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Your Take: Credit Card Cashback or Reward Programs?

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Roys Hawaiian Fusion Restaurant in Baltimore MDIn the pantheon of credit card reward programs, you have two types: cards that offered straight cash back or cards that offered points that could be redeemed for rewards. Until the last year so, I’d always used a cash back credit card rather than a points reward card because I wanted the discount. 5% cash back is a 5% discount, 5% in points might be a 5% discount if the reward program offered rewards I would’ve otherwise purchased with cash, but there’s never a guarantee. With 5% cash back, I’m guaranteed to get the maximum value out of it.

Last year, I signed up for the American Express Business Gold Rewards card because I needed a business credit card to segregate expenses (their sizzling hot $250 promotion helped too) and kept using it because it offered 5% off Yahoo products such as their advertising network. Without the 5% off (this was a direct discount, not 5% in points), I don’t know if I’d still be using it because it’s a rewards card that gave you 1% in points.

One side effect of my business spending is that we’ve been able to convert those points into gift cards at restaurants we normally would go to (though we wouldn’t go as often without them!). One such restaurant is Roy’s, a well-known Hawaiian fusion restaurant chain located near the Inner Harbor of Baltimore. In fact, we used those cards twice in Hawaii (once in Kauai and once in Hawaii Kai, Oahu) to entirely pay for our meals.

I can see the allure of these types of rewards program though, you get to enjoy all of the spending without any of the guilt. :)

What’s your take on different programs? Are you a strict cash back person or do you like rewards? Both? It depends?

(Photo by crispyteriyaki)

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12 Responses to “Your Take: Credit Card Cashback or Reward Programs?”

  1. Dave says:

    When I used to drive 110 miles a day commuting, the Amex Blue Cash Back card was a no-brainer (after $6.5k of spend you get 5% cash back on gas, grocery and drug, 1.5% on most everything else — and no annual fees) … but now that I commute by train, its a little blurred.

    Overall, a decent cash back card still wins b/c it doesn’t require incremental spend.. any points based card ultimately ends in gift cards or meals, flights, etc. I have half a dozen gift cards sitting at my desk since mid-2007 unspent b/c I haven’t figured something I actually *need* to buy.. I’d rather have cash in my pocket.

    For Jim and potentially other small business owners… I recently heard about the Amex Plum card, which provides flexible payment options and also cash back/discount options. http://www.plumcard.com/. May be worth a look…

    -Dave

  2. Doug says:

    I like points because it feels like I’m getting something back. Getting money is fine and all but it feels better to get a gift certificate or something tangible.

  3. Credit cards are scams says:

    Are points or cash worth it? Credit companeis are just legal scams designed to steal your money

    link

  4. Geoff says:

    Since some cards won’t give you the full 1%+ conversion of points to money/giftcard/etc, I just go for cash. Plus I’ve seen some companies change the conversion, and that’s frustrating.

    For cash, I have a separate savings account for cash back from the credit card and that is used for travel, which is what I would have wanted points for anyway, except with cash I get more flexibility.

  5. Posco says:

    Steal my money? Ha!

    I go for the cash back, but my wife likes at least one retailer’s rewards program. I’m of the thought that the rewards just cause us to spend more, but she says she’d be spending money there anyway, which I’m not so convinced of. Bank of America is dropping that retailer’s program, so if we want to continue, we’ll have to apply for the retailer’s new credit card… we’ll see when we get the details on the new program. The problem is that the existing credit line goes to Bank of America and its WorldPoints reward program, and since it’s a large credit limit with a long history, I’m reluctant to close it, and doubly reluctant to open a new credit line just for a few percent of rewards.

  6. tom says:

    Both! I get travel points through Citi (for purchases and miles I fly!) and cash back through AmEx… yeah having 2 cards can be cumbersome, but I think i’m maximizing my rewards potential!

  7. JoeTaxpayer says:

    My Amen Open card just dropped the gas rebate from 5% to 3%. I’ll take the 2% or 3% cash over most merchandise offers, but when the offer is high (say 5%) it can be worth it. Gm used to have a card that gave 5% back toward a car purchase. I’ve heard good things about that if one wants to make that purchase. Citibank once had a card offering 5% back toward an Apple computer. I was sad when they discontinued that offer.
    Joe

  8. jim says:

    Citi’s CashReturns card was 5% on anything for three months… it was unreal, we got effectively a 5% discount on our wedding.

  9. JoeTaxpayer says:

    About a year ago, we had a CitiBank card that was 5% for gas, supermarket, drug store. I used to buy HomeDepot gift cards at the drugstore (CVS) and the next day go make my large HD purchase.

    Joe

  10. Andrew Choi says:

    cash back vs points is usually somewhat comparable in benefits to customer. I think the difference is the headache in trying to predict future purchasing decisions. Usually, it takes some time before ur rewards add up to a useful amount. Also, I’ve never been able to figure out how frequent flyer miles work. Thus I tend to favor the most liquid asset, cash.

    But it’s also important to note that even cash back cards can be complicated. Amex blue for example, requires u to spend 6500 before u can get the 5% on so-called everyday purchases. (it only gives a paltry .5% on all purchases before that) and chase freedom i believe has a limit on how much you can get ur 3% cash back rate on. so it makes it difficult to compare different products because even here u have to project what type of purchases and what amounts you would spend in a given period.

    Points cards take the complication an extra step. As a rule of thumb, 1point = 1$ spent for most cards but i’ve seen cards where they give their rewards in a more arbitrary rate like 2000pt = 15$ gift cards (1$ spent =.75cent), 5000 pt = 40$ (1$ =.8cents) and so on. so it makes it difficult to compare apples to apples.

    And this all goes w/o taking into account the other factors that may go into a card such as customer service level, customer protection, EAR rate, Credit Limit, and whether or not you can brag to you friends about the design of the card ^_^

  11. George says:

    I do both as well. I stay with my Chase Freedom card for the 3.75/1.25% cash back and I do the gift cards with my Discover. I just wait until Discover has 5% back on whichever category (it changes) and redeem a gift card for an extra $5 to $10 more. It has worked out pretty well for me so far. The only thing I would consider changing to is American Express Blue Cash but I’m not sure if the $6500 I would have to spend before getting 5% cash back is worth it.

  12. BrewCrewFan says:

    I have a Visa Rewards Card from Associated Bank. It pays 5% on gas, groceries and drug store purchases starting with dollar one (no tiers). The only down side is a $300 annual rewards cap.


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