Cash back vs. miles credit cards, aka travel rewards cards, may all sound the same, but they aren’t. If you're in the market for a credit card or looking for one that will get you the best “benefits,” the better choice depends on many factors.
These factors include your spending habits, short and long-term goals, and most importantly, your credit history. For example, frequent travelers tend to go for rewards cards to receive travel bonuses and other perks. Others who like a variety of rewards may opt for the cash back.
What's the difference? Let’s get into it, shall we? By the end of this article, you will understand the difference between cash back vs. miles credit cards. This in turn will help you make the best decision for yourself!
How cash back credit cards work
Without a doubt, I'm sure you receive many credit card offers that promise you a cash back reward for spending money at your local grocery store, coffee shops, movie theaters, retail stores, and gas stations. If you receive credit card offers along those lines, know that these are cash back credit cards.
Cash back credit cards essentially work like store loyalty and rewards cards such as the ones at DSW shoes or CVS Pharmacy. The key difference is that cash back credit cards are also tied to a line of credit. As a customer, you are rewarded for charging purchases on that specific card. Each company offers different options with retailers and percentages, but for the most part, it's usually a small percentage ranging from 1–5%.
For example, if during the course of a billing statement month you made $100 in purchases, with 5% cash back you would receive $5 toward your bill or in your cash back “bank” where you can cash out over time. While some companies offer a variety of percentages, each does offer extra cash back depending on what promotion they're offering during a given period.
How miles cards (aka travel rewards cards) work
If you see credit card companies advertising bonus airline miles for signing up or points and discounts at hotels, these are most likely miles cards aka travel rewards cards. One of the main things you’ll notice when you read the fine print is that interest rates are much higher than other cards because of the benefits, of course.
Besides the high-interest rates, there’s so much to love about miles cards. These benefits include complimentary lounge access in airports, exclusive events including concerts, upgrades at resorts and luxury hotels, priority boarding, discounts on in-flight refreshments and snacks, flight upgrades, and more. The list can go on.
When deciding which miles or travel rewards cards are right for you, it's important for you to put in the time and effort to understand what the companies are offering. You should see if the card aligns with your spending activity habits and your goals. For example, if you are a frequent flyer and find yourself taking JetBlue almost always, take the time to research cards that provide you with JetBlue and partnering airline benefits.
Pros and cons of cash back vs. miles cards
When it comes to cash back vs. miles cards you need to consider what is going to benefit you most financially. To do that you need to carefully review what the credit card offer contains. Every card will have different offers and guidelines so be sure to read all of the information before applying. Check out the pros and cons on cash back vs. miles cards to decide what card is best for you.
Cash back cards pros and cons
Pros of cash back credit cards
There are more perks than just earning cash rewards on cash back credit cards. These types of cards usually don't have an annual fee and offer sign-up bonuses too. Some bonuses can add up to several hundred dollars if you meet the requirements to get them. They also may offer a 0% APR introductory special for a specific time period. Certain companies may offer perks such as price matches and extended warranties.
Cons of cash back credit cards
Of course, there are always cons to these cards too. For example, there may be an earning cap on how much cash back you can earn. Another thing to be careful of is the 0% APR because once the special rate ends it could jump to a very high rate costing you lots of money if you carry a balance on your credit card. You also need to be careful about getting charged foreign transaction fees if you travel.
Miles cards pros and cons
Pros of miles cards
When comparing cash back vs. miles, keep in mind that you get a variety of rewards with travel cards. Some cards allow you to use your points towards airline tickets, hotels, and rental cars. They may offer discounts on entertainment, hotel upgrades, and more. Some companies may offer cash back, merchandise, and gift cards too. Another pro is the generous introductory bonuses they offer.
Cons of miles cards
The bad thing about miles or travel rewards credit cards is that a lot of them have high annual fees that can cost hundreds of dollars per year. There is also something called "blackout dates and restrictions" on when you can use your rewards. Some cards may have higher foreign transaction fees as well, which can get pricey when traveling out of the country.
Compare cash back vs. miles cards responsibly
Enticing perks right? Yes and no. When it comes to credit cards and rewards cards alike, you should always read all the fine print. Companies always get you with awesome sign-on bonuses, which is when you'll find yourself struggling to gain the same benefits the following year.
Other key things to look out for with cash back cards are when companies offer cash back off of points instead of the standard rebate based on your purchases. Basically, you receive the points and it’s up to you to redeem the points to get the cash back.
For travel rewards cards, you need to pay attention to the annual fees. They can range from $90 to $500+ a year. If you don’t travel that much, consider finding cards with no annual fee.
Cash back and rewards cards encourage spending and, frankly, don’t care if you mess up your credit. These cards are only beneficial if you pay off your balance in full each month. Otherwise, you will find yourself, like many people, drowning in credit card debt with zero rewards.
Cash back vs. miles cards and staying out of debt
The main thing to keep in mind when choosing which card is best for you is that you need to be sure you use your card responsibly. The last thing you want to do is rack up credit card debt to earn rewards and derail your financial goals.
Again, always pay off your balance in full every month to avoid high-interest payments and to stay debt-free. The best way to do this is not to overspend by defining your needs vs. your wants and sticking to your budget. Credit cards can be a great financial tool when they are used correctly.