​Cash Back or Travel Rewards: Which One is Right for You?

Everyone likes getting something in return for their spending. But when it comes to rewards, it’s easy to stir debate by asking whether cash back credit cards are better than travel rewards cards.

Unfortunately, there isn’t one definitively correct answer to this common question – it’s just not as simple as saying ‘People who like travel should get travel rewards cards.’ While simple, no-fee cash back cards are often the better fit for most, there’s no disputing the value of the rewards some travellers achieve by using their cards.

Ultimately, it’s up to each person (or family) to assess their spending habits, and their lifestyle, before choosing a rewards route that suits them. Here’s what to think about if you’re trying to decide what’s best for you.

Lifestyle is important

If you’re enticed by the idea of jetting off to the Italian Riviera, or somewhere suitably exotic, travel rewards cards can be a great way not just to help you get there, but also to improve the overall travel experience with perks and features, such as airport lounge access, travel insurance, no-fee transactions in foreign countries, etc.

If you’re not much of a traveller, and don’t intend to be, your choice is easy. Or maybe you simply prefer road trips and cottages to Caribbean beaches and European escapes.  Needless to say, not all travellers are created equal. Be honest about your lifestyle preference and travel goals when choosing a credit card rewards program.

Fees are a factor

In general, cash back cards don’t charge an annual fee, but don’t offer much in the way of perks. Most travel rewards cards do have an annual fee, but savings on perks such as airport lounge access or additional checked baggage can help offset this cost, if not entirely erase it.

Watch for welcome bonuses

Welcome bonuses are more common with travel rewards cards than cash back cards, and often represent the best opportunity to earn points. However, activating the full bonus may require you to spend a set dollar amount within a fixed window of time, say $10,000 within the first three months, so make sure you can reach the threshold.

Beware of breakage, blackouts, and other restrictions

A rewards program can be a great motivator to help you pile up the points required to take the trip of a lifetime. But that’s not much good if the booking window you really want is blacked out or otherwise unavailable because of a restriction in your reward program.

No one wants to have to settle for less on their ‘dream’ travel experience, and being forced to change plans because of fine print is especially frustrating, so make sure you know what the rules are before you pick a card, and long before you start packing your suitcase.

Finally, ‘breakage’ refers to rewards points that never get redeemed. Any amount of cash back is still cash, even if it’s only pennies. With a points program, however, you may end up losing out if you don’t have enough points to redeem for something tangible and can’t transfer them somewhere else.

What you spend money on matters

Certain types of cash back cards and travel rewards cards offer increased incentives on select spending categories. With cash back cards, these tend to be everyday expenditures, such as groceries and gasoline. With travel cards, however, the categories are typically geared towards frequent travellers and business people, rewarding spending on hotels and restaurants, car rentals, or office supplies.

Among the factors that determine your choice of card is what you intend to use it for. Matching the rewards program to your personal spending habits will increase your overall return.

Learn to leverage partner relationships

In many cases, the best way to make the most of your travel rewards card is to leverage the relationship with a partner airline or hotel chain to boost the value of your points, turning them into the biggest cash value possible. For instance, if you can redeem your points for a reduced-cost flight in business class, or a stay at a luxury hotel, chances are you’ve managed to extract the maximum dollar-per-point amount from your rewards program.

With cash back cards, of course, there’s no such opportunity to maximize the value of rewards. If your annual spending nets you $200 in cash back (often applied as an account credit), you know the exact value of what you’re getting. Travel rewards, on the other hand, tend to have fluctuating values based on various rules and restrictions, and it can take some effort to fully understand the program, learning how to leverage your rewards and get the most out of your hard-earned points.

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