Cash Back vs. Travel Rewards: Choosing Credit Card Rewards

Written by Justin EstesUpdated: 1st Sep 2021
Share this article

Disclaimer: This post contains references to products from one or more of our advertisers. We may receive compensation (at no cost to you) when you click on links to those products. Read our Disclaimer Policy for more information.

Choosing a credit card that balances your spending habits and optimizes your reward earning potential is a powerful way to make your finances go further and enjoy a higher quality of life.

You probably see advertisements every day for the next big travel credit card or cash back card that earns the most on the market.

But how do you choose the right one?

One of the keys to finding the right credit card is understanding the difference between cash back and travel rewards cards and applying for one that will help you reach your financial goals.

For example, if you really want to purchase a new tv, but don’t want to pay for it out of your regular budget, a cash back credit card may provide the extra cash to buy it.

On the other hand, you may have a strong desire to visit Scotland, and a travel rewards card can help you get there for free or at a serious discount.

Today we will be discussing the difference between these two popular credit card styles and how you can choose the best option for your finances.

Cash Back vs. Travel Rewards Overview

Before we dive into picking the right card, it’s vital to have a firm understanding of what makes travel and cash back cards unique.

While they both generate rewards from your spending habits, they have very different valuation and redemption methods.

Understanding Cash Back Rewards

Cash back rewards are a flexible and straightforward way to recoup money from your everyday spending by receiving monthly cash back bonuses for eligible rewards spending.

Let’s say you have a cash back credit card that earns 5% on groceries, and you spend $500 on groceries this month.

If you put the grocery purchases on your cash back credit card, you will receive $25 worth of cash back at the end of the month.

Do you remember that TV example from earlier? If you maintained a similar spending pattern throughout the year, you would earn close to $300 in cash back which could either pay for a new TV altogether or cover a big chunk of a very nice TV.

The best part is that you wouldn’t need to do anything extra aside from your normal spending to earn the rewards.

>> More: How Do Cash Back Credit Cards Work?

Why Should You Get a Cash Back Rewards Card?

Cash back rewards cards are an excellent option for consumers who want to make their money

go the farthest in their everyday spending.

Look at your current monthly bank or credit card statement. You should be able to identify your largest average expenses, which could be groceries, dining, streaming services, or delivery.

Regardless of your largest expense, there is most likely a cash back rewards card that will generate between 1%-5% back on those purchases, which could help you save lots of money over the long term.

Understanding Travel Rewards

Travel rewards credit cards operate similarly to cash back rewards cards because you earn a fixed percentage back on your spending, but instead of applying the accumulated reward balance to your statement, you can use travel rewards points to pay for travel, including flights and hotels.

Different banks and credit card issuers generally offer traditionaltravel rewards cards that earn flexible points that you can transfer to a travel partner or book directly through their travel portal.

They offer co-branded credit cards that offer magnified rewards with a particular hotel chain or airline.

Why Should You Get a Travel Rewards Credit Card?

If you like to travel or want to begin traveling soon, a travel rewards credit card is one of the simplest and most powerful tools to save money on travel expenses and enjoy an enhanced travel experience.

Once you have a travel credit card, you will have access to other perks, which can include airport lounge access, travel credits, frequent flyer loyalty status, and more.

>> More: How Do Travel Credit Cards Work?

How Are Cash Back and Travel Rewards Different?

The primary difference between cash back and travel rewards credit cards is how the rewards are designed to be used.

Cash back rewards are usually applied directly to your credit card balance so that you save money on your monthly spending.

Travel rewards points and miles are used to pay for travel expenses and reduce the amount you pay for flights and hotels while still helping you reach your travel goals.

Is Cash Back or Travel Rewards More Valuable?

Many travel rewards credit cards have a “twin” cash back card issued by their bank, and neither is more inherently valuable than the other.

For example, if you have no intention of traveling, then racking up travel points may cost you more time and effort than the same amount of spending would earn for you in cash back.

However, if you are willing to pay an annual fee, some of the premier travel credit cards offer introductory spending bonuses in excess of $1,000, depending on how you use them.

Do Travel Rewards Expire?

Most travel rewards programs today offer points that do not expire or blackout. Although a few programs are still on the market that may have expirations for account inactivity, most large banks let you keep your points indefinitely as long as your account is open.

Who Are Travel Rewards Best For?

Travel rewards cards are the best for travelers who want an elevated travel experience and also want to get the most bang for their buck.

Most mid-tier travel credit cards can easily knock a couple of hundred dollars off the price tag of an average trip, whether in-flight upgrades or free nights at a hotel.

Who Are Cash Back Rewards Best For?

Cash back rewards are best for consumers who want to save money and optimize their current spending habits.

By getting a cash back card that can immediately give them between 1%-5% of their average spending, they can optimize their finances and save money at the same time.

Bottom Line: Cash Back vs. Travel Rewards

Cash back and travel rewards cards are designed to help get consumers where they want to go with their personal finances.

Whether you want to use a travel introductory spending bonus to book a ticket or save up cash back to buy something nice for yourself, there are plenty of options on the market. Just remember to do your research!

Justin Estes
Justin Estes

Justin Estes is a Senior Personal Finance Writer who is a recognized small business accountant, consultant, and credit card expert. His background in accounting and finance led to a passion for helping people make the most of their money and matching them with financial products that enhance their lifestyle. Justin attended Charleston Southern University where he double-majored in Finance and Accounting. Justin’s areas of expertise are credit cards, small business finance, accounting, and taxes.