Cash Back vs. Points and Miles: Which Is Best for You?

Without a doubt, you’ve come across credit cards that promise rewards for your everyday spending. But you may be wondering: What’s the difference between cash back versus points or miles, and which type of card is best?

While cash back, points and miles cards are all classified as rewards cards, the main difference is in the way you’re rewarded. Cash back cards are the most straightforward – you’ll typically earn a percentage of your spending back as a rebate, either in the form of a statement credit or check.

With points and miles cards, you’ll also earn rewards when you use the card for eligible purchases, but redemption options and points values can be more complex. Points cards usually offer more redemption choices, often tied to travel, while miles and hotel cards work in tandem with an airline’s frequent flyer program or a hotel’s loyalty club.

In this guide, we will help you to understand credit card points, miles and cash back programs. This will arm you with the knowledge to decide which type of credit card rewards best suit your spending, so you can shop for the credit card that is best for you.

How do cash back rewards work?

Cash back rewards are earned whenever you use your credit card to pay for eligible purchases. Some cash back cards have a flat rate, such as 1.5% back, which means you’ll earn that same percentage back on all purchases. Other cash back cards offer bonus categories, so you might earn 3% back on groceries, 2% back on gas and 1% on everything else.

At the end of a billing cycle (or two), rewards for all of the qualifying purchases you made will be credited to your account.

Depending on the card, you may get an automatic statement credit, or the cash rewards may accumulate until you choose to cash them in and have the money deposited into your bank account. You may have the choice to cash in any amount, or there may be a minimum threshold to reach before you can redeem.

Cash back cards through statement credits

Cash back is typically awarded in the form of a statement credit to pay off existing charges on your account balance. If you made $100 in purchases in one month, with a 2% back credit card, you would earn $2 as a statement credit. As soon as the rewards are credited to your account, you can lower your credit card bill by that amount. (If there’s a minimum threshold to meet, you can request your statement credit as soon as it’s reached.) Some credit cards also let you deposit earned cash back into a savings or checking account with the same bank, or issue you a check if requested. Keep in mind that, if you have a minimum amount due on your credit card, you may still have to make that payment in full, in addition to any statement credit.

Cash back based on points

Some cash back cards actually earn points (confusing, right?). Really, though, it just means your earnings are tallied as points rather than a dollar amount (one point usually equals 1 cent). However, with this method, you’ll have a bit more flexibility to exchange your points for other types of rewards beyond cash back, or you can transfer or combine your points with another card you have with the same issuer to maximize your earnings.

Figuring out whether a credit card gives you pure cash back or points is not always obvious — you must read through the terms and conditions or offer details.

Some examples of cash back cards that earn points:

• Chase Freedom Flex℠: Though it’s branded as a cash back credit card, this card earns points that can be used in the Chase Travel^SM portal. Some savvy cardholders take advantage of the high-earning categories on the Chase Freedom Flex℠, and then transfer those points to their Chase Sapphire Preferred^® Card or Chase Sapphire Reserve^®, where they get 25% or 50% more value, respectively, on travel redemptions.
• Citi Custom Cash℠ Card: Cash back is earned in the form of ThankYou® Points, which can be combined with other Citi cards such as the Citi Premier^® Card.

Savvy traveler tip

Cash back doesn’t mean an instant discount – it usually takes one to two billing cycles before rewards are applied to your account. Some cards require you to build up to a minimum amount of cash back (for example, $25) before you can cash out, while others let you redeem any amount you’d like. Check your credit card issuer’s terms and conditions to learn more about processing periods and information about minimum redemption thresholds.

How do credit card points and miles work?

Points and miles cards work by rewarding you for your spending and allowing you to redeem your credit card earnings in a variety of ways. Each card varies as far as redemption choices, but in general, points and miles cards are aimed at people who want to save on travel expenses.

Some points and miles cards offer general rewards, meaning you can redeem them for any type of travel, as well as for merchandise, gift cards or a statement credit. And in case you were wondering, the terms “points” and “miles” are used interchangeably and will mostly operate in the same way.

Other points and miles cards are co-branded, meaning they are connected to a particular airline or hotel’s loyalty program. With those cards, you may earn points or miles specific to the brand (e.g., AAdvantage miles, Marriott Bonvoy points). Some cards also have a list of travel partners with which you may be able to transfer your points or miles.

The key with points and miles cards is figuring out the best way to redeem your earnings; travel tends to provide the greatest value.

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Credit card points

Some of the biggest credit card rewards programs — Chase Ultimate Rewards®, Citi ThankYou® and American Express Membership Rewards — give users points. General travel points are the most flexible out of any rewards system out there, as they can be used to book flights with many different airlines or even be redeemed as straight cash back.

It does take some work to decipher the most value for your points. For instance, 100 points might be worth $1.25 if redeemed for a flight with a particular airline, but only worth 80 cents if redeemed for gift cards.

Airline miles

Airline credit cards are co-branded with a specific airline, allowing you to earn frequent flyer miles every time you spend on your card. Airline credit cards are ideal for consumers who are loyal to one airline. For instance, if you travel frequently with Southwest Airlines, it makes sense to use a credit card that will accumulate points on Southwest and earn Southwest-related perks. If you tend to fly multiple airlines, you’re better off with a general travel rewards card so you’re not restricted to one loyalty program.

Note that Southwest and JetBlue refer to its rewards as “points” rather than “miles,” demonstrating how these terms can be interchangeable.

Savvy traveler tip

Airline cards can also help frequent travelers qualify for elite status faster, which can unlock premium perks and benefits. Elite-qualifying miles are usually treated separately from airline miles that you earn, however, so it’s important to research qualifications (and how an airline card can help) if your goal is to level up.

Hotel points

Like airline credit cards, hotel credit cards are co-branded with a particular hotel and resort chain. Hotel credit cards will earn points, and their rewards work similarly to airline miles. You’ll earn points through credit card spending, which can later be used for hotel stays, room upgrades and more.

Hotel credit cards can also help you work toward earning elite status for even more exclusive perks. It’s worth noting that hotel points tend to have lower redemption value than airline miles, so this rewards system is only ideal if you prefer one hotel chain and stay multiple times throughout the year.

How do you calculate the value of points and miles?

The value of points and miles can vary a lot, and depends ultimately on how you actually redeem them. To complicate matters even more, prices for flights and hotel stays vary by location, date and room/seat type. Therefore, a Tuesday flight might be cheaper than a Saturday flight, so the flight cost in miles for each may have a different redemption value.

Your goal should be to squeeze the most points value out of your earned rewards as possible, but in a way that makes sense for your needs. Obviously you don’t want to alter your entire trip just to bump up your points value. But doing a little number-crunching to determine the points value you’d get for a specific flight or hotel booking can help stretch your budget.

For airline mile points value, just take the ticket price (minus out-of-pocket taxes and fees) and divide by the number of points needed to cover the cost. So if a flight is $300, with $20 in fees and taxes and costs 25,000 points, your points value is 1.1 cents per mile.

For hotel point value, the calculation is much the same, except you use the total cash price including taxes and fees. So if a night costs $189 or 30,000 points, the points value is 0.6 cents per mile.

Who should choose cash back?

A cash back card is ideal for someone who wants to get rewarded for everyday spending and who may be new to the world of credit card rewards.

You rarely travel

If you don’t plan to go on at least one big trip or a couple of small trips per year, or if you prefer RV or camping getaways that don’t require hotel stays or flying, then you wouldn’t get much value out of a points or miles card that doesn’t offer cash back. If you change your mind, you could always look into a general travel rewards card with a strong sign-up bonus to help fund your next vacation, but in the meantime, you can enjoy cash back rewards on your everyday purchases.

You want the most flexible redemption options

Nothing beats the flexibility of cash back because you can use those savings however you please. By reducing your credit card bill with a statement credit or requesting that your rewards be moved into a bank account or sent as a check (if those options are available), you will have more discretionary cash to use as you please.

You don’t want to deal with complexity

Maximizing points and miles cards can require juggling two or more cards, redeeming points through travel portals, navigating airline and hotel programs and sometimes transferring points to partner programs. If that all sounds overwhelming to you, then a simpler cash back card would be a better fit.

Who should choose points and miles?

Points or miles cards can be ideal for once-per-year vacationers, business travelers and avid jetsetters alike. The key is choosing the type of card that will match your travel and spending style. For example, if you are loyal to one airline and fly multiple times per year, an airline card may make sense. But if you are just looking to offset the cost of your annual family vacation without being tied to a particular hotel chain, a general points card gives you more flexibility.

You travel at least a couple of times a year

Even if you travel only occasionally, you can take advantage of a points or miles card. For starters, you may be able to earn an upfront welcome bonus, which can be worth a few hundred dollars toward travel. Many cards also provide travel benefits such as free checked bags, priority boarding, late checkout, trip cancellation insurance and other perks.

You want to get the most value for your rewards

Once you get the hang of travel rewards cards, the real appeal of points and miles is for those who enjoy trying to squeeze extra value out of their rewards. In fact, points and miles cards can be much more rewarding than cash back if your spending style aligns with the bonus categories and you redeem strategically. Take a look at this sample comparison chart below to give you an idea of how valuable points and miles can be:

Savvy traveler tip

You can get even more return on your spending by having two (or more) points and miles cards that complement each other. For example, you could have an airline card, a hotel card, and a general travel card, and for each purchase you make, you can choose the card with the best earning rate for that category.

You already have loyalty program accounts

If you’re already collecting points and miles with certain programs, you should consider getting a card with the program or a flexible points card that allows you to transfer points and miles. This can help you fasttrack your way to free flights and stays, or allow you to make the jump to a higher-tier status.

You can get value out of the extra travel perks

The perks that come with the points and miles cards often provide a lot of additional value. For example, an airline card that offers a free checked bag for you and a travel companion can be worth up to $120 per flight (assuming $60 per bag). Other cards offer a statement credit for TSA PreCheck of Global Entry, worth $78 or $100, respectively.

Why not choose both?

If you’re not sure which type of card wins your personal cash back versus points debate, the good news is you can reap the benefits of both. As long as you keep your credit healthy and don’t spend beyond your means, having multiple types of cards can be a smart strategy.

For example, you might use a general travel rewards card for spending in categories that earn bonus rates, such as travel or restaurants, and then a cash back card that earns a good flat rate or bonus for grocery shopping.

You can also rotate between cards depending on your upcoming goals. For example, if you’re planning a big trip, you might start using your airline card more to work toward a free flight. Or if you want to buy something new for your home, you might just save up your cash back balance for a while.

The key to any type of rewards card is to pay your bill in full each month so you’re not paying interest charges that can quickly cancel out your earnings.