Cash Back vs. Points — Which Credit Card Rewards Program is More Valuable?

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The ability to earn rewards on your everyday spending is one of the best perks that credit cards have to offer. But if you're shopping for a new rewards credit card, you'll most likely find yourself confronted with an important choice—cash back vs. points. 

Both cash rewards and travel rewards can offer you some valuable redemption opportunities. As a result, choosing the right type of rewards credit card is going to depend a lot on your habits and your preferences. 

This guide will give you an overview of both types of credit card rewards programs. Understanding how cash back and points work is the first step in determining which credit cards are the best fit for your lifestyle. 

How Cash Back Credit Cards Work

Cash back credit cards give you a chance to earn extra cash back on the purchases you make. Some cards in this category offer a flat rewards rate (often 1%-2.5%). This type of cash rewards structure makes it easy to understand how much cash you can earn on each eligible purchase. 

The Citi^® Double Cash Card, from our partner Citi, is an example of this simple type of cash rewards program. This card offers 2% cash back—1% at the time of purchase and 1% when you pay your bill. So, if you use the card to spend $1,000 on eligible purchases and pay off your balance right away, you could earn $20 cash back with this account.

Other cash back cards may feature different rewards rates—one rate for standard purchases and another higher rewards rates in certain spending categories. The Blue Cash Preferred® Card from American Express, for example, gives cardholders the chance to earn 6% cash back at supermarkets and 3% cash back at gas stations in the U.S. 

Cash Back Pros and Cons

The beauty of a cash back credit card (especially a flat-rate cash back card) is its simplicity. It's typically easy to understand how much cash you're earning on purchases. And when it's time to redeem the cash you earn, you have a lot of flexibility to use those funds as you wish. Additionally, many cash back credit cards feature no annual fee. 

As far as drawbacks go with cash back credit cards, the biggest issue is rewards earning power. If you're willing to do some extra legwork, the points and miles you earn on a rewards credit card might go a lot farther than cash rewards. Even the sign up bonuses on cash back credit cards tend to be more modest than those you might be able to find with more traditional rewards credit cards. 

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How Rewards Credit Cards (with Points) Work

A rewards credit card allows you to earn points or miles when you make an eligible purchase with the account. You can save up these rewards and redeem them for free travel, experiences, gift cards, and more. (Note: The value of the rewards you earn can often offset any annual fee on the account by a long way, though some rewards cards are available with no annual fee if you prefer that option.)

Most rewards credit cards don't offer a flat-rate rewards structure. Instead, these cards tend to feature category spending bonuses that you'll want to match with your spending habits in order to get the best rewards possible. 

If you're someone who spends a lot on travel, for example, then a card like the Chase Sapphire Reserve® that offers 3x to 10x rewards on various travel purchases might be worth considering. Likewise, people with sizable grocery bills might benefit from having a rewards card with category bonuses for supermarket purchases in their wallets (such as the American Express® Gold Card with 4x rewards at grocery stores). 

Credit Card Points Pros and Cons

The biggest appeal of rewards credit cards is in the potential redemption value of the points and miles they offer.  People can often redeem the rewards they earn from sign up bonuses and everyday spending for vacations that would cost thousands of dollars if they were paying out of pocket. You do want to avoid certain mistakes with rewards credit card redemptions, however, or you could miss out on a lot of their potential value.

Rewards credit cards may also come with valuable benefits on top of generous rewards rates. Annual travel credits worth hundreds of dollars, airport lounge access when traveling, and generous statement credits are just a few examples of the extra perks a rewards credit card might offer.

Choosing the Best Credit Card for You

Even after you decide whether you prefer cash back or rewards credit cards, it can be tough to choose the next account to add to your wallet. But if you figure out the answers to the following two questions, the selection process should be easier to navigate.

1. What is the condition of my credit? Knowing what your credit score and credit report looks like at this moment can help you make sure to apply for accounts for which you're more likely to qualify. 

2. How do I spend my money? This information can help guide you toward credit cards that will offer you the most lucrative rewards rates in your biggest spending categories. 

Note that the ability to build good credit history is perhaps the biggest perk that any credit card can offer you. Whether an account gives you cash back, points, miles, or nothing at all on your purchases, it's imperative to manage the account responsibly and always pay on time.

You also want to be sure to pay off your full statement balance each month. If you carry a balance over from one month to the next (and you don't have a 0% APR offer), the interest you pay on your purchases will almost certainly overshadow the value of any cash back or rewards you earn.