If you’re in the market for a new business credit card, you may have noticed that there are two redemption options available — cashback and rewards. Card issuers normally offer each type of card among their business credit card lineups, so you have the option of whichever fits you and your business best. While it’s far from the only consideration when choosing a credit card, redemption options are an important factor.
Cashback credit cards
Cashback cards work almost exactly as their name suggests. You earn a percentage back on every purchase you make (1 percent is standard, but it varies depending on the card and the type of purchase). With certain cards, you receive your cashback monthly, and the amount is simply taken off your bill. With others, you request your cashback either as a check or a statement credit. There is often a minimum amount necessary for cashback requests.
Advantages of Cashback Cards:
- Simplicity — You don’t have to sort through reward redemption options to determine the best use of your points. Cashback cards save you time that you can spend on other aspects of your business.
- Less Incentive to Overspend — Credit card rewards make it tempting to spend more money in pursuit of points, especially if you’re close to a reward you want. With cashback, you don’t have that same temptation, as all you’re getting back is money.
Disadvantages of Cashback Cards:
- Less Versatile — Reward points are an excellent way to find deals, especially on flights and hotels. Cashback cards don’t have that option.
Reward credit cards
With reward cards, you earn reward points on every purchase (1 point per dollar is standard, but again, it varies from each card and type of purchase). You can redeem those points for any rewards your card issuer offers, or transfer points to any transfer partners of your card issuer. While products and gift cards are often available as reward options, most cardholders use reward cards for travel rewards, specifically flights and hotels.
Advantages of reward cards:
- Versatility — A wide range of reward redemption options makes it easy to find a reward that works for your business. You can even get cashback if you want, typically at the same rate, you would have gotten with a cashback card.
- Better Returns — When you pay in points, you can obtain better deals than you would by paying in cash. For example, a round-trip domestic flight usually costs 25,000 reward points. If you book a flight that would have cost $325 for that amount, you’re getting a better return on your spending.
- Bonus Offers — Reward cards tend to have superior bonus offers compared to cashback cards. That includes sign-up offers and bonuses for transferring your points.
Disadvantages of Reward Cards:
- Complexity — Since reward cards have a wider range of redemption options, it takes the time to find the best reward. This is particularly true if you want to transfer points to another program, or if you have to work around blackout dates when booking a flight or hotel.
- The Reward Spending Trap — While card issuers always provide incentives that tempt cardholders to spend more money, the temptation is greatest with reward cards. All the point redemption options, and the fact that most rewards require a minimum number of points encourage you to spend more money and earn more points.
Additional Factors
Based on each type of card’s advantages and disadvantages, it’s clear that reward cards offer a higher possible return, but also have a higher risk and time commitment. However, there are a few factors that can tilt the comparison more in the favor of cashback cards.
- Annual Fees — While both types of cards can have annual fees, these fees are much more common (and often higher) with reward cards. If you select a reward card because of the return, make sure that it’s a large enough difference to offset the annual fee.
- Interest Rates — Cashback cards usually have lower interest rates. You don’t have to worry about this if you’re able to pay off your card in full every month, but if you plan to carry a balance, your card’s interest rate is extremely important.
The Best Cashback and Reward Card Offers
It’s a crowded credit card marketplace, but if you want to get the highest possible cashback or rewards, a select few cards stand above the rest.
Cashback Cards:
American Express SimplyCash Plus
The SimplyCash Plus is an excellent choice because of its high cashback offers and its versatility, as long as your annual expenses fall below the spending cap.
- 5 percent cashback at U.S. office supply stores and on wireless telephone services purchased directly from U.S. service providers
- 3 percent cashback on the category of your choice from a list of eight
- 1 percent cashback on all other purchases
- 5 and 3 percent offers apply to the first $50,000 in spending per calendar year
Capital One Spark Cash
The Spark Cash has a solid cashback offer with no spending cap, so it’s great for businesses that spend over $100,000 per year.
- 2 percent cashback on all purchases
- Unlimited rewards
Reward Cards:
American Express Business Gold Card
The Business Gold Card is another versatile American Express card with great reward offers. The $100,000 spending caps in each category are particularly helpful if your business has a variety of different expenses.
- Three-times the reward points in one category of your choice from a list of five
- Two-times reward points on the other four categories from that list
- One-times the reward points on all other purchases
- Three-times/2 times the offers apply to the first $100,000 in spending in each category per calendar year
Chase Ink Business Preferred
The Ink Business Preferred earns high points on several expense categories, and points are worth more through the Chase travel portal. With a $150,000 spending cap, this card is best for small to medium-sized businesses.
- Three-times reward points for purchases on travel, shipping purchases, Internet, cable and phone services, advertising purchases made with social media sites and search engines.
- One-time reward points on all other purchases
- Three-times offer applies to the first $150,000 spent combined in all categories per account year
The best credit card choice for your business depends on your spending habits and financial goals. Business owners who are willing to put in the time necessary will maximize their return with reward cards. Those who would prefer to avoid sorting through redemption options will appreciate the simplicity of cashback cards.
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