.
Cash Back vs Points: Taxes
When considering cash back vs points, taxes aren’t usually a problem. Cardholders on either rewards program don’t need to report earned rewards to the IRS, as long as you received them by spending money on your card. In this case, the federal government treats your rewards as a nontaxable rebate.
There is a distinction, however, between credit card rewards you receive for spending money and an offer that comes with no spending requirement. For example, bank account introductory bonuses with cash incentives for account opening without monetary requirements may be taxable. You generally don’t need to worry unless your credit card company sends you a 1099 form. Speak with a tax professional prior to making any decisions.
“Before a business (or consumer, for that matter) ever considers a rewards card, it is imperative to make sure they handle their finances in a very disciplined way. Rewards cards are only for people who pay off the balance on their account in full and on time each month. Otherwise, the interest payments from carrying a balance will cause that business some significant money problems. If you can’t be sure that you’ll pay off the balance in full and on time each month, then you’d be better off getting a card with the lowest APR (versus one with a higher APR and some rewards program).”
— Bill Hardekopf, CEO, LowCards.com
How We Evaluated Cash Back & Points Rewards
We evaluated cash back vs points rewards based on a number of factors, including introductory rewards and redemption options. Although annual fees are considered, there are points and cash-back credit cards that have no annual fees. See methodology in detail.
We used the following criteria to evaluate rewards:
- Introductory offers: One-time bonuses offered upon opening a new card.
- Ongoing rewards: Rewards earned on card purchases.
- Annual fee: The yearly fee charged as a cost of credit card ownership.
- Additional features: Extra benefits that come with the card.
- Redemption: The different ways rewards are allowed to be redeemed.
We reviewed this information by gathering a collection of both cash-back credit cards and points cards. Consumers looking for the best in either category would likely be impacted by two or more of these factors.
The battle of cash back versus points credit cards comes down to how you want to manage and redeem your rewards. Cash-back programs are often simpler than points and they have more flexibility when it comes to redemption methods. However, points rewards cards often offer higher redemption values, particularly if you redeem your points for travel. Choosing what works best for you will depend on which one will best complement your spending needs.