A rewards card is a credit card that gives points, miles or cash back, either for making purchases with the card or as a bonus for meeting a spending threshold in a certain time period. People with any level of credit can qualify for a rewards card, but you’ll need at least “good” credit to be approved for the best credit cards with rewards. Rewards cards also have a wide range of annual fees. Some of the best rewards cards have no annual fee, while others charge hundreds of dollars per year.
Here’s what you should know about rewards cards:
Types of Rewards Currencies: Credit card rewards come in three basic currencies – cash back, miles and points. Cash back credit cards give you a certain percentage of your purchases back – the Blue Cash Preferred® Card from American Express, for instance is one of the best cash back credit cards as it offers an initial bonus of $300 as statement credit for spending $3,000 within the first 6 months; Miles credit cards offer miles that are either tied to a specific airline or are generic miles that can be used for any travel-related expense - Capital One Venture Rewards Credit Card is one of the best travel credit cards with its 50,000 bonus miles for spending $3,000 in the first 3 months. Points credit cards either offer hotel points or generic ones that can be redeemable towards various products and services – Chase Sapphire Preferred® Card is a good all-purpose points-based card as it offers a considerable 80,000 bonus points after spending $4,000 in the first 3 months.
Rewards Program Structure: Regardless of the rewards currency that your rewards credit card offers, you will generally earn them as initial bonuses, spending-based rewards or anniversary bonuses. Initial bonuses generally offer new customers a lump-sum rewards bounty (such as the Chase Freedom Flex initial bonus which consists of $200 for spending $500 in the first 3 months) after you make a first purchase or as a result of spending a certain amount during a specified time period. Spending-based rewards offers earning rates for different spending categories (such as the Citi® Double Cash Card – 18 month BT offer which offers up to 2% Cash Back cash back on every purchase). And anniversary bonuses consist of free flights, hotel nights, or a certain amount of points, miles or cash back each year on your account anniversary (the Marriott Bonvoy Boundless™ Credit Card offers a free night redeemable at any Marriott Bonvoy property each account anniversary).
Redemption and Value: Common ways of redeeming your rewards include statement credits (crediting your rewards balance to your account), checks, gift cards, merchandise, charities and special experiences. All these redemption methods will have different values, so your goal should be to redeem your rewards in a way that get you the highest dollar-value. For cash back rewards, you won’t have to do any conversions as these are already in the form of dollars.
Earning limits: Some cards implement monthly, quarterly or annual earning limits in certain spending categories or across. Always make sure to check what they are and consider whether they may affect your situation.
Rotating Categories: Some credit cards offer certain earning rates for spending categories that may change in a given time frame (e.g.: quarterly) and you have to sign up to earn that rate whenever that happens.
Redemption Versatility: Rewards are only as good as what you can ultimately get for them. While cash back is straightforward, always consider what you can redeem miles and points for and what they’re ultimately worth.
Devaluation and Expiration: Points and miles may have certain plateaus you have to reach in order to redeem them for goods and services. These plateaus aren’t guaranteed to be static and if your credit card issuer increases them, your accumulated points/miles may be worth less by the time you can redeem them. In terms of rewards expiration dates, most issuers have done away with them, but always check to make sure that is the case.
In addition to paying for purchases with rewards credit cards, consumers can save money using a loyalty rewards card when shopping. Many resorts, hotels, and retailers have loyalty programs, and they’ll often have a corresponding loyalty card or number that you can present when you make a purchase.
CVS and Office Depot are two retailers with good loyalty card programs. The loyalty card keeps track of your eligible purchases and any rewards you’ve earned. Loyalty cards aren’t credit cards, but they are a good way to rack up rewards for hotels or retailers you visit often.
Store credit cards and co-branded credit cards – which are affiliated with specific retailers and organizations – can also be used in conjunction with loyalty rewards cards to help you save as much as possible with your favorite brands.
Finally, you might hear gift cards referred to as reward cards, especially those awarded as a prize or incentive, or as credit in lieu of a refund.
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