Cash back vs. rewards points: What’s the difference?

Whether you’re earning cash back or points on the purchases you make, a rewards credit card can have some nice perks. And as long as you responsibly use your rewards card, you can take advantage of some of the benefits it offers. 

While credit cards with points or cash back rewards have similarities, they aren’t always created or handled equally. Read on to learn about some of the differences between cash back and points—and how to find the right rewards card for you.

When you use a cash back credit card, you earn back a percentage of what you spend on it. The amount you could earn varies by card and how much you’re spending.

Some offer flat-rate cash back—like 2% on all purchases—while others have a tiered system: for example, 3% for dining out and 2% for gas. For a flat-rate card where you earn 2% back on purchases, that’s $2 for every $100 you spend.

Other cash back cards may offer bonus rewards for rotating categories. These categories typically change every few months, depending on the card. While they’re usually temporary, they can offer a higher return rate. And that could give you the chance to earn even more cash back on purchases you may already be planning to make.

How to redeem credit card cash back rewards

Cash back rewards can add up over time, although you may need to earn a certain amount in rewards before you can redeem them. When you’re ready, you can redeem your rewards a few different ways, including:

• Paper check or direct deposit: This arrives in the mail or in your checking or savings account. Then you can use it how you’d like. Keep in mind, you may need to have an account with the card issuer for a direct deposit. 
• Statement credit: This option lets you apply your cash back rewards directly to your credit card account as a statement credit to lower the balance.
• Gift cards: Some card issuers let you redeem your cash back rewards in the form of gift cards to popular stores, restaurants and more.
• Online shopping: For this option, you may be able to put your rewards toward online purchases. Capital One lets you use your rewards to shop online with PayPal and at Amazon, for example.
• Other: Some card issuers may give you other cash back redemption options, like using your rewards to cover all or part of a past purchase, typically in the form of a statement credit.

How you cash in on your rewards depends on your needs and what your card offers. 

Advantages of cash back credit cards

Cash back credit cards can have many of the same advantages as other cards—like protection against fraud and digital tools to help you keep track of your finances. And over time, if you use your credit card responsibly, you can build or rebuild your credit history and improve your credit score, as you can with any credit card.

If you can earn cash back rewards too, it can be a nice perk. Some cash back credit cards offer an early spending bonus. That means if you spend a certain amount in a specific time frame, you could earn an extra cash bonus—on top of the card’s standard cash back rewards.

Some cash back cards may even offer low or 0% introductory APRs. This can be helpful if you want to make a big purchase, since you’ll have more time to pay it off with minimal—or no—interest.

You can also find cash back card options that have no annual fees.

Like cash back cards, credit cards with points offer rewards based on how much you spend. But instead of earning cash back, you earn points. How you earn or redeem points depends on the card. Some may be similar to a miles-earning card, while others may be more like a cash back card.

Some points cards have a fixed point system where you earn the same amount of points for all purchases. Other cards might offer rotating bonus categories that allow you to earn even more points with certain purchases.

Depending on the card, points may be redeemed for cash back or other perks, like gift cards, travel purchases, or credit toward your account balance. 

If you’re not sure which rewards option is best for you, you might want to think about where you already use your credit card the most. The best rewards cards help you earn rewards for things you already buy. 

Here are some things you may want to consider:

• How you can earn rewards with the card.
• How you can redeem rewards.
• What the APR is.
• If there’s an annual fee or any other fees.
• If there’s a signup bonus.
• If or when rewards expire.
• If it offers exclusive event access, travel upgrades, insurance or other perks.
• Additional benefits, such as $0 liability for unauthorized charges, fraud alerts, card lock or the ability to monitor your credit score.

The right card for you is one that’s tailored to your spending habits. No matter what credit card you choose, you can get the most out of your rewards by paying off your balance on time every month and using your card responsibly.

And be sure to keep in mind that any rewards might expire, so you may want to check your card’s terms and conditions for more information.