What Type of Credit Card Should I Get (Rewards vs Cash Back)?

Choosing the right credit card for your situation is incredibly important. Not only can different interest rates, credit limits, and rewards make a huge impact on your financial future, even the rewards type can matter a lot. 

So which type of credit card is better, rewards or cashback? Well, the truth is that there isn’t an easy answer to that question. In some cases, a good rewards program might be more valuable than straight cashback, but cashback always gives you more versatility with your rewards. 

In this article we’ll break down the core differences between cashback and points rewards programs, the advantages of each, and when each type of credit card works better. 

Sound good? Great, let’s take a closer look at rewards and cashback credit cards. 

Cash Back Credit Cards

Cashback cards are usually the easier type of credit card for consumers to understand. There are fewer rules and regulations about how you earn rewards, and most cards offer a flat percentage of cashback on most purchases. 

A few cards may offer preferential rewards for certain kinds of purchases though. One common reward is a higher cash-back rate on groceries and household necessities. That’s great for families but may not be a great card for people who are looking for travel benefits. 

Getting cashback can also be a little more complicated than it seems. The best cashback rewards are almost always reserved for cards you can only get with a good credit rating and a history with the bank. 

That doesn’t mean that lower cash rewards aren’t valuable, just that you’ll only get the best offers if you already have good credit and some money in the bank. 

Redeeming Cash Back

Most cash-back cards are relatively simple and you’ll automatically earn cashback on all qualifying purchases. Most banks make you earn a certain amount of cashback before you’re eligible to redeem the reward though, just to cut back on the number of transactions. 

Always read the terms and conditions to learn how cashback is redeemed. In some cases, you may need to apply for higher cashback rewards on qualifying purchases. 

When Is Cash Back The Better Option?

Cashback cards usually have lower rewards, but offer more financial flexibility. They’re great for families and people who want to have more control over their finances. Cashback cards are also less likely to have a fee than rewards cards, which makes them a good choice for people who don’t have a lot of spare spending money. 

Rewards Credit Cards

Most rewards cards either use a points system or a miles system or in some cases both. Once you’ve accumulated enough points you can redeem them for a wide range of rewards. Or, if you have a miles card you’ll be able to turn those miles into plane tickets and other travel benefits. Some miles cards will even let you use miles to pay for restaurants and hotels, in addition to travel expenses like car rentals and luggage fees. 

That’s great for people who like to travel, but the limitations on how you can use miles mean that they aren’t as valuable for non-travelers. 

Points are usually good for smaller redemptions like gift cards, coupons, and cashback on gas, groceries, and other essentials. You can also get redemptions like free meals at specific restaurants, or free nights at certain hotels. 

In some cases, you may be able to redeem points for physical items like headphones, shoes, accessories, and more. But physical rewards are rarer. 

Redeeming Points

Points cards usually make you earn a large number of points before you can redeem them. That means it may take several months to win your first reward, but the rewards are often worth more than the same amount of cashback from your purchases in that time. 

However, you may have to go through a specific website or rewards process to get your rewards, making it more complicated than most cash-back offers. 

When Are Rewards Cards The Better Option?

Most of the time rewards cards are only better if you’re saving up to travel, are a frequent flyer, or stay at the same hotel chain often enough to get one of their cards. However, if you have good credit and are a long-standing customer with certain banks you may be able to get a more versatile rewards card. 

Final Thoughts

Ultimately the right card for your situation is a lot more complicated than just choosing between a cashback card and a rewards card. That said, the very best cards offer both options as a benefit of being a cardholder. If you can get a card that offers both, or that allows you to turn your rewards points into cash-back bonuses, that may be the best of both worlds. 

As always, when signing up for a new credit card consider your current income, debt levels, and the interest on the card. Never sign up for a new credit card if you don’t have the resources to support a minimum level of activity on that card, otherwise, inactivity or missed payments may lower your credit. 

Good luck choosing your next card! We hope this article helps.