When it comes to credit card perks, cash back beats out other rewards any day in my book. Here's why I like cash-back cards much better.Image source: Getty Images.
Cash-back cards give you a statement credit equal to a percentage of what you spend, such as 2% cash back on purchases made during the billing cycle. Travel cards typically give you a certain number of airfare rewards points for each dollar you spend, which can be redeemed for airline tickets or other travel-related expenses. Other cards reward you in "points" rather than miles, and these points can be redeemed not only for travel, but also for other merchandise or gift cards.
While each of these different cards can have pros and cons, I prefer cash-back cards to travel or rewards cards any day. Here's why.
1. It's easy to pick the best cash-back cards
There are dozens of different credit card mileage and points programs out there, and "points" and "miles" don't have the same value from one card to another. A point may be worth less than $0.01 on some cards and worth as much as $0.10 on others, depending how points or miles are redeemed.
All of this can make it really hard to figure out which rewards programs provide the best bang for your buck. And knowing the value of rewards can be extremely important when you're considering a card with an annual fee, as you need to figure out whether you'll earn enough rewards to offset the cost.
When it comes to cash-back cards, there's no confusion. You'll know exactly how much 1% cash back, 2% cash back, or 5% cash back is worth, so you can compare every cash-back card in seconds to see which gives you the most generous rewards for the spending you do.
2. Cash-back cards allow you to skip a confusing redemption process
When you opt for a card that rewards you in points or miles, you need to redeem them for something. With most rewards cards, you can get better value if you use your points or miles in specific ways, such as booking flights with a certain airline or booking travel through your card issuer's online platform. Unfortunately, this can require reading confusing fine print to figure out how to use your rewards in the smartest way possible.
You also have to go through some kind of redemption process to claim your rewards and actually spend them. This can mean making phone calls or navigating different websites. And if you have a card with points that expire, things get even more complicated.
With cash-back cards, you don't have to worry about any of this. Depending on your card, you can usually opt to receive your cash back automatically every month as a statement credit or have it deposited into a bank or brokerage account. You don't need to spend any time thinking about how to get the card rewards you have coming to you.
3. Cash-back cards don't force unnecessary spending
If you get a card that gives you miles, merchandise, or free hotel stays, you need to take a trip somewhere or buy merchandise to take advantage of your points.
But what if your circumstances change, and you can't get away? You're stuck with points or miles you can't use, unless you go on a trip you don't really want to take. And chances are good you won't be able to cover the entire cost of your trip with your card rewards, so you'll have to spend money when you get there.
With cash-back rewards, you just get part of your money back. This cash can reduce your statement balance on purchases you actually needed to make, or it can be deposited into a bank or brokerage account where you can access it as needed.
4. Cash back can be invested for your future
Both of the two cash-back cards I've used over the past decade allowed me to put the money into brokerage accounts automatically each month, and that money has been growing into a nice little nest egg. As this money grows over time, it will give me a lot more spare cash in the future, which could be used to help me retire early or travel and see the world.
Are cash-back cards right for you?
Cash-back cards are a great choice because of the flexibility they provide. If you want to use the cash you get back to cover travel purchase costs or to buy stuff, you can -- but you don't have to, and you aren't forced to figure out some kind of redemption process to do so.
Some people prefer credit cards that reward them with points that can be used for treats. And some travel cards and other rewards cards provide highly competitive rewards rates if you use them right and know how to take full advantage of their redemption programs. You can get a lot of bang for your buck by using these cards, especially if you were going to pay to take trips anyway.
Ultimately, it all depends what you most want your credit card rewards to do for you. The important thing is to research all the options so you can make an informed choice about which rewards or cash-back program is best suited to your situation.