What are the differences between cash back and points?

Trying to decide between cash back and points when choosing a rewards program or credit card? There isn't a right answer to whether one is better than the other, but rather it depends on one’s financial goals and lifestyle. It’s also helpful to understand the differences between cash back and rewards and whether it’s possible to earn both.

Read on to learn about cash back vs. points, including how each works and potential ways to earn.

Cash back rewards

Cash back rewards offer a straightforward way to earn money back on purchases. Essentially, it's like getting a small percentage of spending back as a reward.

The process of how cash back works is generally simple: An individual makes purchases using a cash back credit card or cash back rewards provider and a portion of the amount spent is returned to them in the form of cash back. This percentage can vary depending on the card issuer and the specific terms of the rewards program.

Typically, cash back credit cards and cash back apps offer either a flat rate on all purchases or tiered offers (meaning higher percentages for certain categories like groceries, gas, or dining). Some cards may also offer bonus cash back opportunities for signing up or spending a certain amount within a specified timeframe.

For example, the PayPal Cashback Mastercard^® offers 3% cash back¹ when checking out with PayPal, meaning cardholders that make a purchase with their card through PayPal checkout can earn 3% of their purchase back.

Credit card points and reward points

Rewards credit card points and reward points are a versatile and flexible form of reward earned through spending on credit cards or via other reward programs. These points accrue based on the amount spent, often with bonus points for purchases in specific categories or on specific items.

Once accumulated, points can be redeemed for various rewards, such as travel bookings, merchandise, gift cards, statement credits, or even cash back. The redemption value of points may vary depending on the chosen redemption option.

Earning potential

Earning rewards from credit cards, cash back programs, loyalty programs, and money-saving apps can vary significantly. Different cards and programs offer various incentives, such as higher cash back rates for specific purchases or categories or more points for certain transactions.

For example, some cards may provide increased cash back for groceries or gas, while others may offer bonus points for travel or dining expenses. Additionally, rewards programs may have partnerships with specific retailers or brands, offering enhanced benefits for purchases made with them.

Understanding these variations may help maximize earning potential. It’s important to choose the right card or program that aligns with individual spending habits and preferences.

Redemption flexibility

Redemption options for cash back and points generally vary among credit card issuers or rewards programs. While some programs, like PayPal Rewards, may offer the flexibility to redeem rewards as cash back, others may restrict redemption to specific stores or purchases.

Carefully review the terms set out by the issuer to effectively navigate and optimize rewards. By understanding the redemption methods available and any limitations imposed, individuals can make informed decisions about how to utilize their rewards and maximize their value.

Potential considerations

Before deciding between cash back or points, consider various elements that could impact purchasing choices or payment preferences.

Here are some potential factors to take into account:

• Lifestyle: Assess how a person’s lifestyle aligns with the rewards and benefits offered by different credit cards or programs. Choose a card that complements one’s interests and financial situation.
• Spending habits: Analyze spending patterns to determine which rewards program or cash back option would yield the most value based on typical purchases.
• Budgets: Evaluate how annual fees, interest rates, and redemption requirements fit within budget constraints.
• Terms and conditions: Understand the terms of credit cards, including APR, fees, rewards structure, and redemption options, to make informed decisions and avoid financial pitfalls. Review rewards program terms to ensure clear understanding on earning ability, redemption minimums or maximums, and other potential conditions.

By considering these factors and understanding the terms associated with cash back and rewards programs, individuals can make confident and responsible financial choices that align with their needs and goals.