Cash back vs. travel card: What is the difference?

When it comes to rewards credit cards, there are two popular choices: cash back and travel. In 2023, 55% of cardholders redeemed their credit card rewards for cash back, while 25% used them for travel perks.¹

You might be wondering: how does each align with different lifestyle and financial goals? This guide breaks down the key differences between cash back vs. travel cards, including the benefits and drawbacks of each.

What is a travel credit card?

Travel credit cards offer a unique reward system: points or miles earned with every purchase.

These points on a travel credit card can become a passport to unlocking exciting travel experiences, redeemable for flights, hotel stays, and other expenses such as rental cars, airport lounge access, and travel insurance. But there can be both advantages and drawbacks to travel credit cards.

Pros and cons of travel credit cards

Here are some benefits that travel credit cards may provide:

• Reduced costs. Many offer no or low foreign transaction fees, which can lead to substantial savings when making purchases abroad.
• Travel upgrades. Accumulated travel credit card rewards may be used for flight upgrades, airport lounge access with complimentary drinks and snacks, hotel room upgrades, and other perks.
• Travel insurance. Many include benefits that promise peace of mind during trips. Think insurance for lost luggage, reimbursement for travel delays, and travel accident coverage.
• Greater reward earnings on travel purchases. Many cards offer higher reward rates on flights, hotels, and dining, allowing cardholders to accelerate their reward accumulation.

There are potential risks associated with travel cards, such as the below:

• Blackout dates. Some travel cards may restrict the ability to redeem points or miles for certain flights or hotels during peak travel periods, like Thanksgiving or Christmas.
• Minimum spending requirements. To earn enticing travel rewards, cardholders may need to meet minimum spending requirements within a specific timeframe.
• High annual credit card fees and APR. Travel cards, particularly those with premium benefits, often come with high annual fees and interest rates.
• Credit score requirements. Approval for high-value travel cards with extensive benefits often requires a good credit history.
• Reward fluctuations. Airlines and hotels can change their loyalty programs at any time, meaning the number of miles or points needed for that dream vacation might unexpectedly increase. These fluctuations can give a layer of uncertainty when planning travel and redeeming rewards.
• Complexity. Unlocking the full potential of a travel reward card may require time for researching and strategizing.

What are cash back credit cards?

Imagine earning money back on everyday purchases, from groceries and gas to online shopping and dining out. That's the power of cash back cards — they provide a percentage of cash back on every eligible transaction, effectively putting money back in cardholders’ wallets with each purchase.

The PayPal Cashback Mastercard^®, for example, offers 3% cash back on PayPal purchases and 1.5% cash back on all other eligible spending.² Beyond cash back, it also provides several other features: no impact on credit scores for declined applications, no rotating reward categories to track, and no annual fees. Cardholders can easily redeem rewards and even use them on the same day.

Learn more about the different types of cash back credit cards and paths to reward redemption.

Pros and cons of cash back credit cards

For those who appreciate simplicity and tangible rewards, cash back credit cards offer a straightforward path to savings. Some of their top benefits include:

• Easy reward redemption. Cash back redemption is typically hassle-free and flexible. Whether it's a credit on a statement, a direct deposit to a bank account, or even a gift card to a favorite store, accessing rewards is usually a simple process.
• Credit card bonuses. Some cash back cards offer bonus rewards in specific categories, like groceries, dining out, or even gas, allowing cardholders to maximize the value of everyday purchases.
• Added security. Some cash back cards provide extra reassurance through credit card purchase protection, such as extended warranties on purchases, buyer protection against damage or theft, and refunds for faulty or misrepresented products.
• Personalized rewards. One size doesn't fit all, especially when it comes to spending habits. That's why many cash back cards offer personalized rewards, allowing individuals to choose those that align with their lifestyle and spending patterns.

However, there are potential drawbacks to keep in mind:

• Fees. Some cash back cards charge annual fees — it's essential to consider whether the potential rewards outweigh these costs.
• High interest rates. Carrying a balance on a cash back card can lead to hefty interest charges, which can quickly eat into those hard-earned rewards. To maximize benefits, it's generally recommended to pay off balances in full and on time each month.
• The temptation to overspend. The excitement of earning rewards can sometimes lead to overspending. Responsible spending habits are key — it's important to avoid the temptation to accumulate unnecessary debt just to cash in on rewards.