Cash-back credit cards vs. travel-rewards cards: Which one gives you the most bang for your buck?

But what about cash-back credit cards, which can pile up a few dollars every time you make a purchase?  If you’re in the market for a new credit card, which one gives you more bang for your buck, a cash-back card or a travel-rewards card?

Why it matters

Credit card companies are always trying to grab our attention and our business. They’re good at it — 82% of U.S. adults have a credit card, according to the Federal Reserve, and credit-card balances just hit a historic high. When you’re carrying a balance, it can feel like your credit card is controlling your life. Exploring cash-back and travel-rewards credit cards is a chance to think about how our credit cards can work for us instead of the other way around.

The verdict

Cash-back all the way. 

But before we proceed, it’s important to note that neither of these options works if you carry a credit-card balance, said Ted Rossman, senior industry analyst at Creditcards.com. The average credit-card interest rate is currently 20.37%, according to Bankrate, the highest since Bankrate started tracking rates almost 40 years ago. No amount of cash back or travel points outweighs the cost of credit-card debt. “Credit-card interest rates are so high that if you have debt, you should pick door No. 3, which is not cash-back, not travel, but is a low interest rate,” Rossman said.

See also: What’s the best way to get rid of credit-card debt — pay off the smallest balance first or the one with the highest interest rate?

My reasons

Inflation is stickier than an August day in Washington, D.C. and we’re all feeling the pinch of higher prices. Who couldn’t use a little extra cash these days? 

Cash-back cards come in a variety of styles. Some pay you 2% back on every purchase, so if you spend $100, you get two bucks back. (The Wells Fargo Active Cash card
WFC,
+2.95%
is one example.) The cash will typically arrive as a deposit in your bank account, a statement credit that lowers your balance, or on a gift card. Some cards pay as much as 5% cash back on certain spending categories like restaurants or live entertainment. Some have annual fees; others don’t. Some cash-back cards cap the amount of cash you can earn if you pass a certain spending limit.

While there are many different types, these cards have one thing in common: they put money in your pocket. If you spend $1,000 a month on a 2% cash-back credit card, you’ll earn $240 in cash per year.

With travel-rewards credit cards, you typically earn points or miles that can be redeemed to pay for flights, hotels and other travel expenses. Some cards have partnerships with certain airlines and hotel chains, so you can only use your points with those brands. Some are more flexible and let you transfer points to travel partners. The Chase Sapphire Preferred
JPM,
+2.10%
is one well-known travel card.

Travel-rewards cards also often provide perks that make traveling more pleasant, like access to swanky airport lounges, a free checked bag, and automatic elite status, said Emily Thompson, a credit card writer with The Points Guy. Because of all the potential extras, these cards are often more lucrative than cash-back cards, but they are more complicated to use. That’s why there are entire websites like The Points Guy devoted to helping people game-plan strategies for their travel-rewards credit cards.

That complexity is why I’m choosing the cash-back credit card in this showdown. Time is money. I don’t want to spend it making sure I’m getting the most out of my travel-rewards credit card. The idea of leaving money on the table by not maximizing my travel points sounds frustrating and wasteful to me. It’s unfortunately pretty common: 23% of cardholders failed to redeem their credit-card rewards in the past year, according to a Creditcards.com survey. Alarmingly, of those who didn’t use their rewards, 11% said they didn’t know how to redeem them, 9% said the process was too confusing, and 9% said they just didn’t have the time to take advantage of their rewards. Cash-back cardholders were much more likely to have used their rewards than travel-rewards cardholders. 

The simplicity of cash-back cards makes them a good option for people with limited mental bandwidth, Thompson said. “Not everybody has time for all this,” Thompson told MarketWatch. “This is a lot for a single mom to sit down and try to figure out. There’s kind of some inherent privilege in just the ability to be able to figure all of it out. The cash-back card is the way to go if you don’t have that.” 

While travel-rewards cards may offer higher monetary value, there’s an appealing practicality to cash-back cards. “If your washing machine broke and you need to fix it, those cash-back rewards might look a lot better than the ability to fly to Asia,” Thompson said.

Speaking of flying to Asia, keep in mind that credit-card companies aggressively market travel-rewards cards as a gateway to a jet-setting lifestyle. But is that really your top financial priority? By comparison, cash-back cards have a more prosaic reputation, and they sometimes get knocked by credit-card insiders, both Thompson and Rossman said. 

Rossman said he was even a little embarrassed to have a cash-back card when he first started working at Creditcards.com. “I know all these people that are flying first-class to the Maldives for no money, meanwhile, I’m getting a few percent back at the grocery store,” Rossman said. “What I’ve come to realize is that my example is more typical.”

In fact, cash-back rewards are Americans’ favorite credit-card feature. More than one-third of cardholders (36%) said getting cash back was the best feature of the card they use the most often, while 7% said travel rewards, a Bankrate survey found.

Is my verdict best for you?

On the other hand, if travel is important to you, travel-rewards cards have a lot to offer. Their amenities can smooth your journey during busy travel periods. Who couldn’t use free trip insurance, free TSA pre-check and a free breakfast at your hotel? Strategizing how to wrangle every last cent out of travel-rewards programs is fun for some people, who turn it into a game.

Travel-rewards cards can work especially well if you have the flexibility to travel on the dates when your points will get you the best deal, Rossman said. This may not be possible if, for example, you have kids and need to follow the school calendar when planning vacations.

“I tend to think people who are best suited for travel-rewards cards have both the appetite to really learn about these programs and maximize value, but also the flexibility to go where the deals are,” Rossman said.

Tell us in the comments which option should win in this Financial Face-off. If you have ideas for future Financial Face-off columns, send me an email at lalbrecht@marketwatch.com.