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Cash back vs points: Maximizing your money with every swipe

6 min read

cashback vs points

Written By

Nick Saraev
Nick Saraev

Credit cards have transcended beyond mere payment methods; they have become a smart strategy for shoppers to earn while they spend. The Canadian market is abundant with options, from rewards credit cards to cash back credit cards, all promising to add value to our daily transactions.

The appeal is simple and compelling: Every swipe or tap can potentially bring a slice of our money back to us or open up opportunities for rewards that sweeten the deal of our regular spending.

It's a trend that's catching on, with a striking 79% of Canadians using a primary credit card that offers some form of reward.

Whether it’s a rebate on the week’s groceries or points towards a much-anticipated vacation, consumers are getting more from their purchases than ever before.

What are Credit Card Points?

Imagine every swipe of your rewards credit card as planting seeds in a garden of benefits. These seeds are credit card points, and they grow into rewards that can sweeten your life with travel, tech, or savings on your statement.

It's a heartfelt 'thanks' from your credit card company, acknowledging every choice to use their service. But the perks don't stop at material gains. These points are also silent architects of your credit reputation, laying brick by brick towards a robust credit score.

The magic of credit card points lies in their versatility. Some might sprout more value when redeemed for airfare, while others might be best used for that new gadget you've been eyeing.

Every purchase, whether it's your morning coffee or weekly fuel fill-up, is an opportunity to accumulate these reward points, each with its own potential to enrich your spending experience.

With a wise swipe, the mundane act of buying can yield a rich harvest of points, turning everyday transactions into a treasure trove of potential treats.

When Credit Card Points Offer More Value

The dance of maximizing credit card points is much like waiting for the perfect wave—timing is everything.

Navigating credit card rewards wisely is all about timing. Holding onto your points and knowing the right moment to redeem them can transform modest earnings into significant rewards.

It's that moment when a flight to a sun-drenched beach costs you little more than the points you've nurtured. Or when a high-end mixer appears on your kitchen counter, acquired with nothing but a well-timed click during a seasonal promotion.

This strategic play is the best way to get the most out of your credit card perks and unlock the value of every point.

How do Cash Back Rewards Work?

Cash back rewards are the epitome of simplicity in the credit card rewards arena. Here's how they work: for every dollar you spend, a certain percentage gets returned to you.

So, if your cash back credit card offers a 1% cash back reward and you spend $1,000, you'll see $10 flowing back into your pocket. It’s instant gratification with every purchase, whether you’re filling up the tank or stocking up on groceries.

Unlike travel points or miles, which can fluctuate in value and require strategic redemption, cash back is a straightforward currency added directly to your balance.

It's a transparent, uncomplicated process—spend on necessities or splurges and get rewarded with real money, not points or miles.

Is Cash Back Really Worth It?

The appeal of cash back credit cards lies in their simplicity, but it’s important to weigh if they’re truly cost-effective. Sure, earning cash back is straightforward – spend money and get a percentage back.

However, this simplicity can be overshadowed by transaction fees and annual fees, which might nibble away at the rewards you accumulate.

On the flip side, cards that allow you to redeem rewards and points for lavish perks might outshine cash back offers, especially if they come with impressive sign-up bonuses or travel benefits.

For those who take pleasure in uncomplicated, immediate benefits, cash back could be a perfect match, providing a clear, quantifiable return on everyday purchases without the need to strategize over points.

Earning Points vs. Cash Back: Pros and Cons

When it comes to choosing rewards cards, the battle between points and cash back is a perennial one. Each has its virtues and vices, akin to selecting between a multifaceted Swiss Army knife and a straightforward straight razor.

Let’s delve into the world of credit card rewards and dissect the pros and cons.

Cashback Pros

  • Low or No Annual Fees: Cash back credit cards often boast an attractive fee structure, appealing to those who balk at the idea of paying to spend. The lower overhead can make these cards a wallet-friendly option for frugal minds.

  • Cash Rewards: The allure of seeing actual currency returning to your pocket cannot be understated. There's a definitive satisfaction in seeing your spending habits pay off—literally. With cash back, the rewards are not just numbers on a screen but tangible money that can reduce your credit card bill or be spent elsewhere.

  • Ease in Redeeming Cash Back: Simplicity is king when it comes to cash back. Redeeming your earned cash is typically as easy as a few clicks on a website or a quick phone call. There’s no need to navigate a labyrinth of reward program rules or blackout dates.

Cashback Cons

  • Earnings Caps: While earning cash back can feel like a constant high, many cards put a ceiling on how much you can earn, which can abruptly stop the reward party just when you’re getting started.

  • Limited Perks: Cash back cards usually don’t come with the suite of perks that travel cards do. You might miss out on the airport lounge access, free checked bags, or hotel upgrades that points can unlock.

  • Lower Sign-Up Bonuses: If you’re looking to make a splash with a hefty initial rewards haul, cash back cards may disappoint. Their sign-up bonuses are generally more modest compared to the lucrative offers of points cards.

Points Pros

  • Sign-Up Bonuses: Many rewards cards with points systems entice you with generous sign-up bonuses. These bonuses can often be the equivalent of a free flight or a couple of nights at a fancy hotel.

  • Travel Perks: For the wanderlust-stricken, points are the ticket to travel luxury. From business class upgrades to hotel suite access, the travel perks alone can be worth the plunge into the points game.

  • Flexible Redemptions: The true power of points lies in their versatility. They can be transferred to various airline and hotel partners, often increasing their value exponentially. This flexibility means you can strategize to use points for more than just travel—think merchandise, gift cards, or even charity donations.

Points Cons

  • Annual Fees: Points-chasing cards often come with annual fees that can be steep. You’ll need to ensure that the benefits you reap outweigh the costs of maintaining the card.

  • Complex Redemption Systems: The potential of points comes with a caveat: a complex redemption system. It can take time and effort to understand the ins and outs, which can be daunting for the uninitiated.

  • Variable Point Values: One of the trickiest aspects of points is their fluctuating value. What seems like a mountain of points one day can deflate in value the next, depending on market dynamics and reward program alterations.

If you yearn for simplicity and a clear-cut return on your spending, a cash back credit card might be your best bet.

However, if you’re game for a bit of complexity and relish the thought of optimizing your rewards for travel or other luxuries, then diving into the points pool could prove to be more fruitful.

Remember, the choice between points and cash back isn’t just about the rewards—it’s about how well they align with your lifestyle and spending habits.

Note: KOHO product information and/or features may have been updated since this blog post was published. Please refer to our KOHO Plans page for our most up to date account information!

Nick Saraev

Nick is a freelance writer and entrepreneur with a particular interest in business finance. He's been featured in publications like Popular Mechanics and Apple News



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