Credit Card Rewards: Travel vs. Cash Back vs. Points. Which is the Best Card for You?
, by Rob Kaufman
There are a lot of different types of credit cards out there, and almost as many reward programs to match. So how do you figure out which type of reward program works best for you, your family and your lifestyle?
The first step to answering this question is to know some of the different kinds of reward programs available. The second step is to determine which program offers you the biggest bang for your buck.
Reward Program Types and Benefits
Reward Points cards let you accumulate points based on the reward program's structure. Once you obtain a certain number of points, you can use these points to purchase a variety of items, from gift cards and electronics to travel and jewelry.
Cash Back cards earn you cash rewards based on your purchases. From groceries and gas to dining and office supplies, you'll earn "cash" that you can redeem when it comes time to pay your credit card bill.
Travel cards are available in two types. The first is more hotel/airline-specific: when you stay at a specific hotel brand or use a specific airline, you earn points for future stays/travel with that brand name. The second kind of travel card is broader in the sense that any purchases you make accumulate points that can be used for any type of travel.
Gas cards also can be general or specific. With the more general gas cards, you can get points for almost any kind of purchase but will receive extra points if you purchase gas or auto services. A more gas company-specific card will give you those extra points only when you purchase services from that specific gas company.
Airline Mile/Frequent Flyer cards enable cardholders to get points on purchases and then redeem them to help pay for airline tickets. Airline-specific cards are associated with one airline, and points are accumulated using that card for everyday purchases and purchases made with that specific airline. Typically, you'll also receive extra points for flying with that airline. There are more "generic" airline cards on which you can receive points for everyday purchases and use those point towards any airline purchase. However, since you don't have "allegiance" to one specific airline, you won't receive those extra points mentioned above.
Pick a Card... Any Card...
So now that you have an idea of the different kinds of reward cards available, which type would maximize your savings (and minimize your spending)?
Let's start with Travel credit cards . According to a NerdWallet survey of more than 2,000 adults over 18 years of age, it was found that domestic travelers who spend less than $8,600 per year on travel actually earn more rewards with a cash-back card than with a travel rewards card.
Another important finding had to do with the length of time you have your travel credit card. Travel cards often offer high signup bonuses in the first year and therefore net the most rewards for cardholders during the first few years. As time passes, however, the ongoing reward rates and low fees of cash back cards tend to hold an advantage over those of travel cards.
Again... it all depends on how much you travel - both domestically and internationally. If you travel a lot and find that the rewards you get with a travel card (less any annual fee) are more favorable than with those of a cash back or other types of credit card, the answer to which type of rewards card you should get is obvious.
If you're uncertain as to how much travel you're going to do or just can't make up your mind, you might want to think about the more generic reward cards that offer points that can be used for anything - including travel. This gives you the ability to accumulate points and then decide on the best option for redeeming them. If it makes more sense at that time of your life to use the points for travel, have at it. If not, buy yourself some gift cards or a nice watch. In the end, do what makes you happy and what makes your wallet feel good.
Cash Back Cards and Fine Print
If you decide you want to try (or stick with) a cash back card, be sure to do the math. When we see numbers like 3% cash back or 6% cash back on what we spend, we often become mesmerized. It's important to understand that the higher rebates may be more difficult to get. For instance, some cash back cards may give you 3% back on groceries and 2% back on gas. All other purchases have a return of only 1%. Check the numbers (and the fine print) on any cash back card before submitting your application. When you realize you've found the best deal, you'll be glad you did the research.
As stated at the start, one card doesn't fit all. Choosing the best reward card depends on what's important to you, how you spend your money and what feels "right" each time you use your card.
See what credit cards other myFICO members are using to get maximum rewards. Visit myFICO forum any time to get the latest advice and recommendations.