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Cash Back Rewards vs. Points

Someone using the computer to make a purchase with a credit card

What determines the best credit card? It is optimal for consumers to choose a card with no annual fees and a low APR, but credit cards now offer more incentives than ever by rewarding their customers for making purchases using their cards.

Consumers can benefit by using a rewards card for everyday purchases, whether it’s cash back or rewards points for merchandise or travel. These reward programs are premium credit cards with special benefits, bonuses and generous reward incentives.

A large part of what determines the best credit card depends on many factors including financial habits and lifestyle, needs, personality, goals and credit history. Points and rewards cards usually require very good credit to qualify. Compare rewards credit cards to find the one that best fits your spending habits so you earn the greatest amount of rewards on items you would have purchased anyway.

Cash Back Rewards

A cash back reward is a monetary amount. Generally, 1 percent of purchases made on your credit card is paid back to the cardholder as a statement credit. As the reward is in the form of cash back, you don’t have to worry about it expiring. Remember to read the fine print as many of these cards have annual fees.

Points Rewards

Consumers are rewarded with 1-2 points per dollar spent. Depending on the type of credit card, you may redeem these points for merchandise from selected vendors. Always read the fine print as most reward points do have an expiration date.

Travel (Miles) Rewards

Similar to points rewards, card users earn 1-2 miles per dollar spent that can go towards travel expenses (airline, hotel, transportation, etc.). If there is an annual fee, be sure to spend and redeem enough to offset the annual fee. Also, be sure there are no foreign transaction fees (for those traveling abroad).

According to a 2016 Nerd Wallet survey, 84 percent of Americans have taken a trip in the past 12 months where many consumers paid for their trips with travel credit cards. However, research shows these credit card users would find greater value by using a cash-back card and then using the cash rewards to pay for travel expenses. Cash-back cards are very popular as it’s not necessary to manage rewards points/miles redemption or worry about their expiration dates.

Whether you choose points/miles rewards or cash back rewards, earn a little extra with your everyday purchases. Be aware of cards that offer a larger than usual earning potential from cash back or points because they typically will have higher rates and fees. It is recommended to select a rewards card that offers low interest, no annual fee, no transfer fees and no foreign transaction fees. Most importantly, if you aren’t going to pay your debt in full once you receive your monthly bill, you may benefit more from a non-rewards credit card with a low fee or getting a personal loan. Otherwise, you will be spending your rewards on credit card interest.

Want a little more help?  Check out our eLearning module on CREDIT CARDS.

Financial Educator, Jennifer Russo headshot

About Jennifer Russo

Jennifer Russo is Hawaii State FCU’s financial educator. She develops, markets and delivers financial resources to members under the credit union’s financial literacy initiative. She also works with community partners to develop strategies addressing the unique needs of Hawaii’s diverse population.

Jennifer has more than 15 years of experience in marketing and program management within the federal government and private industries. She received her Master of Business Administration from Colorado State University in Fort Collins, Colorado, and holds a bachelor’s degree in mass communications and public relations from McNeese State University in Lake Charles, Louisiana.

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