Cash Back vs. Rewards Credit Cards

Summary: Which would you choose? What offers the best value? Will you choose a cash back deal or will it be the rewards credit card scheme?

Ah, the sweet rewards of using credit!

Not only do you get immediate gratification with the buy now-pay later plastic, but now, many credit cards offer rewards and incentives for using their card to make purchases. You can get cash back, or gift cards, or 'reward points' that you can spend on merchandise or services from various merchants. There are also cards that allow you to designate your 'cash back' points to a charity - sometimes called affinity cards - and those that put your cash back into a special savings account for college.

Great deal, right? You spend your money and get something in return. The catch is, of course, that you're paying interest and card fees to get your cash back rewards. But if you're going to be using the credit card anyway, you might as well get something back out of it, right?

Most cash-back cards give you 1-2% cash back on most of your purchases. You'll get a check at specified periods for the amount of your 'rewards cash'. You can cash the check and spend the money on anything you want.

Reward cards give you 1-5 reward points for every dollar that you spend at different merchants and types of merchants. Most pay you 5 reward points for purchases made at their 'Merchant Thank You' network, and for purchases made at gas stations, drug stores and supermarkets. You'll get 1 reward point for every dollar that you spend at other merchants. You can then redeem your reward points for particular items from the merchants that belong to the credit card's merchant network.

Which is the better choice?

Each kind of credit card reward has its own pros and cons, and the better choice depends on what's most important to you.

Cash-back Rewards - Pros

Cash can be used anywhere, for any kind of purchase. Gives 1% - 2% cash back on all purchases.

Cash-back Rewards - Cons

Rewards points cards may give rewards of higher value, particularly for purchases at merchant networks stores, gas stations and supermarkets. Cash-back can only be used when a check is issued.

Rewards Points - Pros

Rewards points are often higher value than cash-back. If you use the credit card for purchases made within the merchant member network, you can get as much as 5% value back when you spend your reward points.

Reward points are available to use on a rolling basis. Some card companies may require you to accumulate a certain number of rewards points before redeeming them, but reward point rewards are often more easily available than cash-back rewards. Reward points can be used for cash rewards in some circumstances.

Reward Points - Cons

Reward points can only be redeemed from particular merchants and/or on particular merchandise.

Whichever your choice, it makes good sense to get something back when you choose to use credit. If you're a frequent credit card user, the rewards can certainly add up. Among the merchants that belong to various Merchant Member networks are such well-known companies as airlines, Saks Fifth Avenue, Evelyn & Crabtree and Smarter Edge.