A rewards card is a credit card that gives points, miles or cash back for making purchases. Some rewards cards also give a bonus to cardholders who spend a certain amount during the first few months their account is open or over the course of a year. 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.
Key Things to Know About Rewards Cards
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. 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. Points credit cards either offer hotel points or generic ones that can be redeemable towards various products and services. Generic points and miles credit cards make for the best travel credit cards on the market.
Rewards Program Structure
Regardless of the rewards currency that your rewards credit card offers, you will generally earn them as initial/sign-up bonuses (often offered as a lump-sum rewards bounty after spending a certain amount in a specified time period), spending-based rewards (flat or different earning rates for various sending categories) or anniversary bonuses (such a free hotel nights, free flights, or a certain amount of points, miles or cash back each year).
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. While cash back is straightforward, always consider what you can redeem miles and points for and what they’re ultimately worth.
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.
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.
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.
A rewards card gives the cardholder something back for each purchase, usually a percentage of the purchase amount as cash back, miles, or points. You can sometimes earn bonus rewards by spending a certain amount in the first few months you have the card, too. You can then redeem the rewards, usually for merchandise, statement credits, gift cards or travel. Generally, your rewards will be available to use after you see them tallied up on...
Yes, rewards credit cards are worth it as long as you don’t overspend just to earn the rewards and you avoid interest charges by paying your bill in full every month. The best rewards credit cards are worth more than $2,000 in savings for the average person over the first two years of use, after annual fees.
You need good or excellent credit to get the most worthwhile rewards cards, however. Things aren’t as clear-cut for people with lower scores.
The biggest pros and cons of rewards credit cards are savings with every purchase and extra secondary benefits, on the positive side; and the potential for devaluation and earning caps, on the negative side. Rewards credit cards can be lucrative when used with precision. But they can also end up costing more than they benefit you if you pick the wrong card or carry a balance from month to month.
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