Rewards or cash back? A benefit breakdown

When used responsibly, credit cards can be a fantastic way to pay for things we need (or want). One of the obvious perks of using a credit card is… well, perks! Most cards offer benefits like accruing reward points or earning cash back. But which perk is best for you? Here, we’ll walk through the differences, the benefits of each, and scenarios in which they may come in handy.

Types of rewards

Credit card rewards are earned when you make a purchase with your credit card, thanks to a collaboration between the issuing bank and the merchant (in case you were wondering how that works). Depending on the card, these rewards can be in the form of cash back, specific points such as airline miles or hotel rewards, or flexible reward points that could be redeemed for gift cards, merchandise, and other goodies (often including cash back as an option).

Some credit cards offer additional rewards periodically when you patronize certain categories of merchants, like grocery stores, to encourage you to use the card at these stores. Cash back and reward points may be redeemed as a statement credit for your monthly bill, through online purchases, or by check. Miles and travel-specific points may be redeemed through travel booking portals for discounted flights and hotel rooms.

The skinny on reward points

Cards that offer flexible reward point options are a simple and versatile choice to consider: simple because redemption is often as easy as visiting your card’s site or portal, and versatile because of the varied options from which to choose.

The beauty of this type of card is its flexibility. If, after consulting your budget, you find that you’re a bit short in the “spending for gifts” category one month, a gift card purchased using your reward points may be the perfect surprise and doesn’t cost you a thing outright. Redeeming your points for travel when wanderlust hits is another popular option, as is the merchandise mall — this might be the perfect way to “buy” that fancy vacuum you’ve had your eye on. And with many flexible reward programs, cash back is also one of the options available. Just be sure to do your research to ensure you understand the value of points vs. the cost of things you'd redeem them for — for example, how much you'd have to spend to earn the points for a flight vs. how much a flight would cost to book outright.

Let’s talk cash back

Cash back credit card programs allow you to “earn back” a portion of your spending, either with a tiered reward program or a flat rate. While all cash reward credit cards let you redeem your purchase points (or miles in some cases) for cash back or statement credits, not all of them offer the option to cash in rewards for gift cards, merchandise, travel, and other options; likewise, many reward credit cards offer cash back as an option, but not all. For this reason, it’s important to consider which rewards matter most to you as you weigh your card choices carefully.

Cash back is straightforward and convenient: straightforward because you can redeem your rewards as statement credits, a check, or a direct deposit, and convenient because you can use your cash however you want.

Cash back options are a nice way to sneak in some extra savings or offset expenses. Say, for example, that your post-Christmas bills are higher than usual. If you’ve not yet used your credit card rewards, this would be a practical use!

Choosing your path

Your priorities, spending habits, and even your personal finances will determine which type of card (or card rewards) works best for you, and when. And as we mentioned, for many cards there may also be opportunities to earn extra points by making your regular grocery or restaurant purchases using a rewards card — not to mention bonus promotions, which could offer new users generous point boosts.

In summary, rewards programs and cash back each have their own advantages: Reward points offer the ability to redeem your points for the rewards you want most, while cash back cards give you direct, convenient cash rewards you can use any way you please. It’s best to base your card choice on your spending habits, then use your card regularly — but not excessively! — to earn and redeem rewards. Just make sure you have a good understanding of your redemption options, reward accrual rates, and other important info.

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