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Whether to choose between cash back vs. travel rewards is a common question for credit card holders. Each comes with its own unique set of advantages and disadvantages and is tailor-made for a specific type of user.
Before you choose one, you need to understand what both of these types of credit cards have to offer. If you’re credit card hunting, here’s what you need to know.
Key Points
• When choosing between cash back and travel rewards, it’s essential to understand the advantages, disadvantages, and features of each type of program.
• Cash back cards provide a percentage back on eligible purchases, with rewards redeemable in formats like statement credits, gift cards, or direct deposits.
• Cash back programs often offer flexibility and simplicity, making them ideal for cardholders who value straightforward rewards.
• Travel rewards allow cardholders to earn points for eligible purchases, which can be redeemed for flights, hotels, or rental cars.
• To decide between cash back and travel points, you should evaluate your financial habits, travel frequency, and redemption preferences.
What Is Cash Back?
Cash back is a type of reward that many credit cards offer their users, where a percentage of the purchase is directed back to the cardholder. For example, if the card offers 2% cash back on eligible purchases and the cardholder made a $100 purchase that qualified, they would earn $2 in a cash back reward.
There are a few different kinds of cash back rewards programs. Some cards offer a statement credit, which can be used to reduce your statement balance. Others offer pay-with-rewards, which allows users to use their cash back to make a purchase. Some offer gift cards, while others either deposit the money into a checking or savings account or mail a check. Simply put, cash back comes in many forms.
While cash back rewards can be returned to cardholders in a few different ways depending on the card, the amount you earn on each purchase also varies with each card. Groceries and gas may be on one tier, while traveling and restaurants may be in another. Some cards offer the same flat rate on every purchase regardless of the spending category, while others offer bonus categories throughout the year, earning a higher percentage.
Benefits of Cash Back
People who regularly take advantage of cash back rewards often also prefer its simplicity over other options on the market, such as points or miles. The value of $100 in cash back is pretty straightforward and often doesn’t require any conversions.
Although cash back may be used to strategically lower the cost of travel on some cards, the benefits extend beyond travel, which is one of the greatest things about cash back. Cardholders often have a lot of flexibility in how they can receive and use their earnings.
As discussed above, cash back can be received in a few different ways (statement credit, pay-with-rewards, direct deposit, gift card, etc.), and many credit card companies offer cardholders a few different choices to take advantage of their membership rewards.
Another perk that often comes with cash back cards is that they may come with a free credit score check and credit score monitoring. That makes it easy to stay on top of your credit profile and monitor for identity theft.
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What Are Travel Reward Points?
Travel reward points programs allow cardholders to earn reward points with eligible purchases. Those points can then be redeemed when making travel purchases, such as booking a hotel, a flight, or a rental car.
There may be restrictions, however; in addition to using the specific credit card, you may have to book through the carrier’s own travel portal. Alternatively, there are also hotel- and airline- branded credit cards attached to a loyalty program that accrues points as you spend. You can then redeem those points for discounts or upgrades when you book through that travel brand.
As with cash back, the amount of points earned with each purchase can depend on the category of purchase. Some cards offer differing tiers, while others offer a flat rate.
Benefits of Travel Reward Points
Cards with travel reward points programs are excellent tools for people who travel regularly because they can significantly offset expenses. Whether it reduces the cost of your hotel or pays the entire price of an airline ticket, travel rewards can drastically reduce the cost of going from point A to point B. But it doesn’t stop there.
As we all know, there can be a lot of pain points when going on a trip and some travel cards aim to alleviate some of them with benefits above and beyond accruing points. For example, some cardholders may get access to perks like trip protection, rental insurance, VIP airport lounge access, and free checked bags.
If you travel frequently, then you may want to apply for a credit card with travel rewards. When you do that math on all of the benefits, you may discover it makes financial sense.
How to Choose Cash Back vs. Travel Reward Points
Choosing between cash back and travel reward points really boils down to how you spend your money. If you don’t plan on traveling much during the year, then a cash back card may be more beneficial
Aside from how points are earned, it’s also important to make sure you understand how each type of card works. Before you apply for any rewards credit card, find out how points can be redeemed. Then examine your spending habits to determine which card is better suited for you.
For instance, you may want a card with specific spending categories and earning tiers. But if you don’t spend a lot in those areas, then a flat rate may make the most sense for you. Credit card approval odds often persuade applicants to go with a particular card over another, but if you have a good credit score, apply for the card that makes the most sense based on your financial behavior.
Recommended: Soft vs. hard credit inquiry
SoFi Plus Example Use Cases
SoFi Plus combines rewards with saving, investing, and borrowing benefits within the SoFi ecosystem. It can be part cash back rewards, part travel rewards card. If you have the SoFi Unlimited 2% Credit Card, the cash back rewards are worth 2% of each eligible purchase
SoFi Plus members who have the SoFi Unlimited 2% Credit Card can also get 5% cash back rewards points on bookings through SoFi Travel (except for airfare) and 2x rewards points on qualifying account activity.
Visit the SoFi Plus page for details on specific membership and promotional offerings.
SoFi Plus Premium Membership Benefits
The boost that SoFi Unlimited 2% Credit Card cardholders get when they pay for SoFi Plus is a huge benefit, especially when you consider the fact that there aren’t any earning caps or rotating categories.
SoFi Plus members can also get a 4.70% Annual Percentage Yield (APY) on up to $20,000 in a SoFi Bank savings account
Additionally, SoFi Plus members get unlimited one-on-one sessions with SoFi Wealth Financial Planners as well as access to SoFi Plus Experiences.
SoFi Plus Tips
The key is to find out whether your membership pays for itself. SoFi Plus is a premium banking service that costs $10 a month, or $120 a year, so do the math on the benefits you expect to use.
One SoFi Plus member advantage comes through booking trips through SoFi Travel for 5% cash back rewards points (except for airfare).
When you combine those rewards with the higher APYs on a SoFi Bank savings account, the membership could quickly pay for itself (and then some).
Determine how much you would earn with a SoFi Plus membership by making use of the SoFi Plus calculator.
The Takeaway
Choosing between cash back vs. travel rewards comes down to which reward makes the most financial sense to you. If life is busy and your work-life balance is keeping you close to home, you may consider opting for a cash back rewards card. If you’re always on the go, then a travel rewards card may offer better benefits.
SoFi Plus is America’s most rewarding financial membership—all in one app.* Unlock extra savings, rewards, discounts, and more.
FAQ
Is it better to get cash back or travel points?
Choosing between cash back or travel points depends on your spending needs. If you don’t travel very often, a cash back option may be a better option for you. If you do travel often and don’t mind learning the ins and outs of travel points, then a travel card can certainly make financial sense. It truly depends on your needs and spending habits.
What are the disadvantages of travel points?
Travel points can be more complicated than cash back rewards, especially if you’re looking for the highest redemption value for your points. It depends on the card, but it’s not uncommon for cards to have limitations on the points can be used, and may even have expirations on the points.
Another disadvantage is that some travel cards charge annual fees to their cardholders, which effectively lowers the value of your travel points.
Is cashback basically free money?
It may be thought of as free money, but it depends on whether or not the card has a balance after the payment due date. If so, then accumulated interest may very well cost more than any amount earned through spending.
Do cash back rewards expire?
It depends on the card and its policy, but most of the time cash back rewards do not expire. As long as your account is in good standing, you should have access to your cash back rewards regardless of when they were earned.
How much is 1,000 reward points in cash back?
It depends on the specific card’s redemption value. If a point equals one cent, for example, then 1,000 points would be the equivalent of $10. Some cards, however, offer up to 2 cents per point when those points are redeemed through select portals.
What are the pros and cons of cashback?
Cash back is straightforward and generally easy to use, but you may not be able to redeem it for as much as you would through a travel rewards program.
Photo credit: iStock/Djordje Krstic
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