It’s crucial to consider your spending patterns and objectives while searching for a new credit card. For example, do you want to earn rewards for specific purchases, or would a flexible cashback card suit your needs? Reviewing the annual fees charged by different cards is also a good idea. It will help you determine if they are worth it for you or not.
Rewards Programs
Both cash back and rewards points credit cards can offer a good value for your spending, but it is important to understand the difference between them before you apply. Cash back rewards you with a fixed dollar amount for each purchase, while points and miles credit cards reward you differently depending on your spending and redemption options. When choosing a rewards credit card, look at the card’s earn rate, welcome bonus, annual fee, and additional benefits. Then, select the card that best suits your spending habits and rewards redemption preferences.
Some credit cards offer a fixed amount of cash back on all purchases, while others provide a greater reward rate in a few, maybe monthly-changing areas. You can earn rewards from other credit cards in the form of points that can be used to buy goods, book travel, and more. If you travel frequently, consider getting a travel rewards credit card that entitles you to benefits like free checked bags, seat upgrades, and access to airport lounges. But a simple cash-back credit card might work best for you if you don’t have a particular trip. In either case, you must make your monthly credit card payment in full to prevent interest charges that can reduce the value of any points you earn.
Rewards Redemption Options
The redemption options for each card type also determine whether it’s best for you. While many rewards cards offer redemption options, including gift cards, merchandise, and travel vouchers, cash back is usually more straightforward. In most cases, you can redeem your money back as a statement credit to offset some of your expenses or even directly to your bank account (though this option may require meeting certain minimum redemption thresholds). Redeeming points or miles is more complex than utilizing cashback rewards. Points can be redeemed for specific merchandise, flights, or hotel stays with fluctuating values depending on market conditions. For this reason, a card that earns rewards in the form of points might be best for those with specific redemption preferences who want to maximize their points’ value.
A flexible redemption option may be important for you, especially if you plan on paying down your balance with your credit card rewards or investing them. In this case, a credit card with an option to redeem for a statement credit might be more advantageous than one that earns cashback. Additionally, the ability to apply your rewards toward your existing credit card balance could be helpful if you’re trying to reduce interest charges or save on interest fees.
Annual Fees
As with any credit card, the annual fee on a rewards card will impact your overall cost of ownership. Some cards will come with higher annual fees than other reward cards. It’s important to understand the card’s annual fee structure, including fees for balance transfers, cash advances, and foreign transactions. Aside from the annual fee, you’ll want to examine the credit card’s reward rates and bonus categories before deciding. Many cards offer varying rate rewards in specific spending categories, like 2% back on groceries or gas, while others will earn a flat rate of cash back for all purchases.
Rewards redemption options can also make or break a rewards card. Many cards let you redeem your points for various items, including gift cards and merchandise the card issuer offers. Other cards allow you to use your earned rewards to purchase an airline ticket or hotel stay. The debate between cash back and rewards credit cards can seem never-ending, with reports and people claiming that one type of card is better. The truth is, it all depends on your unique spending habits and preferences. If you’re a frequent traveler, a travel rewards credit card may be best for you. If you’re looking for a simpler credit card or don’t travel frequently, a cash-back card might be a better fit.
Requirements
Your best cash-back credit card may depend on your spending habits and lifestyle. Suppose you only travel a little or care about using your rewards strategically toward lofty travel goals. In that case, you may be better suited to a cashback card that offers a flat earnings rate that doesn’t require keeping up with rotating bonus categories. On the other hand, if you want to maximize your rewards value by redeeming for airline or hotel travel, consider an airline or mileage credit card. In either case, consider whether you’ll be able to meet redemption minimums or any other requirements of the credit card you’re considering before you apply. For example, some miles or points cards offer the option to redeem points for merchandise in addition to airline tickets and hotel stays. However, the value of these purchases can often be lower than what you’d get if you used the same points or miles to purchase travel with the airline you frequent the most. Generally, credit card rewards come with many benefits and advantages. The right card depends on your preferences and lifestyle, including how much effort you will put into earning and redeeming credit card rewards. To help you choose the best card for your lifestyle, we’ll compare cash back and travel reward cards by typical annual fees, reward redemption options, and potential side perks like priority boarding or free hotel nights.
