Unsure whether to apply for a credit card that offers points or cash back? Let’s examine how these card types can differ and the pros and cons.
Understanding credit card rewards: points and cash back
With a points credit card, you earn points – a type of rewards currency – by using your card to make qualifying purchases. You’ll usually earn a certain number of points per dollar on each qualifying purchase. You may earn a flat rate, more points in certain categories or only points in specific categories. The credit card’s terms and conditions outline how and when you can redeem those points for things like gift cards, travel and more.
With a cash back credit card, you earn rewards on a percentage of the money spent on qualifying purchases with your credit card. Some cash back credit cards let you earn a flat percentage on all purchases, while others offer higher percentages in specific categories, such as travel or groceries. You might receive cash back automatically or you might have to choose to redeem it. Depending on the card and the issuer, you might redeem your reward as a check, a statement credit or a direct deposit.
Pros and cons of points-based credit cards
Compared to cash back credit cards, points-based credit cards may offer a wider variety of rewards.
Rather than one option – cash – you may be able to redeem your points for things like merchandise, gift cards, cash back or travel. Some card issuers also allow you to pay with points at popular retailers or use points to make charitable donations.
Pros and cons of cash back credit cards
Rather than offer several different rewards options, cash back credit cards might offer only one – cash, typically in the form of a statement credit, check or direct deposit. This simplicity can be a major benefit if you don’t want to spend time researching and choosing different redemption options. However, if you want to receive a greater variety of rewards from your credit card, this could feel more like a drawback. Note that some issuers, like Citi, let you redeem cash back points for a variety of rewards, including gift cards and travel purchases.
Factors to consider when choosing a points or cash back credit card
When deciding whether to apply for a credit card that offers points or cash back, you might find it helpful to consider:
Your spending habits: Knowing what types of goods and services you spend the most on can help you choose a rewards structure that aligns well with your lifestyle.
Your preferences: Is a straightforward cash back rewards system appealing to you? Or do you prefer the variety of choices that points credit cards offer?
Your travel habits: If you frequently use your credit card to pay for travel-related expenses, a card offering higher amounts of points or cash back for travel could be appealing. It can also make sense to consider a card with travel perks.
Annual fees: Points and cash back credit cards can offer great benefits, but it’s important to consider whether what you’ll likely earn justifies any annual fees associated with the card.
Disclosure: This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.
