Rewards Points vs. Cash Back: Which is Better?
If you’re deciding between a rewards card and a cash back card, points will get you further for the exact same spending. That’s true whether you’re booking a $200 hotel night or a business class seat you’d never pay cash for. And you don’t have to become a points expert to see the difference: the math below works the same way for a total beginner as it does for a frequent flyer.
When looking for your next credit card, you’ll find that each card has something different to offer. Some cards provide rewards points and others offer the option of cash back. If you’re new to points and miles (and especially if you haven’t booked a trip yet), it can be confusing to know which is more valuable.
I’ve been helping many people who are just getting started with points, especially with Chase Ultimate Rewards from the Chase Sapphire Preferred® Card, and I always share this same message:
Points are much more valuable than cash back.
I get it if that’s hard to believe at first. Cash back feels simple: swipe your card, watch the cash show up. Points can feel like one more thing to learn, or too good to be true. I felt the same hesitation when I started. Here’s what I found: putting your regular spending on one rewards card isn’t any more complicated than a cash back card, and it doesn’t put your credit score at risk as long as you pay your balance in full each month. The examples below show exactly why it’s worth the switch.
Let’s break this down:
Most cash back cards earn anywhere from 1%-2% cash back on purchases. There are special “spending categories” that can earn up to 4%-6% back these days, but most of those are capped at a relatively small amount of maximum spending. For these examples, I’m going to compare the rewards redemptions to someone getting 2% cash back on everything.
Example 1: Regular spending boosted by rewards card signup bonuses
Let’s understand the real “cash back” value of your rewards card signup bonuses.
Someone takes 10 minutes to sign up for the Chase Sapphire Preferred and puts every expense on their Sapphire for the next 2-3 months. Let’s say the minimum required spending to hit the bonus is $5,000 in spending. They spend their $5,000 on the card and earn a hefty sign-up bonus. If done correctly, they would have earned these points for their typical, everyday spending (no extra spending needed).
Offers go up and down, but let’s say the Sapphire Preferred sign-up bonus is 75,000 points. If the Sapphire cardholder used their 75,000 points to book travel through the Chase Travel℠ portal, the points would value at $750+ especially when selecting flights or hotels covered by Points Boost.
Meanwhile, someone using a 2% cash back card would need to spend $37,500 to earn the same $750 in rewards!
The value of this one signup bonus clearly outweighs the value of cash back.
Example 2: Points and miles crush the value of cash back in many travel planning scenarios
I’ve been watching a lot of college baseball lately, and my favorite team is Vanderbilt. When they made it to the College World Series in Omaha, Nebraska, I knew I had to go! When looking at hotel prices, I was finding basic rooms for a ridiculous cost of $200-$400 per night.
In less than two minutes, I opened up my Hyatt app and saw there were rooms at the Omaha Hyatt for $399/night or 8,000 points. Because Hyatt is a Chase transfer partner, I transferred 16,000 Chase Ultimate Rewards points over to Hyatt and booked a hotel room for two nights, knowing I could cancel my reservation for free and get my points back.
My out of pocket costs = $0 + 16,000 points.
The person using a cash back card would have to pay $800 + taxes for the room. And, if they were earning 2% cash back on their card, they would have to spend $40,000 to earn that amount of cash.
Example 3: Emirates business class
Most intermediate and advanced free travelers know that international business or first class tickets can be some of the absolute best value of points and miles. It can take a bit of work to find the right airline and transfer partner, but it pays off big time. This is largely because international business class award tickets can be double the points required for the economy ticket, while a business class cash price is 5-10x the cash price for economy. Plus, there’s something fun about booking a flight you’d probably never pay cash for.
I recently booked a business class ticket back from Europe on Emirates. This ticket cost me 85,000 American Express Membership Rewards® points + $99 in fees. This was less than one bonus I recently earned by opening The Business Platinum Card® from American Express. Amex is a Travel Freely advertiser.
The cash price would have been $4,270. This means the person focusing on cash back would need to spend $213,500 over time to earn the same redemption. This is clearly unrealistic.
You don’t need an international business class ticket to see this math work in your own life. The same gap between points and cash back shows up on a $150 hotel night, a domestic flight, or a rental car. The more expensive the redemption, the bigger the gap gets, but the gap is there no matter the size of your trip.
Summary
When it comes to rewards vs. cash back, would you rather be a free traveler or someone who earns cash back? I hope you can see the major contrast in strategies and the huge value of points compared to cash back.
If you’re hesitant to redeem points instead of cash back, it’s important to know that there are cards out there that let you earn points and redeem them in a variety of ways. By using flexible points like Chase Ultimate Rewards, you’re not limited to a certain airline or hotel brand. See: Chase Ultimate Rewards Guide.
Here’s how to put this into action:
- Pick one flexible rewards card to start with. If you don’t already have one, the Chase Sapphire Preferred® Card is where most Travel Freely members begin.
- Put your normal spending on it for the next few months until you hit the minimum spend for the welcome bonus. This shouldn’t mean spending more than you already do.
- Redeem your points through a transfer partner or the Chase Travel℠ portal instead of settling for 1% or 2% cash back.
