Are 2% Cash Back Cards A Better Value Than Points?

Points are king in this hobby and most people will scoff at the idea of picking up a cash back card. Generally, they don’t offer lucrative sign-up bonuses, but do they offer more lucrative rewards based on spending? The most lucrative points and miles are generally valued at upwards of 1.8 cents each. On a $1,000 purchase that equates to $18 worth of rewards…that’s still $2 less than what a 2% cash back card would get you. So is it time to switch to cash back? There are definitely pros and cons to consider.

PRO: At face value, you’re getting more rewards

I don’t normally subscribe to point valuations because they’re pretty much arbitrary. For example, American AAdvantage miles are frequently valued at 1.6 cents each. Meanwhile, I’ve gotten upwards of 3 cents worth of value out of them. But I get it – these valuations are guidelines for the minimum amount of value you should aim for. That being said, I’ve always compared how much I’d have to spend on a mile-earning credit card vs a 2% cash back card in order to maximize my spending and redemptions.

CON: Cash back cards generally don’t offer sign-up bonuses

This is a huge negative, unless you’re a big spender. Then foregoing 50,000 – 100,000 points might not sting so much because you’ll make up for it with the amount of rewards you’ll earn from spending. Of course, there are 2% cash back cards that offer sign-up bonuses – either in small amounts or on a promotional basis. The Capital One Venture card is often cited as the exception, since it offers 50,000 miles (the equivalent of $500 in travel rewards) as a sign-up bonus. However, Capitol One pulls from three credit bureaus, which is a total waste if you ask me.

PRO: No Annual fee

This is a pretty substantial perk if you’re looking for a credit card to hold onto long term. Most airline credit cards carry $95 annual fees, while 2% cash back cards are usually fee-free. This one matters because if you carry multiple credit cards long-term, the fees can really add up. Think about what you can afford and whether what you’re spending in annul fees is worth the rewards you’re earning.

The Verdict

Ultimately, it comes down to how you redeem your rewards. If you’re putting airline miles towards luxury travel, then an airline rewards credit card will suit you better. If you’re getting less than 2 cents per point worth of value, then you might want to stick with a 2% cash back card. It works out cheaper, you’ll get more bang for your buck in terms of spending, and you don’t have to pay an annual fee. It’s good to evaluate your earning/redemption habits every once in a while so you’re making the best decision in terms of which credit cards to get and spend money on.

 

I want to hear from you: Do you think it makes sense for you personally to earn miles over cash back? Why or why not