What is a rewards credit card?
The best credit cards for rewards are types of credit cards that let you earn rewards for each dollar you spend.
Some rewards cards offer a flat rate of points or cash back on everything you buy, whereas others offer more points in specific categories people shop in. In some cases, bonus rewards can be capped based on a specific amount of spending each calendar year or in certain billing cycles. In other cases, the rewards you can earn are truly unlimited.
Outside of rewards, many cards in this niche also offer extra perks to incentivize people to apply. For example, many cards come with consumer protections and travel insurance benefits, and some come with statement credits and third-party memberships. Many rewards credit cards also entice potential customers with a generous welcome bonus worth a few hundred dollars or more.
With this being said, it’s important to know that rewards cards work similarly to other credit cards. They offer a line of credit you can borrow against, and you have the option to carry a balance month-to-month. If you don’t pay your credit card balance in full before your due date, you’ll be charged your credit card’s interest rate on revolving balances. Some credit cards also charge an annual fee.
Types of rewards credit cards
There are several types of rewards cards to be aware of, which include the following:
The vast majority of rewards credit cards let you earn unlimited rewards, although some cap bonus category rewards each calendar year (or each quarter). Before you earn credit card rewards, make sure you understand the type of card you signed up for and how its rewards program works.
Pros and cons of rewards credit cards
- Numerous rewards cards have no annual fee.
- Rewards credit cards are available for all levels of credit history.
- Many cards come with high-value points or miles.
- Reward cards can come with initial bonuses.
- High regular APRs are common.
- Some reward programs have minimum redemption amounts.
- Rewards can often expire.
Reasons to get a rewards credit card
If you have a traditional credit card that doesn’t earn points or miles, you may be wondering why you should bother upgrading to a rewards card.
The fact is, rewards aren’t for everyone, and cards in this niche can even be detrimental to certain types of consumers.
Should you get a rewards card? That depends, but if the following statements sound like you, you may want to consider it:
- Building up a stash of points you can spend sounds appealing to you
- Your family spends quite a bit on groceries, gas, and other bills each month
- Avoiding debt is a priority for you, so you don’t worry about your credit card’s regular APR
- You want to earn points or miles in a specific program you love
- Travel is important to you, and you want a way to make it more affordable
- You want a way to earn more points on your travel purchases
- You want a way to rack up rewards with Refer-a-Friend promotions
- You want a tangible dollar-for-dollar benefit for each dollar you spend
- You have a large purchase coming up and you want to earn a large welcome bonus in return
These are just some of the reasons to pick up a rewards credit card, but there are plenty of others. Before you sign up for a new card in order to rack up points or miles, you should think about your personal spending habits and goals, and how a rewards card might help or hinder your progress.
For the most part, rewards credit cards are best for people who are currently debt-free with plans to stay that way. Rewards cards are also best for people who are responsible with their spending, and those who keep their finances fairly organized.
Earning credit card rewards: What to watch out for
Before you start pursuing credit card rewards, you should know which pitfalls to watch out for.
Here are some of the potential problems to be aware of before you pick up a new card:
Watch out for transaction fees including foreign purchase fees, balance transfer fees, and cash advance fees.
The potential for rewards causes many consumers to spend more than they planned, especially when it comes to earning a sign-up offer in a short amount of time.
Complicated rewards programs:
Some programs make you jump through a lot of hoops before you can use your points or miles.
Most rewards cards charge a high regular APR when you carry a balance month-to-month.
Pricey travel benefits you can’t use:
If you’re not traveling much right now due to COVID-19, a travel credit card may not do you much good. Until you’re ready to travel, pick a card that offers fewer perks for a lower annual fee. In that case, you should consider purchasing COVID-19 travel insurance.
How to redeem rewards
The process for redeeming your credit card rewards all depends on the type of rewards that are on offer. Breaking down rewards categories, we can see that the most popular types include cash-back rewards, point-based rewards, and travel and air miles rewards.
When redeeming cash-back rewards, credit card companies will provide a portal through their website that allows you to see the rewards you’ve earned and how you’d like to redeem them. Redeeming point-based rewards is also a very similar process, by using the issuer’s online portal. Here, you can decide in what form you’d like to redeem your points. Whether it’s through cash back, gift cards, or online shopping redemptions.
Finally, you are able to redeem air miles for airline tickets and travel points for hotel stays. Redeeming air miles and travel points for cashback is the least beneficial thing to do, as points lose their value and can be as little as 0.5 cents per mile.
How to choose a rewards credit card
Choosing a rewards card can be tricky, but there are plenty of factors that can help narrow down your choices.
Here are the main rewards card factors you should think about before you decide:
Decide on the type of rewards you want to earn.
Whether you want to earn cash back or flexible points like Chase Ultimate Rewards, you need to decide on this factor ahead of time. After all, the type of rewards you want the most can help you narrow down card options considerably.
Look for earning rates that align with your spending.
Also look for credit cards that offer bonus categories that make sense with your spending, whether you spend a lot at U.S. supermarkets or you splurge on travel purchases. Finally, look for cards that offer a generous earning rate on other purchases you make with your card.
Decide if you want 0% APR.
If you want a rewards card that offers zero interest on purchases, balance transfers, or both for a limited time, this factor can also help you narrow down your choices.
Determine whether you want travel perks.
If you spend a lot on travel purchases or traverse the globe fairly often, look for cards that offer airport lounge access, travel statement credits, and affordable travel insurance.
Look at cards with consumer protections.
If consumer protections are important to you, look for cards that offer purchase protection against damage or theft and extended warranties on items that come with a manufacturer’s warranty.
Compare annual fees and transaction fees.
Finally, make sure you’re only paying an annual fee if you’re getting something in return. Also watch out for transaction fees that can eat away at your rewards haul.
How we selected our top rewards cards
We looked at more than 100 rewards credit cards on the market today to find the best of the best. Factors we compared include each card’s sign-up offer, rewards for other purchases, rewards for travel purchases, rewards earned in bonus categories, and annual fees. We also compared cards based on their benefits, with preference given to cards that offer generous perks for a reasonable annual fee.