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Credit cards: Points vs. cash back
Key takeaways
- Cash back offers simplicity and predictable value. Earn a percentage back on qualifying purchases with straightforward redemption options
- Points can be worth more than cash back when redeemed strategically, but they demand active management to maximize their value
- Select cash back if you want good value for routine expenses, or points if you travel frequently and can justify annual fees
Credit cards can offer extra benefits from everyday spending and occasional big purchases. Credit card points and cash back are two of the most popular of these types of benefits and it's important to know the differences between them to decide which is better for you.
What are cash back credit cards?
Cash back credit cards reward you with a percentage of your spending returned as cash or cash credits. You spend money, you get money back.
There are three main categories of cash back cards:
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Flat-rate cards. These cards offer the same earnings rate on all qualifying purchases
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Category cards. Cards with cash back on purchases from distinct categories provide higher rewards in specific areas (like groceries or gas) and a lower percentage on other qualifying purchases
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Rotating category cards. This type of card changes their bonus categories every few months
How to redeem cash back
Redeeming cash back rewards is usually a straightforward process, but there are a few options, including:
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Statement credits that can be applied to your credit card balance, reducing what you owe
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Direct deposit, which sends the money to your checking or savings account
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Using them to buy gift cards
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Shopping at certain online retailers and your card issuer's rewards portal
The key advantage of cash back is its simplicity. As soon as you reach the minimum threshold amount for redeeming rewards, mobile apps and online banking typically make redemption more convenient and accessible.
What are credit card points?
Credit card points are earned by making eligible purchases. The cardholder gets a certain number of points for each dollar spent but the value of points can vary depending on how you redeem them.
On some cards, the points, or miles, are tied to specific airlines or hotels. The brands can use these cards to reward loyalty by offering special perks, like free boarding or room upgrades, in addition to the points. However, card users tend to face more restrictions on the various redemption options.
On other cards, the points are backed by the credit card issuer and typically offer the most flexibility. You can use them in many ways, including transferring loyalty points to partner airlines and hotel programs or redeeming them for travel through the bank's portal.
With points, savvy travelers can find ways to get more value for each credit, but it requires research and planning. Hypothetically, 25,000 points could be worth $250 when redeemed in a certain way or $400 when used differently.
How to redeem points
Points offer multiple redemption paths with different value propositions:
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Travel redemptions can provide good value, letting you book flights and hotels through your card's travel portal at a fixed rate per point
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Transfer partners offer valuable options for experienced users. You can transfer points to airline and hotel programs, often at a 1:1 ratio, and sometimes achieve 2+ cents per point value when the points are redeemed strategically
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Statement credits provide straightforward redemption at 1 cent per point, offering immediate practical benefit with no complexity
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Alternatively, there are programs such as Amazon Shop with Points which allow users to pay for eligible orders, subscriptions or memberships using linked rewards accounts
Points require more active management than cash back systems. They may expire with account inactivity, and redemption values fluctuate. However, strategic users can achieve significantly higher value than cash back rewards.
Key differences between points and cash back
While both points and cash back reward your spending, points and cash back serve different types of consumers and financial goals.
Value
Cash back delivers predictable value, with percentages that might differ per spending category. Points can sometimes provide a higher value, per dollar spent, than cash back. However, the cardholder's lifestyle and spending habits usually determine how they can take full advantage of the benefits of points cards. Applying the correct strategies can also help maximize value.
Best used for
Cash back works well for everyday financial management, offsetting monthly expenses, and building savings. It appeals to people who want guaranteed value without complexity.
Points align with travel and lifestyle goals and are ideal for travelers who want premium experiences without full price. Points attract those willing to accept complexity for potentially higher returns.
How to redeem
Cash back users frequently opt for convenient, practical methods to redeem their rewards: credit card statement credits and deposits into their bank accounts.
People who pile up points often use them as a vacation or travel fund. Cardholders redeem points for roundtrip airlines tickets and extended stays at hotels. They tend to be more engaged, timing redemptions strategically and monitoring transfer bonuses.
Points vs. cash back: At a glance
Cash back |
Points |
|
|---|---|---|
Ease of use |
Value
|
Best for
|
How to redeem |
Simple
|
Fixed
|
Everyday spending |
Cash
|
More complex
|
Varies |
Travel or a specific type of reward
|
Travel and gift cards
|
How to choose between points and cash back
The right choice depends on how you spend money and what you plan to do with your rewards.
Consider your lifestyle
If you travel frequently, points cards might deliver superior value through hotel upgrades, flight redemptions, and premium experiences. In particular, business travelers can make good use of points and miles.
For people who rarely travel, cash back provides more practical value by offsetting everyday expenses like groceries and utilities.
Your comfort with complexity matters too. If you enjoy researching deals and developing strategies, points can become an engaging hobby. If you prefer simple financial management, cash back eliminates the mental overhead.
How they're redeemed and what they'll be used for
Cash back works well when you want rewards to reduce living costs or contribute to financial goals. Many use it to lower monthly bills, build emergency funds, or save for planned purchases.
Points shine for specific travel or lifestyle goals that would otherwise strain your budget, like business class flights or luxury resort stays. Be realistic about your redemption patterns and whether you're comfortable with the uncertainty that comes with points.
Know the fees
Many cash back cards don't charge an annual fee. So, there's no pressure to use them to justify paying a fee. Points cards are more likely to have annual fees, and better rewards and perks often come with higher fees.
When applying for a points card, it's important to determine whether you'll earn and use enough points to cover the annual fee. In doing so, you might also think about the value of perks like airport lounge access, priority boarding, and free nights at a hotel.
Pros and cons of cash back cards
Here's another way to compare and contrast the differences between these two types of cards.
Pros
- Cash rewards deliver tangible value with little guesswork. Once the cash is redeemed, it can use it for whatever you like
- Sign-up bonuses on cash redemption cards are typically easy to understand and redeem. You might earn $200 cash back after spending $1,000 in the first three months, with no restrictions on how you use the bonus. All you need to do is keep track of your card use for the introductory period
- Low or no annual fees help to make these cards accessible
- 0% APR introductory offers are common with cash back cards. That means you could use them for balance transfers to get out from under high-interest debt. You also could use them to finance a large purchase and pay it off before interest charges kick in
Cons
- Foreign transaction fees on credit cards typically range from 1% to 3% on international purchases. Cash back cards are more likely to have these fees than travel cards
- Limited redemption options mean you're restricted to cash-equivalent rewards
- Fewer perks and benefits compared to premium travel cards
Pros and cons of points and miles cards
Points cards offer potentially higher rewards and premium experiences, but can be more complicated.
Pros
- Travel rewards can deliver exceptional value when used wisely
- Sign-up bonuses on points cards can be substantial, sometimes worth $1,000 or more in travel. value. Such a bonus might fund an entire vacation when redeemed strategically
- Increased perks and benefits make travel more comfortable and affordable
- More redemption variety gives you flexibility to maximize value
Cons
- Great rewards sometimes have high annual fees and redeeming enough points to justify the fees can be a stressful situation
- More complicated rewards require research and planning to maximize value
- Point devaluations can reduce the value of accumulated rewards when programs change their redemption rates or partner agreements
Credit Cards offered at TD Bank
Explore TD Bank credit cards to find the right offer for you and your financial goals.