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Cash Back vs. Points Credit Cards

Cash Back vs. Points Credit Cards

*Editorial Note: This content is not provided or commissioned by the credit card issuer. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by the credit card issuer. This site may be compensated through a credit card issuer partnership.

This article was last updated Jun 13, 2013, but some terms and conditions may have changed or are no longer available. For the most accurate and up to date information please consult the terms and conditions found on the issuer website.

Depending on what credit cards you currently have in your wallet, there’s a good chance at least one of them earns cash back, and another earns points on every purchase.  If you happen to own both of these kinds of credit cards, do you know which one to use most often?

Normally I would tell you the pros and cons of both cards but in this instance, there’s one clear winner.  Regardless of the rewards program of the point themed credit card, the best credit card a consumer can own is a cash back credit card. This isn't to say that point based cards are bad by any means. You just need to know that you'll get more out of a cash back card in the end.

Why Cash Back Reigns Supreme

When you think about why the clear winner is a cash back credit card, it’s quite simply.  Right now, go outside and walk to the nearest grocery store.  Pick out a pack of gum off of the checkout shelf and offer to pay the cashier with 150 points instead of $1.50.  “Excuse me cashier, but would you mind accepting 150 points on my Chase credit card. I don’t have any cash available.”  I’m pretty certain no matter how suave you think you are, you’re coming up empty.

The fatal flaw with points credit cards is that most rewards program offer the simple conversion of 100 points = $1 in cash to spend.  In the best case scenario, a credit card issuer will allow you to trade points for anything you want so ultimately, all you’re doing is taking one extra step to get your cash anyway.  Why not use your credit card to earn cash back, which can be spent on anything you want, anywhere you want, with no restrictions?

Concerns about Cash Back Credit Cards

We do have to spend a tiny bit of time looking at the downside of cash back cards. While they do provide tangible money instead of theoretical points, many of them are complicated to figure out. This usually happens when the cards are running on a rotating calendar. You may get 5% cash back on groceries January through March, then 5% cash back on home improvement purchases April through June. You'll get 1% cash back on all purchases no matter what, but your other rewards may change throughout the year. You have to keep an eye on that.

Cash rewards cards may also come with high annual fees or interest rates, so you have to read the fine print. Getting hundreds of dollars in cash back each year only helps if you don't owe that back in fees. For the most part, you should be able to find a card that is both rewarding and affordable at the same time. You just have to know what to watch out for.

Finding the Best Cash Back Credit Card

11292050_sWhether you own a points credit card and convert your bounty to cash or just want to get the cash straight up, everything leads back to the green paperbacks. With this in mind, you have to search through the best cash back credit cards to find the one that is right for you. Focus on how the rewards structure works and what you'll get the most money back on. If you never leave the house, it doesn't make sense to get a card with high fuel rewards. See which rewards calendar is going to fit your spending habits the most, and you'll have a great credit card in no time.

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any card issuer.

*The content in this article is accurate at the publishing date, and may be subject to changes per the card issuer.

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