Are Loyalty Points Better Than Cashback?

Loyalty programs are ubiquitous these days, with many retailers, credit card companies, hotels, airlines and other services offering customers the ability to earn points, miles or other rewards based on their spending and engagement with the brand. On the other hand, cash back rewards, usually given as a percentage of spending on a credit card or for certain purchases, provide what seems like a simpler value proposition – cold, hard cash.

But which type of program actually provides more value: points or cash back? There are good arguments on both sides, so let’s analyze some of the key factors.

Illusion of Value in Points Programs

Loyalty points at Casino Nine or similar websites, despite not having an inherent cash value, are incredibly effective at making customers feel like they are getting something of value for their spending. This leads many people to choose travel partners, credit cards, retailers and other services at least partly based on the rewards they offer.

Some of the reasons points feel valuable include:

• The feeling of “earn and burn” when accumulating then redeeming points is rewarding
• Watching account balances grow feels like progress and achievement
• Dreaming about aspirational redemptions like vacations creates an emotional response

However, this value can be largely illusory. Companies want customers to fixate on points earning and redemption rather than rational spending decisions. And the real monetary value of many points is often obscure or less than expected.

Pitfalls of Points Valuations

Loyalty programs go to great lengths to make it difficult to pin down the exact cash value of points. Some of the many pitfalls include:

• Redemption values are not fixed – the number of points needed per flight or hotel night fluctuates
• Companies devalue points, requiring more for the same awards
• Lucrative redemptions are scarce, involving capacity controls or high fees
• Points expire if accounts remain inactive

The value of a point derived from one exceptional redemption does not reflect what most members achieve on an ongoing basis. And with program rules and award charts subject to change at any time, points do not equate to lasting monetary value.

Reliable Value of Cash Back

Compare the uncertain value of loyalty points to cold, hard cash back. While not as exciting, cash back delivers reliable value.

Its advantages over points include:

• Cash value is fixed – $1 is always worth $1
• Can be redeemed any time with no capacity limits
• Never expires or loses value
• Can be combined with special promotional bonuses
• Provides flexibility – can be used towards any purchases

Rather than restrictive airline tickets or hotel stays, cash back allows spending on anything, like groceries, gas or even paying down balances on loans or credit cards. This versatility makes it useful for every kind of consumer.

And unlike devalued points that suddenly cost more, cash back rewards keep pace with inflation over time. The same percentage bonus continues providing the same real value.

Direct Cash Back vs. Statement Credits

However, not all cash back programs are made equal either. Some important distinctions include:

• Direct deposit cash back provides maximum flexibility
• Statement credits to pay down bills are also handy
• Some programs only allow gift card redemptions or merchandise

Statement credits and gift cards limit what cash back can be used towards. And merchandise is rarely a good value redemption since you are unlikely to spend as much on those items if using cash directly.

So while any form of cash back beats loyalty points, the best programs pay out rewards as direct deposit with no limitations on usage.

Comparing Potential Values

To demonstrate the difference in potential value, here is an example comparing points and cash back bonuses:

While some airline redemptions can provide outsized value from points, far more provide less than expected value. Meanwhile, $500 cash back reliably equates to $500 in spending money.

And this example assumes no devaluation or expiration of points while they sit unused in an account. The cash holds its full value indefinitely.

Loyalty Points Have Their Place

To be fair, loyalty points have their place in customers’ financial toolkit. The anticipation of a special trip or splurging for an amazing hotel can be thrilling and memorable. Points just should not replace other sound money management principles.

Here are some appropriate uses of points:

• Occasional aspirational redemptions you could not justify paying for in cash
• Boosting value from existing spending when cash back is not available
• Convenient option for business travelers expensing awards through work

However, do not chase points at the expense of taking out needless loans or credit card balances. And have other savings priorities in place first before fixating on loyalty program earnings and elite status.

Think of points as a nice-to-have bonus rather than relying on them to meet financial goals or as monetary value itself. They ultimately remain coupons issued at a company’s discretion rather than hard cash.

Cash Back Offers More Ongoing Value

Customers absolutely should take advantage of available loyalty perks that provide joy and excitement. Just recognize the difference between that emotional value and concrete financial value over the long run.

For reliability and flexibility, cash back rewards beat loyalty points in pure monetary worth over time. Points provide thrill and aspirational redemptions. But cold hard cash offers dependable savings towards everyday priorities of greater importance.

So take advantage of points bonuses when sensible. But choose financial products and payment methods mainly for their solid cash back offerings first and foremost. That strategy points towards what is best for your wallet.