Travel Rewards or Cash Back? Here's How to Decide

Both can save you money, but which one will save you more?

If you've decided to get a rewards credit card, the next step is figuring out which type of card to choose. There are two options that reign supreme: travel rewards and cash back. Rewards enthusiasts usually stick with one type, based on what works best for their lifestyle.

You'll save more money by picking the right type of card, so this is an important step. In this guide, you'll learn how travel rewards and cash back work, as well as how to decide between the two.

Travel rewards: For those who travel multiple times per year

Travel credit cards earn rewards, normally called either points or miles, that are redeemable for travel purchases. The way you can redeem travel rewards, and the type of travel you can use them for, will depend on the card.

For example, an airline credit card will earn miles you can use with that airline to book free flights. A hotel credit card will earn points you can use with that hotel to book free stays.

The most flexible travel cards earn transferable rewards. With these, you can transfer your points to airlines or hotels that have partnered with the credit card company. You can also redeem points at a fixed cash rate to make travel purchases. Transferable rewards are available through the following rewards programs:

• Chase Ultimate Rewards
• American Express Membership Rewards
• Capital One Venture Rewards
• Citi ThankYou Rewards

Many travel cards also include extra perks that improve your travel experience. Some provide airport lounge access. Others offer complimentary benefits on luxury hotel stays. And quite a few travel cards will cover the cost of your Global Entry or TSA PreCheck membership.

Here's how you can know if a travel credit card is right for you:

• You travel at least two or three times per year. Because of the benefits travel credit cards offer, they become more valuable the more you use them. To get the most out of a travel card, you'll likely need to go on multiple trips per year.
• You don't mind paying an annual fee for a credit card. Most travel cards charge this. There are exceptions, but if you want a travel card, it's better if you're okay with paying an annual fee. Travel cards with annual fees offer far more perks.
• You're open to spending more time getting the most from your credit card. Travel credit cards aren't as straightforward to manage as cash back cards are. They often have more benefits to keep track of, and learning how to use your card's travel rewards can take a little time.

Cash back: An uncomplicated way to save money

Cash back credit cards are the easiest way to earn rewards. The name alone gives you a clear explanation of how cash back cards work. When you pay with a cash back card, you earn cash rewards on your purchase. You can then apply your cash back as a statement credit toward your credit card bill, get it sent to your bank account, or request a check.

There are a few earning structures you'll see with cash back cards:

• Flat rate: Cards that earn the same cash back rate across all purchase categories. The highest flat rate I've seen is 2%, and there are multiple cards that offer it.
• Bonus categories: Cards that earn more cash back in bonus categories, with bonus rates normally ranging from 2% to 6%. Non-bonus purchases earn the card's standard rate, which is normally 1%.
• Rotating bonus categories: Cards that earn more cash back in bonus categories that change quarterly. These cards normally require you to activate those bonus categories every quarter to earn the bonus rate of 5%.

One of the great things about cash back cards is that there are so many options, and it probably won't be hard to find one that fits your spending habits. You could go with a gas and groceries credit card if those are your biggest monthly expenses. Or, if you're more the type to go out to eat, there are dining credit cards that earn more at restaurants.

Here are the signs that you should go with a cash back credit card:

• You want to save money on your everyday expenses. Cash back cards effectively save you money on every eligible purchase. If your card offers 5% back in a certain spending category, it's like you're getting a 5% discount just for paying with that credit card.
• You value simplicity and saving time. There's practically no learning curve with cash back credit cards. If you're looking for a card you can seamlessly plug into your life, this type of credit card is an excellent choice.
• You don't want to pay an annual fee. Unlike with travel cards, there are a ton of cash back cards that don't charge an annual fee.

Making your decision

By now, you likely have a pretty good idea of which type of credit card is better for you. That means you can get to the really fun part -- checking out the best credit cards in that category and picking the one you'll apply for.