I'll Never Use My Credit Card for Cash Back Rewards. Here's Why

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Credit card rewards can be a fun way to earn something of value back on your regular purchases. And if you get good at using rewards cards, they can also save you a lot of money. Some people earn $500 to $1,000 or more in rewards every year.

After you've earned rewards, you'll need to choose how to redeem them. While I love using rewards cards, I never redeem my earnings for cash back. Keep reading to learn about the types of credit card rewards that are available, and why cash back isn't always the best redemption option.

The different types of credit card rewards

Most credit card rewards fall into one of three categories:

• Cash rewards: Rewards you can redeem as cash. Options may include applying your cash back as a statement credit on your credit card bill, depositing it into your bank account, or requesting a check in the mail.
• Travel rewards: Rewards you can redeem for travel purchases. There are airline cards that let you redeem miles to book airfare, hotel cards that let you redeem points for hotel stays, and travel cards with transferable rewards you can send to multiple airlines and hotels.
• Store rewards: Rewards you can redeem for a gift certificate with a store.

However, there is some overlap between these categories. Many travel rewards cards also give you the option of redeeming your points for cash back instead of travel. There are also some store cards that let you redeem your rewards at the store or for cash back.

In my case, I have several travel cards that include cash back as a redemption option. But I never choose it, for one important reason.

I'd get less value if I redeemed rewards for cash back

It's rarely a good idea to redeem travel rewards for cash back. With most credit card issuers, you get a much lower value for your points when you use them for cash back than you would if you used them for travel.

The exact value of travel points depends on the card you have and how you redeem them. You can normally get $0.01 to $0.015 per point if you use them for bookings through the card issuer's travel portal. If you transfer your points to an airline or hotel, you could get even more -- I regularly get $0.03 per point or more for mine. So to give a rough estimate, 100,000 points could save you $1,000 to $3,000 on travel.

For cash back redemptions, travel rewards can be worth as little as $0.005 to $0.006 per point. The same 100,000 points may only net you $500 to $600 if used for cash back.

How to get the most out of credit card rewards

Learn about the ways you can redeem your credit card rewards before you use them. Ideally, do this before you get a rewards card, so you pick one with redemptions that are a good match for your lifestyle. When you use your points, choose one of the higher value redemption options. I'd recommend trying to get at least $0.01 per point.

Some people make the mistake of opening a travel card, but then redeeming their points for cash back because that's easiest. Even though it's more convenient, you give up a lot of value when you do this.

A better approach is to get a card with rewards that you're confident you'll be able to use. If you like to travel, and you don't mind learning how to redeem points, then a travel card could be the best credit card for you. But if you think you'll want to get cash back, open a cash back card, not a travel card.

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