Is 3% on a Cashback Card the Same as 3 Points on a Rewards Card?

If you’re used to earning cash back on a credit card, you might be caught off guard by the points system on a rewards or travel credit card. Indeed, you might look at a card that earns 3 points back for every dollar and wonder if it’s not the same as earning 3% cash back. In a nutshell, no, 3% on a cash back card isn’t always equal to 3 points on a rewards card. With that in mind, let’s dig deeper into both card types to find out why this is true.

Cash back cards: A fixed percentage back

The rewards system on a cash back credit card is fairly straightforward. Your card has an earn rate (or multiple earn rates), which determines how much cash back you’ll earn for each purchase, and you can redeem your earnings for statement credits, deposits into your checking account, and gift cards, among other cash-related choices.

For instance, let’s say you have the Capital One SavorOne Cash Rewards Credit Card. This grocery cash back card earns 3% back on food categories (like restaurants and groceries), select streaming services, and entertainment purchases, while also earning 1% everywhere else. So if you use this card to buy $300 of groceries at Trader Joe’s, you would earn 3% of $300, or $9.

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Of course, some cards have more than one earn rate and may have higher rates for different spending categories, such as groceries and gas. For example, the Bank of America® Customized Cash Rewards credit card earns 3% back on a category of your choice (gas, online shopping, dining, travel, home improvement, or drug stores), while also earning 2% back at grocery stores and wholesale clubs. Cards with multiple earn rates might require some strategy to get the most out of them, but are generally less complicated to manage than rewards and travel cards.

Click here to apply now for the Bank of America® Customized Cash Rewards credit card.

Rewards cards: The value of your points depends on how you redeem them

Like cash back cards, rewards cards also return a percentage of your spending back to you. But instead of giving you cash, these cards give you points or miles. The ratio of points to dollars depends on the credit card but will generally be higher when you redeem them for certain things, like travel.

For example, let’s look at a popular rewards credit card — the Chase Sapphire Preferred® Card. This card earns a slew of points for different spending categories: 5 points per dollar for travel booked through Chase’s travel portal, 3 points on select streaming, 3 points at supermarkets, and 2 points for non-Chase related travel purchases. So, if you use this card to buy $300 of groceries at Trader Joe’s, you would be left with 900 Ultimate Rewards points.

Click here to apply now for the Chase Sapphire Preferred® Card.

If you wanted to redeem those 900 points as a statement credit, Chase would give you $0.01 per point. In this regard, the Chase Sapphire Preferred isn’t much different than the Capital One SavorOne Cash Rewards Credit Card from above: 900 points would earn you $9 when redeemed in this way.

But where this travel card differs is in the value you get in booking travel through Chase. When you book travel this way, Chase will give you $0.0125 for each point. This would make your 900 points worth $11.25 — $2.25 more than a statement credit. With this redemption, your 3 points aren’t equal to 3% but rather 3.75%.

It’s this point-value system that makes 3 points on a rewards card not quite the same as 3% back. While 3 points could be equal to 3% back (if the redemption value is $0.01 for every point), they can sometimes be worth more when redeemed in the right way. Understanding how a rewards credit card works, then, can go a long way in helping you squeeze out the most value.

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