Cash Back vs. Travel Rewards: How to Choose a Credit Card

Getting rewarded for spending money you were going to spend anyway sounds pretty great. That’s exactly why rewards credit cards have become so popular. 

Two of the most popular options are cash back cards and travel rewards cards. And with summer travel season in full swing, many people are wondering which option gives them the most bang for their buck.

When comparing cash back and travel rewards cards, the differences are in the details. Cash back cards are straightforward—you earn actual money back on your purchases. Travel rewards cards let you earn points for flights, hotels and other travel expenses. Both types can help you get more value from your everyday spending. The key is figuring out which one fits your life better.

How cash back credit cards work

Cash back cards do exactly what their name suggests: They give you cash back when you make purchases. Think of it as getting a small refund every time you swipe your card. Here’s how it typically works: 

You make a purchase, and the card gives you back a percentage of what you spent. For example, if you spend $100 on groceries with a card that offers 2% cash back, you’d earn $2 back.

You can usually redeem your cash back in a few different ways. Most cards let you apply it as a statement credit to reduce your balance. You might also be able to get a check in the mail, transfer the money to your bank account or even use it to buy gift cards.

How much cash back you earn depends on the card. Cash back credit card rewards typically work in one of three ways:

• Flat rate cards give you the same percentage back on everything you buy. You might earn 1.5% or 2% on all purchases, no matter where you’re shopping.
• Tiered rate cards offer different percentages for different types of purchases. For example, you might earn 3% on gas, 2% on groceries and 1% on everything else.
• Rotating category cards change their bonus categories every few months. One quarter, you might earn 5% on gas stations. The next quarter, it could be 5% on online shopping.

How travel rewards credit cards work

Travel rewards cards work a bit differently than cash back cards. Instead of earning money back, you earn points or miles that you can use for travel-related expenses like flights, hotels, car rentals and vacation packages. Here’s an example: 

You spend $1,000 with your travel rewards card, and it earns you 1,000 points. Depending on the card and how you use those points, they might be worth $10 for statement credits or $15 when you book travel through the card’s portal.

The earning process is similar to cash back cards. You might earn one point per dollar on all purchases, or you could earn bonus points in specific categories like dining, travel or gas stations. Some cards may even offer sign-up bonuses where you can earn many points after you spend a certain amount in your first few months.

What makes travel rewards credit cards different is how you redeem your rewards. You can usually use your travel points in several ways:

• Booking flights, hotels or rental cars directly through the card’s travel portal.
• Transferring points to airline or hotel loyalty programs.
• Applying points as statement credits for travel purchases you’ve already made.
• Using points for non-travel items like gift cards or merchandise.

One big advantage of travel points is that they typically don’t expire as long as you keep your account active and in good standing. This can give you flexibility to save points for bigger trips or use them as you go.

Comparing cash back and travel rewards credit cards

When it comes to earning rates, both types of cards can offer solid value, but their benefits play out differently.

Most cash back cards offer between 1% and 2% back on everyday purchases, with some offering up to 5% or 6% in certain categories or through rotating bonus categories. Travel rewards cards typically earn 1-2 points per dollar, though the actual rewards value depends on how you redeem those points and the options available in the rewards programs.

The rewards value of points or cash back can vary depending on redemption options, so it’s important to compare before choosing. Here are some things to consider when choosing the right card for you:

• Flexibility and simplicity. A cash back credit card wins on simplicity. You earn rewards as cash; there’s no figuring out the best way to redeem or worrying about point values changing.
• Earning potential. Both card types allow you to earn rewards through credit card spending, but travel rewards cards often come with higher welcome bonuses. It’s not uncommon to see travel cards offering bonus points after meeting higher credit card spending requirements.
• Fees and requirements. Cash back cards often have no annual fee, making them budget-friendly. Many travel rewards cards do charge annual fees, though they often offer perks to help offset the cost.

5 factors to consider when choosing the right card for you

Picking between cash back and travel rewards isn’t just about the cards themselves—it’s about understanding how they can fit into your life. Here are the key factors to think about when choosing a rewards credit card:

1. Your travel habits. Be honest about how often you travel. If you take one big vacation every few years, travel points might not be the best fit. But if you’re constantly booking flights for work or pleasure, travel rewards could save you serious money. Remember, points only provide value when you use them.
2. Your spending patterns. Look at where you spend the most money each month. If you spend a lot on groceries and gas, a cash back card with bonus categories might work better. If you eat out frequently or spend on general purchases, the earning structures might be similar between card types.
3. Your comfort with complexity. Cash back cards are straightforward—earn money, use money. Travel cards may require more research and planning. You’ll need to understand point values, transfer partners and booking strategies to get the most value. If you enjoy optimizing your rewards, travel cards can be a good option. If you prefer simplicity, cash back might be your answer.
4. Your financial goals. Think about what you want your rewards to do for you. Cash back can help with everyday expenses or go straight into savings. Travel rewards can make vacations more affordable or help you experience trips you might not otherwise take.
5. Military considerations. For Servicemembers and their families, consider how PCS moves and deployments might affect your card choice. If you’re frequently relocating, travel rewards could help offset moving costs and make family visits more affordable. The flexibility to book flights on short notice can be especially valuable for military families.

Find credit card rewards that fit your life

The perfect rewards card isn’t the one with the highest earning rate or the flashiest perks; it’s the one that makes your life better. Taking time to analyze each card’s features and benefits alongside your lifestyle can help you make a great choice. Whether that means having extra cash in your pocket each month or making that dream vacation more affordable, the best choice depends on you. 

Navy Federal Credit Union can help you decide which type of card works for your situation. We offer both cash back and travel rewards options designed to fit your unique situation. Check out our credit card offerings and find the one that turns your everyday spending into something more meaningful. Your wallet will thank you!