Points vs. Cash Back: Which is Best for You?

Trying to choose between a points credit card and a cash-back credit card? There’s no right answer—just the option that best fits your lifestyle.

Last Updated: 01/31/2020


GigaTake:

Nothing beats the ease of cash back. But if you’re willing to put in some work, you can rack up a lot more value with points.

Comparing Points and Cash Back

When choosing a credit card that pays rewards, your first important decision is whether to earn cash back or some form of loyalty points. Cash back cards tend to be simpler, making them a good choice for people who want to put minimal effort into managing their rewards. The hitch is that cash-back cards will pay you 1% to 2% of your spending, tops. That means for each $1 you spend, you’ll get back a penny or two.

Points cards can be more lucrative—a lot more lucrative, if you’re smart with how you use them. Most points have an average value of at least 1 cent each.

And that’s just an average. Depending on how you use the points, they can be worth much more. And the average value of a reward currency doesn’t tell you how valuable a credit card that earns them is, since many offer ways to earn extra points. Let’s say an imaginary TravelCo point is worth 1.5 cents, but the TravelCo credit card gives you 3 points for every dollar you spend at a restaurant. That means that for instead of 1.5 cents for every dollar you spend, you’re getting 4.5 cents. That’s the equivalent of 4.5% back when you go out to eat.

Here are some examples of cards that give spending bonuses, and what you can expect to earn when you spend money in certain categories:

Credit CardCategory BonusValue of a PointNet Value
American Express Gold4x  on groceries  1.8 cents7.2%
Chase Sapphire Reserve3x on travel 1.8 cents5.4%
Hilton HonorsAspire 7x on restaurants 0.7 cents4.9%
Capital One Quicksilver Rewards1.5x on everything1 cent1.5%

Getting Your Cash Back 

Earning cash back is pretty straightforward, but how you get your hands on it varies from card to card. Some make it much easier than others to redeem what you’ve earned.

  • Daily credits: The Apple Card applies any cash back you’ve earned automatically to your account each day. You don’t have to do a thing. 
  • Statement credits: Many cards pay cash back in the form of a statement credit, which you have to request. A statement credit reduces the amount of your next bill, so if you applied a $50 statement credit to a $1,000 monthly bill, you would only owe $950. 
  • Check or direct deposit: Some cards let you request a check or a direct deposit to your checking or savings account.

How much this all matters depends on your preferences. Some people like seeing their cash accumulate, others prioritize putting it into an interest-earning account. Maybe you want your cash-back to be completely hassle-free. If you feel strongly about any of these options, it’s worth checking to see how a credit card you’re considering works.

Using Airline and Hotel Points 

Hotel, airline and flexible travel points may be more valuable than cash back, but redeeming them can be a lot more complicated.  How much value you get from your points can depend on how—and when—you spend them. To get the most out of your points, you’ll want to explore booking not just through the hotel or airline the points are affiliated with, but with their partner brands. A bit of effort (and/or some luck) can pay off big. These are just a few real-life examples of the amazing values you can find: 

ProgramAwardMiles/PointsRetail PriceValue Per Point
UnitedRound-trip business-class flight to Japan140,000$8,0005.7 cents
HyattNight at the Park Hyatt Sydney30,000$9873.3 cents
AmericanRound-trip economy flight from Chicago to Rome60,000$1,5002.5 cents

Another caveat:  there are more rules and restrictions around hotel and airline points than around cash. You may be facing limited availability or blackout dates. And some of the big U.S. airlines, including United and American, have made it harder to find seats that you can book with miles.

But some airlines, such as Southwest and JetBlue, take a more straightforward approach to miles: each point is worth a fixed or nearly-fixed amount of money, which you can apply to their fares. Southwest doesn’t have any blackout dates or availability restrictions, and when applied to fares each point is worth roughly 1.5 to 1.6 cents. That means that one Southwest point is worth about 50% more than your average cash-back “point.” You’re never going to feel like you hit the jackpot with these particular airlines, but your points will always be usable.

Using Flexible Points 

Chase Ultimate Rewards, Citi ThankYou, and other programs that give you lots of options for redeeming points can be really attractive—and valuable—because they’re so flexible. Instead of being stuck with just one airline or hotel company, if you have a Chase rewards card you can use your points with 13 different travel partners, including British Airways, United, and Hyatt. If you’re willing to put in the time, you can find even better travel deals with your points.

Some other benefits of flexible programs: Many of us have experienced having just a handful of miles languishing in an airline account. Too few to use on anything, too many to abandon. With flexible points, you just leave everything in your main account until you need it. And you can use those points to top off your other loyalty programs. If you earn Delta SkyMiles via a Delta credit card, a) you have to use them on Delta and b) you may end up with leftover points after you use them for a ticket—but still not have enough for another ticket. If you have American Express Membership Rewards points, you can instantly transfer them at any time to Delta, or any other partner program.

Finally, if you decide you don’t want to travel, you can still use flexible points for cash and gift cards. 

Using Flexible Points for Cash Back & Gift Cards 

Tired of travel? Just want more money in your pocket? With Chase Ultimate Rewards, you can always convert your points into cash at a penny a point.

Many other programs have a cash back option as well, but they usually offer worse values:

ProgramCash BackValue
Chase Ultimate RewardsYes: Statement credit, check1 cent per point
American Express Membership RewardsYes: Statement credit0.6 cents per point
Citi ThankYouYes: Statement credit, check0.5 cents per point

In some situations, however, you can convert your points into gift cards or use them directly with merchants like Amazon. These redemption rates can range from 1 cent per point, a pretty good rate, down to 0.7 cents per point, where you might be better off looking for other options.

The Upshot

Though it’s useful to understand the pros and cons of cash and points, it won’t tell you definitively which card is right for you. What will: Gigapoints. We use big data and advanced algorithms to pinpoint the very best card for your spending habits. Sign up before you miss out on any more rewards.