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Seriously … Are Cash Back Cards A Good Deal?

by on June 1, 2011

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It’s an age old question for credit card users: cash back rebates or reward points? There are as many opinions about it as there are credit card offers, but intuition might tell you that getting straight up cash is always better than intangible points. But the free stuff! And flight upgrades! It’s all so tempting. So we decided to break it down and see if cash back really is the best way to go.

Where to start? Well, it’s important to know that the standard cash back offer is 1% on every purchase. So if you spend $100, you get $1 back. Not earth shattering, but not too shabby either.

But many credit cards allow you to earn much more on certain purchases. The Chase Freedom Visa, for example, offers the standard 1% cash back. But every three months, select purchases will earn you 5% back—so January through March might reward you for gas spending, while April through June might offer a restaurant bonus.

Or take the the Blue Cash Everyday credit card from American Express, which always offers 3% cash back on supermarket purchases, 2% cash back on gas and department store purchases and 1% cash back on everything else.

But if your credit card offers 10% back on gardening supplies and you don’t even have a lawn to mow, then what’s the point? The rewards program has to match your spending habits. That said, cash is cash. It’s not going to devalue and it can’t expire. It’s literally free money in your pocket.

How Does Cash Back Stack Up Against Points?

Buy yourself something nice...but not with points.

Well, it certainly seems like you get more points per dollar spent. The PenFed Premium Travel Rewards American Express credit card, for example, earns you a whopping five points per dollar spent on airline tickets.

But for our cash back comparison, let’s use the American Express Premier Rewards Gold charge card, which earns you two points for every dollar spent on gas or groceries. So if you spend $100 at Whole Foods, you get 200 points.

Sounds better than cash, right? Not so fast. Say you want to redeem your points for a portable iPhone speaker. According to the Amex rewards site, it’s going to set you back 3,500 points. Which means you’d have to spend $1,750 in groceries to get a speaker that sells for $9.99 at KMart.

Yikes. That’s not a ringing endorsement for points. But perhaps you just need to use them wisely– you can often use points to get things cash could never buy, like special vacation offers and access to events. Plus points might make more sense if you’re a frequent traveler, since hotel stays, flights and rental cars will easily earn you some nice free perks in no time.

But in a straight cash to points comparison? We’re inclined to take the money and run.

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