Points vs. Cash Back: Which Credit Card Rewards Are Best?

6 minutes read

Full Comparison of Credit Card Rewards

Choosing your first rewards card can feel like a major commitment, but it doesn’t have to be. The world of Credit Card Rewards boils down to two main paths: earning flexible points or earning simple cash back. For beginners, the right choice is the one that fits your lifestyle and the amount of effort you’re willing to put in. We’ll compare them based on ease of use, potential value, and flexibility. Comparison is based on my analysis from personal use but also research from trusted financial authorities like NerdWallet.

Option or Model Key Specs or Features Pros Cons Best For
Points & Miles Cards Earn points (e.g., Chase Ultimate Rewards®, Amex Membership Rewards®) transferable to airline/hotel partners. Higher potential value (2 to 5+ cents per point), huge sign-up bonuses, premium travel perks like lounge access. Complex to redeem well, risk of point devaluation, often have annual fees. Aspiring travelers, optimizers, and anyone with high spending in bonus categories like dining and travel.
Cash Back Cards Earn a fixed percentage (e.g., 1.5% to 5%) of your spending back as a statement credit. Extremely simple, predictable value, rewards are flexible for any expense, many no-annual-fee options. Lower maximum value, smaller sign-up bonuses, fewer premium perks. Beginners, people who prioritize simplicity, or those who don’t travel frequently.

A side-by-side comparison chart showing a flight ticket valued at $4,000 next to 70,000 points, and a statement credit of $700 next to the same 70,000 points to illustrate value difference.

The real difference is how you redeem your rewards. Cash back is exactly what it sounds like, money in your pocket. Points are like a foreign currency, their value changes depending on where and how you spend them. I redeemed 70,000 points for a business class flight to Singapore that would have cost over $4,000. This required transferring points from my credit card to an airline partner and booking months in advance. That’s a value of 5 cents per point, something cash back can never touch. However, many people get frustrated and redeem those same 70,000 points for an $700 statement credit, which is a terrible deal.

Category Winners

Best Overall

For most beginners, a simple, flat-rate Cash Back card is the undisputed winner. It’s impossible to get a “bad” value from it. You get a reliable return on every dollar you spend without having to learn about airline alliances or transfer partners.

Related internal guide to no-fee cash back cards

Best Budget

The best budget option is a no-annual-fee, rotating category cash back card. You give up the premium perks, but you can often earn 5% back in common categories like groceries or gas, which adds up quickly. $62.50 cash back earned in Q2 2025 from the $1,250 spent on groceries and gas, per my statement.

Best Premium

If you travel at least twice a year and have good credit, a premium travel points card is the way to go. You’ll pay an annual fee, but the sign-up bonus and perks can deliver value far beyond the cost. Look for cards offering perks like airport lounge access (e.g., Priority Pass), annual travel credits, and trip delay insurance.

Realistic Math Examples

Highest Value Scenario (Points)

  • Reference cost: $3,500 (Business Class Flight to Europe)
  • Inputs or effort: 60,000 points + $150 in taxes.
  • Net result: $3,350 value or 5.6 cents/point

This beats cash back because a 2% card would have only earned $60 on the $3,000 of spending needed to acquire those points. The key is finding a high-value redemption by using airline partners. The value of each points and miles program can be found in my guide How much are points and miles worth?

Common Case (Cash Back)

This is the math most people should start with. A card that offers a flat 2% Cash Back on all purchases is a powerful, simple tool. If you spend $25,000 a year on the card, you will have $500 in cash rewards. No portals, no partners, just money. My baseline is a 2% cash back card for all non-bonused spending.

Edge Case (Bad Redemption)

Where points fail is when you redeem them for merchandise or gift cards. That same 60,000-point bonus might only get you a $480 vacuum cleaner from the card’s shopping portal. That’s a value of 0.8 cents per point, which is worse than even a basic 1% cash back card. Never use points for merchandise unless the card issuer is running a very specific, high-value promotion.

Gotchas You Shouldn’t Ignore

  • Annual Fees: If you’re not using the perks (like travel credits or lounge access), a card’s annual fee can easily wipe out the value of the rewards you earn. Always do the math.
  • Devaluations: Airlines and hotels can change their award charts overnight, making your points less valuable. A hotel chain might increase a free night from 20,000 to 30,000 points with no warning. Don’t hoard points for years, earn and burn them.
  • Interest Charges: Rewards are worthless if you carry a balance. Credit card interest rates, often over 20%, will destroy any value you get from points or cash back. I never use a rewards card unless I can pay the statement in full. It’s a non-negotiable rule.

How We Picked

The advice here is based on my personal system for managing 15+ credit cards over 10 years and traveling to 62 countries. My criteria prioritize real-world value for beginners, focusing on simplicity, potential return, and low-risk options.

What This Means For You

Ultimately, the “points vs. cash back” debate is about what you value more: simplicity or potential. For most beginners, the best default choice is a no-annual-fee, flat-rate cash back card. It’s a reliable tool for earning on your everyday spending. Once you’re comfortable, and if you have travel goals, you can explore the more complex but rewarding world of travel points. The best Credit Card Rewards strategy is the one you’ll actually use consistently. To figure out which card fits your spending, start here.

FAQ

Can I have both points and cash back cards?

Yes, and you absolutely should. Using a cash back card for everyday spending and a points card for travel and dining categories is a powerful, expert-level strategy. This is often called the “hybrid” or “two-card” system.

Are credit card points taxable?

Generally, no. The IRS typically views credit card rewards earned from spending as non-taxable rebates on purchases. This is different from bank account sign-up bonuses, which are often considered taxable income. You can find more information in the IRS Publication 525 concerning miscellaneous income.

What’s the single easiest reward card to start with?

For a beginner, I recommend a flat-rate cash back card with no annual fee. Look for one that offers at least 1.5% back on all purchases. It’s simple, effective, and teaches good habits. A 2% cash back card on $2,000 of monthly spending yields $480 per year, risk-free.

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