Cashback vs. Points

The plain answer

Cashback is a reward quoted in dollars. Points are a reward quoted in units whose value depends on the redemption. Cashback is easier to compare. Points can be worth more if you redeem them well, and worth less if you do not.

The tradeoff is simplicity versus a possible higher return for extra work. If you will not learn the redemption rules, cashback usually keeps more of the advertised benefit.

How it actually works

A cashback card returns a percentage of eligible spending as a statement credit, deposit, or similar cash value. One dollar of cashback is usually worth one dollar, minus any redemption minimum or exclusion.

A points card credits units for spending. Those units might convert to travel, statement credits, gift cards, or transfers to airline and hotel programs. Transfer partners are other companies that accept the points. The same pile of points can be worth different amounts depending on the option you pick.

Fees, foreign transaction charges, and annual fees apply to both types. The reward label does not change the need to pay the statement in full.

What this means for you

If you want a card you can ignore after autopay is set, prefer cashback. If you already travel a set way and will redeem on purpose, points can be worth the extra tracking.

Value the points at a conservative rate when you compare cards. If a redemption only works when you take a trip you would not otherwise take, that is not a savings. It is a new purchase.

Common mistakes

Treating a blog’s “cents per point” as cash in your pocket. That figure is an estimate for a specific redemption, not a guarantee.

Spending more to “maximize” points. Extra spending to earn a reward is usually a loss.

Ignoring the annual fee while chasing a higher earn rate. The fee is real. The extra points are not, until you redeem them.

Related pages

• The Case for Simple Cashback
• Annual Fees: When Are They Worth It
• Credit Cards