Rewards Card vs. Cash Back Card: What’s the Difference?

When looking into opening a credit card, it’s important to know what’s out there. With options including rewards cards and cash back cards, you might be asking yourself- what’s the difference between the two? Let’s take a look at the ways in which they differ.

Rewards Card

Rewards cards work by gifting you points for paying your credit card balance. You can use these points to redeem merchandise, flights, hotel stays, attraction tickets, and more. There are airline cards, general travel cards, hotel cards, and store cards (i.e. Target Red Card, Costco credit card, etc.).

An article written by Barry Choi for koho.ca states, “The type of points you earn is just as relevant as the card you’re considering. If you know how to maximize the points you’re earning, you can get more value out of them. Rewards cards also often come with additional benefits such as travel insurance, airport lounge access, and zero foreign transaction fees.”

Cash Back Card

One of the biggest reasons people tend to gravitate towards cash back cards is the fact that they’re easy to understand. There’s no complicated point system or overwhelming amount of items for you to select in order to redeem your points. With cash back cards, you simply earn a set amount for purchases made in specific categories. Some cards rotate categories quarterly. However, overall, it’s a pretty cut and dry process. Each cash back card has their own payout dates. Some payout monthly and some yearly. Make sure you’re aware of this information before you sign up for a card.

The above mentioned article goes on to say, “In recent years, a few cash back credit cards have added roadside assistance and mobile device insurance as standard benefits. These extra features are just another reason why some people love cash back cards.”

Which Type of Card is Best?

The card that is going to best suit your needs will be different for each individual person. In order to find the right card for you, you’ll need to take a few things into consideration.

First, lifestyle. Are you prioritizing traveling? Do you like to go out to restaurants and movies frequently? Do you need to fly across the country from time to time? Would discounts on flights benefit you? Do you primarily spend your money on everyday essentials like groceries and gas? Consider your goals for this card. If it’s to help you more easily afford travel, a rewards card might fit the bill. However, if you’re looking for a way to help save you a bit of money on purchases you’re already making, a cash back card could be your best option.

Next, you’ll need to consider the value and flexibility of the rewards point system or cash back program. How much money are you going to have to spend in order to reap the benefits of the card? Will it be worth it for you personally? If you don’t typically spend enough to meet the minimum spending requirements, the card you select won’t be an asset to you. If your points or cash back are difficult to redeem, it might not be the right card for you. What good are the rewards if you have to jump through a million hoops in order to access them?

Finally, you must do research on some of the finer details of each card your considering. A credit card’s earn rate, welcome bonus, annual fee, and additional benefits are also important considerations when comparing different credit cards. Make sure you understand the ins and outs of whatever credit card you’re planning to open. This will help you maximize the benefits of the card to help you with whatever personal or financial goals you’re working towards.