Which rewards program is best -- credit card points, miles or cash back?

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    Woman sitting on couch and holding credit cardPicking a good rewards credit card is a little like figuring out where to eat at a food court. Do you chow down on cash back, treat yourself to travel miles or ring up some rewards points?

    "There's no one card that's better than all of the rest when it comes to rewards cards," says Beverly Harzog, personal finance expert and author of "Confessions of a Credit Junkie." "The best card for you is the one that fits in with your particular lifestyle."

    The breakdown

    Credit card companies have long offered airline miles, cash-back rewards or other incentives to get consumers signing up for cards.

    Most programs give you a minimum of 1 percent cash back, one airline mile or one reward point for every dollar spent. When you accrue enough credits, banks will typically send you money, allow you to convert travel miles into reward flights or let you redeem points for merchandise, activities or gift cards.

    But many consumers find it hard to compare programs because different cards offer various levels and types of perks. Honestly, does anyone know if it's better to get two points or one travel mile for every dollar spent?

    Different cards also give you higher rewards for specific purchases. For instance, an airline credit card might offer a standard reward of one mile for every dollar spent on most things, but two miles per dollar when booking flights with a specific airline.

    Most programs also have exclusions, from blackout dates (when you can't redeem miles for airline tickets) to rewards points that expire if you don't use them fast enough. No matter what type of rewards card you consider, be sure to read the fine print so you get the most out of what you've earned.

    Experts say consumers trying to find the best rewards credit card should consider what they charge and what kind of perks they'd enjoy.

    "It's all about your personal spending habits," says Lisa Gerstner of Kiplinger's Personal Finance magazine.

    Are rewards cards right for you right now?

    While the potential to earn rewards on your credit card purchases might sound like a winning situation, these cards aren't for everyone. The main reason you might not be ready to apply? If you carry a balance from month to month, the interest rate you'll pay on that revolving debt is going to be higher than the rate at which you earn rewards on purchases.

    It's also important to be realistic about how you plan to use rewards credit cards. In other words, don't get so caught up in the hunt for points or miles that you make frivolous purchases and unnecessarily spend money.

    So, if you're not carrying around debt and you're ready to start getting something back for your everyday purchases, here's a look at the pros and cons of three major types of reward credit cards.

    Travel rewards cards

    Spend a dollar with one of these cards and you'll typically earn one or two travel miles that you can redeem for airline tickets, hotel rooms and the like. Many cards also include special travel discounts, use of airport lounges, companion tickets and other perks (see example at right). 

    Screen grab listing travel credit card perks

    Travel rewards credit cards tend to come in one of two categories -- those that allow you to redeem rewards with a single airline or hotel chain and those that provide miles you can use anywhere.

    People who always patronize the same airline or hotel can often get great rewards with brand-specific cards, while those who don't might prefer rewards they can redeem with multiple providers.

    Pros: These cards are great for people who want to cover the cost of airline tickets or hotel rooms by amassing miles. Business travelers particularly like them because many cards let you combine frequent-flier miles from employer-paid trips with miles that you earn with personal travel.

    Cons: Some cards have blackout dates that make it virtually impossible to redeem miles for tickets around holidays, while unused miles sometimes expire after a year or two. Other drawbacks can include high annual fees and a large number of miles required to get one rewards ticket.

    Cash-back cards

    These cards pay cash rebates on your charges -- typically 1 or 2 percent of whatever you buy, and sometimes up to 6 percent on specific spending. As you can see below, redemption options may include an account credit or a paper check:

    Screen grab of credit card cash back redemption options

    Three types of cash-back cards you might encounter include:

    • Cards offering an across-the-board cash-back rate on all purchases
    • Cards offering different cash-back rates on various categories (1 percent on most purchases but 3 percent on gas and 6 percent on groceries)
    • Cards offering bonus cash-back rates on revolving quarterly categories (1 percent on most purchases, but 5 percent back at department stores, but only during the holiday season)

    Pros: Many cash-back cards offer sign-up bonuses and charge no annual fees, and the fact that they give you money (in the form of an account credit or a check) you can use anywhere pretty much makes them the most flexible program.

    Cons: Your cash-back balance might drop to zero if you miss a payment or wait too long to redeem. Many cards also cap cash-back earnings for bonus categories at around $300 annually.

    Rewards cards

    These programs are sort of a cross between travel and cash-back cards, typically giving you one or two rewards points for each dollar spent on purchases. You can generally redeem these points for airline tickets, merchandise or, as depicted below, gift cards:

    Screen grab of rewards credit card redemption options
    Pros: Accounts sometimes offer discounts on merchandise or gift cards, meaning you'll get more value out of your points.

    Cons: It's sometimes hard to figure out exactly how much each point is worth, and your points might expire if you miss a payment or don't use them quickly enough.

    Trying to figure out what type of rewards card is best for you? Use CardRatings.com to research cash-back credit card offers, travel rewards credit card offers and reward credit card offers. Tell us about your favorite rewards card by leaving a comment below.


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