Are cash-back credit cards worth it?
Editor's Note
With high inflation and financial anxiety, you might wonder whether you should reconsider your credit card approach. Are cash-back credit cards worth it? Or should you have a travel credit card to earn points and miles?
Of course, there are pros and cons for each type of card, and you'll find that there isn't one perfect credit card approach for everyone. Your credit card purchases, goals and personality will play large parts in helping you decide which option is ideal for you.
Still, some helpful tips and insights are available to help you make the right decision.
When cash-back cards make sense
Cash-back credit cards are simple. There's no guessing game involved, as the terms are pretty straightforward. Every time you swipe your card, you know exactly how much you'll get back in return. It's almost instant gratification.
You can decide what you want to do with the cash at any point — whether it's putting it in your savings account or using it for a particular purchase. You can even separate the rewards earned to put in a travel fund if your goal is to earn rewards toward travel without sacrificing the flexibility that cash-back cards provide.
Additionally, once you redeem your rewards for cash back, it doesn't expire. Once it's in your bank account, it's yours to keep. There's no need to worry about what happens if you stop using the credit card or even close it.
Two types of cash-back credit cards are available: fixed rate and category bonus. Having these options makes it possible to tailor your strategy so you get the best cash-back credit card for your needs.
Why you may prefer a travel card
If you're looking to maximize your rewards, particularly for travel purposes, then a travel rewards credit card may be your better choice. A travel credit card allows you to earn points and miles to apply toward that once-in-a-lifetime trip. There are various options, from hotel-specific cards and airline cobranded cards to flexible rewards cards.
You'll often find that you can use your travel rewards at a significantly better value than if you opted for just cash back. With many 2% cash-back credit cards available, you'll want to ensure you're earning more than 2% in value for every purchase you make with a travel rewards credit card. This can work in your favor if you're looking to use your rewards to stay in a suite in the Maldives or fly in business class to Europe.
But aside from the points you earn, travel credit cards offer many other incentives. For starters, several airline and hotel credit cards offer opportunities to earn status with the respective airline or hotel. This is well worth using a travel credit card for many travelers, as those elite status perks are invaluable. Other options offer ways to save money on your flight or hotel stay through perks like complimentary checked bags, daily breakfast and airport lounge access.
There's one catch, though: Travel rewards credit cards require more work, so they're not as simple as cash-back credit cards.
Until you go to redeem your rewards, the value of your rewards can be unknown. In addition, there are times when programs change their rewards structures for the worse before you have the opportunity to redeem your points. Many reward programs are also subject to availability within a certain room type or cabin, so your redemption options may be limited.
Combining cash-back and travel cards
Your options are not limited to either a cash-back credit card or a travel rewards credit card. You may find that it makes more sense to have both a travel rewards card and a cash-back card (or perhaps several of each) in your wallet. This will allow you to earn the most rewards on every purchase you make. Since each credit card awards a different amount of cash or rewards depending on the category type, you can pick the best card for each purchase.
This is also the perfect time to get a combination of cards within the same family, such as Chase Ultimate Rewards or Citi ThankYou Rewards.
For example, if you combine the cash-back Chase Freedom Unlimited with the travel reward-earning Chase Sapphire Preferred Card or Chase Sapphire Reserve, you can earn the most number of Chase Ultimate Reward points on every purchase you make — and then combine your earnings into a single account. This strategy requires you to pull out a different card based on your purchase, but with a little bit of effort, you'll be on your way to traveling for free.
Additionally, Citi has its own combination strategies with the Citi Premier® Card (see rates and fees), the Citi Double Cash® Card (see rates and fees) and the Citi Rewards+® Card (see rates and fees). Since each card offers different points on category purchases, using the card that will earn you the most rewards on that particular purchase will earn you premium travel in no time. And then, you can pool your earnings into a single account when you're ready to maximize your ThankYou points.
Related: 3 reasons why you want a cash-back credit card in your wallet
Should you switch to a cash-back card?
In short: It depends. If you prefer instant rewards versus points and miles to use at some point in the future, then yes, a cash-back card is the way to go. Or, if you want to avoid worrying about award availability, capacity controls and blackout dates, then a cash-back card would suit you well.
Remember, too, that a limited travel schedule in the future may make it harder to justify switching to a travel rewards card, as your earnings will just sit unused in your account.
Bottom line
There's no definitive answer as to whether a cash-back credit card is worth it, as everyone is unique. Fortunately, your strategy now doesn't have to be your strategy forever. You can always change up your credit card rewards approach when your situation changes. But for now, determine your goals and how involved you want to be with your rewards to determine whether a cash-back credit card is worth it.
Related: The best cash-back cards