Good luck finding a credit card these days that doesn’t offer some kind of reward. Whether it’s travel miles, gift cards, hotel stays, or gas, credit card rewards fall into one of two categories: reward points or cash back.
Both types share similarities — sign-up bonuses are common, annual fees may apply, and there’s often a minimum redemption amount — but they also have key differences in how you can earn and redeem your rewards.
What is cash back
Cash back is a reward from your credit card provider that lets you earn money back on what you spend. Every time you use your card, you get a small percentage of cash on your purchases back — a mini reward that eventually adds up to an amount you can redeem.
The percentage you can earn varies from card to card. But whatever the percentage is, most cash back credit cards let you earn in one of two ways:
Flat-rate spending: With this type of card, you earn the same cash back rate no matter what you buy — whether it’s groceries, gas, dinners out, or plane tickets.
Category spending: Some cards give you a higher cash back rate in certain categories and a lower base rate on everything else. For example, a card may offer 2% on gas and groceries, while all other purchases earn 1%.
Not every cash back credit card lets you redeem in the same way either. When you can redeem your cash back, and what form that redemption takes, can look differently depending on the credit card issuer.
How often cash back can be redeemed: Generally, you can redeem your cash back on a monthly, annual, or on-demand basis. Some credit card issuers pay out monthly (often automatically), others pay out once per a year, and some let you redeem whenever you want (though they may require that you hit a minimum amount, like $25).
How to use the cash back you’ve earned: While the value of cash back is fixed ($1 back is always worth $1), not all cash back credit cards pay it out the same way. Most cards let you redeem your cash back as a credit on your statement to lower your balance. Some cards also offer gift cards from select retailers, while others automatically issue your cash back once a year — sometimes as an old-school cheque.
What are reward points
Instead of giving you a percentage of your purchases back, reward point credit cards offer you a certain number of points for every dollar amount you spend using your card.
Depending on the card, these can be travel points or more general rewards points.
Travel points: These points can usually be redeemed for flights, hotel stays, car rentals, or vacation packages. Many travel point credit cards are affiliated with a specific airline or travel-focused loyalty programs, which means your points will be redeemed through the airline or program platform. They might also offer you more points if you book through certain airlines or partners. There are some travel point credit cards that aren’t connected to a specific program, and let you redeem your travel points as a statement credit that can be applied to travel-specific purchases or directly to a range of travel-related retailers and services.
General rewards: Reward point credit cards that aren’t travel-specific may be affiliated with a specific retailer (for example, a hotel group or a retailer) or have a broader loyalty program. These cards let you earn reward points that can be redeemed for purchases at the affiliated retailer, or for gift cards or products offered by the affiliated loyalty program.
Where rewards points (both travel and general) can get a bit tricky is in their value. The worth of a point isn’t fixed, and can vary depending on what you redeem it for and who the credit card is issued by. Let’s say your reward points card lets you redeem for gift cards or for travel. One point might be worth one cent towards a gift card, but two cents when redeemed towards a flight. Plus, the affiliated retailer or broader loyalty program may have its own rules about when and how points can be redeemed. Confusing? Sometimes. Don’t skip over the fine print.
Comparing cash back and rewards points
Feature | Cash back credit cards | Reward point credit cards |
|---|---|---|
| Average value per dollar | Typically 0.5% to 3% per dollar spent | Varies widely, but generally 0.5 to 2 cents per point |
| Complexity of earning and redeeming | Simple: Earn a fixed percentage (e.g., 1% or 2%) back on your purchases, with clear redemption options like statement credits or gift cards | More complex: Earn points that may vary in value depending on how they’re redeemed (e.g., travel vs. gift cards), often within an affiliated program that has its own rules |
| Redemption options | Statement credits; gift cards; direct payouts (e.g., cheques) | Travel (flights, hotel stays, car rentals); gift cards; merchandise |
| Who does it make sense for | People who want easy, flexible rewards | People who are willing to strategically spend and redeem for higher-value redemptions |
