Key takeaways
- Rewards credit cards provide benefits in the form of cash back, points or miles.
- You can earn credit card rewards through eligible spending or promotional offers, such as welcome bonuses or a referral bonus.
- Cash back cards are usually better for earning rewards on everyday spending. Cards that earn points or miles are great for frequent travelers or those who want to maximize their rewards.
Many different types of credit cards are available, including rewards credit cards. These cards come in various forms and offer multiple types of rewards for the eligible spending you do on the card. These cards target specific types of expenses, such as everyday spending or travel costs, which may enable you to earn bonus rewards based on your most frequent purchases.
To choose the right rewards credit card for you, you’ll need to evaluate the rewards program for each card you’re considering. You’ll also need to analyze your spending habits and the overall structure of the card. If the card you choose doesn’t match your spending habits or lifestyle, you’ll risk missing out on opportunities to earn rewards and get maximum value.
What are credit card rewards?
Not all rewards credit cards work the same way, and the type of card you choose will depend on your spending habits and lifestyle. Credit card rewards come in three varieties:
From there, you can earn a flat rewards rate on all purchases or a higher rewards rate on purchases made in select categories. For example, bonus categories may include travel, dining or groceries.
Typically, cards that offer higher rewards rates in select categories come with fixed or rotating categories, the latter of which may change on a monthly or quarterly basis. Rotating categories are also more likely to be subject to monthly, quarterly or annual spending limits — after which you’ll earn a lower rewards rate on those purchases. However, some rewards credit cards with fixed categories offer spending limits, too.
Purchases aren’t the only way to earn rewards
How to choose a credit card rewards program
If you’re building a credit card rewards strategy to maximize how much you can earn on purchases large and small, consider the different types of credit card rewards and decide what will be more valuable for you: cash back, points, or miles?
Cash back: Best for simplicity seekers
Cash back is a straightforward way to get rewarded for using your credit card. You’ll earn a percentage of cash back on each eligible purchase you make with the card. Some cash back cards offer a flat rate on all purchases (for example, 2 percent cash back on all purchases). In this case, making a $100 purchase with a 2 percent cash back card would put $2 into your rewards balance.
Other cash back cards offer higher cash back rates for particular types of purchases (bonus categories) and a lower rate on general purchases. For example, a card might offer 3 percent cash back on grocery purchases, 3 percent cash back on gas purchases and 1 percent cash back on all other purchases.
Some cash back cards also offer higher rates of cash back in categories that rotate each month or quarter. These cards usually have a spending cap and require category activation to earn the higher rate.
The most common redemption options for cash back cards include:
- Statement credits
- Checks or direct deposits to a bank account
- Checks
- Gift cards
- Select merchandise
- Charitable donations
Before redeeming, check with your issuer to ensure you know the rules for cash back redemption and that you’re getting the best value (typically from getting statement credits or direct deposits).
Top picks for cash back cards
-
The Chase Freedom Unlimited® is a cash back card with several bonus categories to choose from and flexible redemption options.
It’s one of the most popular cash back cards for a reason — with few fees and solid reward rates, this card is a worthy addition to any wallet.
-
- Welcome offer:
- Intro Offer: Earn a $200 Bonus after you spend $500 on purchases in your first 3 months from account opening
- Intro APR: 0% intro APR on purchases and balance transfers for 15 months
- Rewards:
- Enjoy 5% cash back on travel purchased through Chase Travel℠, our premier rewards program that lets you redeem rewards for cash back, travel, gift cards and more.
- 3% cash back on drugstore purchases and dining at restaurants, including takeout and eligible delivery service.
- 1.5% cash back on all other purchases.
- Annual fee: $0
- Welcome offer:
-
Pros
- The card offers boosted rates in popular categories like dining and travel, making it a top-earning cash back card.
- Its intro APR offers for purchases and balance transfers can help you transfer credit card debt or pay off a big purchase.
- It has strong benefits for a no annual fee card, including travel cancellation and interruption insurance and complimentary six-month DoorDash DashPass membership.
Cons
- You can find a higher cash back rate on general purchases with some of the other top flat-rate cards.
- Some cash back and rewards cards offer longer intro APR periods.
- The APR can be high compared to other cash back cards.
-
Easy flat-rate cash back makes the Wells Fargo Active Cash® Card a pick for credit card minimalists.
It offers a wide variety of redemption options compared to other cash rewards cards, including statement credits, cash, checks and travel via the Wells Fargo Rewards portal.
-
- Welcome offer:
- Earn a $200 cash rewards bonus after spending $500 in purchases in the first 3 months
- Intro APR: 0% intro APR for 12 months from account opening on purchases and qualifying balance transfers (balance transfers made within 120 days qualify for the intro APR and intro balance transfer fee)
- Rewards:
- Earn unlimited 2% cash rewards on purchases
- Annual fee: $0
- Welcome offer:
-
Pros
- The card offers a straightforward 2% cash back rate on all purchases and flexible redemption options.
- The intro APR periods for both purchases and balance transfers is great if you need to pay down debt or make a large purchase.
- If you pay your monthly cellphone bill with this card, you get a generous cellphone protection policy.
Cons
- This card charges a 3% foreign transaction fee, so you’ll want a different card when shopping abroad or on international websites.
- Wells Fargo has limited travel rewards redemption value compared to other issuers.
Points: Best for rewards maximizers
Many of the best credit card rewards programs offer rewards in the form of points. With credit card points systems, you’re earning points instead of dollars. The value of your points often depends on what you redeem them for. There are usually more ways to redeem points than with a simple cash back card, although every issuer offers different rewards rates, conversion rates and redemption options. For example, some Chase Ultimate Rewards redemption options include travel, cash back, statement credits, gift cards and select merchandise.
In general, credit card points can typically be redeemed for:
- Merchandise
- Cash back
- Gift cards
- Travel purchases
- Concerts
- Sporting events
Top picks for earning credit card points
-
The Chase Sapphire Preferred® Card is for anyone new to the world of travel credit cards.
Chase Ultimate Rewards are straightforward with multiple redemption options, and the card is jam-packed with travel perks and bonuses like anniversary credits — all for a relatively low annual fee.
-
- Welcome offer:
- Earn 75,000 bonus points after you spend $5,000 on purchases in the first 3 months from account opening.
- Intro APR: N/A
- Rewards:
- Earn 5x on travel purchased through Chase Travel℠.
- Earn 3x on dining, select streaming services and online groceries.
- Earn 2x on all other travel purchases.
- Earn 1x on all other purchases.
- Annual fee: $95
- Welcome offer:
-
Pros
- While this card does have an annual fee, it’s fairly reasonable for a travel card, especially for the credits and perks that come with it.
- You can combine points from other Ultimate Rewards cards to enhance their overall value.
- Your points boast a strong redemption value through transfer partners and statement credits.
Cons
- If you’re new to travel cards, you may not want to pay an annual fee.
- This card doesn’t offer introductory APRs on purchases or balance transfers, unlike some no-annual-fee travel cards.
-
If you only travel occasionally, the Bank of America® Travel Rewards credit card is a no-fuss, no annual fee travel card that may be the right fit for you.
Though this card lacks the bells and whistles you might expect from more robust travel cards, it’s a solid choice for anyone wanting a simple approach to travel rewards.
-
- Welcome offer:
- 25,000 online bonus points after you make at least $1,000 in purchases in the first 90 days of account opening – that can be a $250 statement credit toward travel purchases.
- Intro APR: 0% Intro APR for 15 billing cycles for purchases; 0% Intro APR for 15 billing cycles for any BTs made in the first 60 days. A fee of 3% for 60 days from account opening, then 4% will apply.
- Rewards:
- Earn 3 points per $1 spent on travel purchases booked through the Bank of America Travel Center.
- Earn unlimited 1.5 points per $1 spent on all purchases, with no annual fee and no foreign transaction fees and your points don’t expire as long as your account remains open.
- Annual fee: $0
- Welcome offer:
-
Pros
- This card doesn’t have an annual fee.
- You can redeem your points for statement credits to cover travel-related purchases made within 12 months.
- The card offers a lengthy intro APR on purchases and balance transfersYour points boast a strong redemption value through transfer partners and statement credits.
- As a Preferred Rewards member, you can boost your rewards rate by up to 75 percent, which could make it one of the most rewarding flat-rate travel cards.
Cons
- The lack of transfer partner redemption options might make this card feel like a glorified cash back card.
- There’s minimum redemption of 2,500 points for travel or cash back (worth $25).
Miles: Best for frequent flyers
Miles-earning credit cards are typically co-branded airline credit cards that allow you to redeem rewards for flights, seat upgrades and other travel-related expenses. These cards earn miles for every dollar you spend and often offer boosted rewards rates for travel-related purchases.
Credit card miles work in a similar way to points. As with points cards, you’ll typically earn a fixed amount of miles for every dollar you spend — although the rate could be higher in some purchase categories. The miles you earn accumulate in your loyalty account for the connected airline rather than with the credit card.
Booking a flight with miles is usually relatively easy. Simply sign into your airline account while booking the flight and choose to pay with miles.
Top picks for miles-earning cards
-
If you sit at the center of the Venn diagram that encompasses both foodies and Delta loyalists, you can really maximize the Delta SkyMiles® Gold American Express Card.
This card rewards purchases made at U.S. supermarkets and restaurants (including delivery and takeout in the U.S.), as well as any Delta purchases.
-
- Welcome offer:
- Earn 50,000 Bonus Miles after you spend $2,000 in eligible purchases on your new Card in your first 6 months of Card Membership.
- Intro APR: N/A
- Rewards:
- Earn 2X Miles on Delta purchases, at U.S. Supermarkets and at restaurants worldwide, including takeout and delivery in the U.S.
- Earn 1X Mile on all other eligible purchases.
- Annual fee: $0 introductory annual fee for the first year, then $150.
- Welcome offer:
-
Pros
- This card offers elevated rewards on dining and grocery categories in addition to travel purchases, making it easier for infrequent travelers to earn miles.
- It boasts several valuable travel benefits, flight and hotel credits and a free first checked bag.
Cons
- While it is waived for the first year, this card has a $150 annual fee.
- Despite being a Delta card, it doesn’t offer any bonuses or status boosts to help you earn Medallion Status.
-
The Capital One VentureOne Rewards Credit Card is a low-maintenance travel card that earns miles with a wide range of redemption and travel partner transfer options.
It earns an unlimited flat rate on all purchases, as well as elevated rewards on hotels and rental cars booked through Capital One Travel.
-
- Welcome offer:
- Earn a bonus of 20,000 miles once you spend $500 on purchases within 3 months from account opening, equal to $200 in travel
- Intro APR: 0% intro on purchases and balance transfers for 15 months
- Rewards:
- 5 Miles per dollar on hotels and rental cars booked through Capital One Travel
- 1.25 Miles per dollar on every purchase, every day
- Annual fee: $0
- Welcome offer:
-
Pros
- This card allows you to transfer miles to travel partners to potentially increase their value.
- A decent intro APR period on purchases and balance transfers makes it a good pick if you need to fund a large purchase or pay down debt.
- The welcome bonus is reasonably attainable and can go a long way towards travel.
Cons
- Your miles are worth less when redeemed on anything other than travel.
- It lacks the more enticing travel perks commonly found on some travel cards, such as trip cancellation and interruption insurance.
Cash back vs. points vs. miles – what’s right for me?
The answer to this question is never one size fits all. Maybe you’re a big jetsetter, so travel rewards in the form of points or miles makes the most sense for you. Or maybe you’re a homebody who’d rather rack up cash back. Or perhaps the best strategy for you may be to combine cards in your wallet so that you can earn both cash back and travel rewards. As Bankrate senior editor Brooklyn Lowery puts it, the answer to “which credit card rewards program is best for me?” is deeply personal:
When you’re choosing a rewards card, start by looking at your yesterday, today and tomorrow. Think about your credit history and score to determine what cards you’re likely to qualify for. Then consider your current budget and where you spend most of your money these days. Lastly, daydream about your future goals and what kinds of rewards can help you achieve them. Choose a card that sits at the intersection of all those things.
— Brooklyn Lowery | Bankrate credit cards senior editor
It’s also important that you don’t get too bogged down in terminology. Often, what the rewards are called isn’t the most important feature. Much like Capital One calling its rewards “miles” even though they function like points, some airline credit cards refer to the rewards as points instead of miles.
For example, the Southwest Rapid Rewards® Plus Credit Card lets you earn points on your purchases. But you can still redeem those points for Southwest flights, just like you would with a card that earns miles. So, as you consider which type of credit card rewards you want to pursue, you may want to focus more on how to redeem the rewards rather than what they’re called.
The bottom line
The credit card rewards landscape is vast and can be overwhelming for those who are just starting out. By understanding the different types of rewards credit cards available, you can decide what rewards are most important to you. What matters most is maximizing your rewards earnings by using the right credit card for each purchase.
Frequently asked questions about types of credit card rewards
-
No, rewards credit cards vary in how they earn and redeem rewards. Cash back cards offer a percentage of your spending as cash or statement credits, while points and miles cards provide rewards that can be redeemed for travel, merchandise or other perks.
Each card has its own rewards structure, earning rates and redemption options, so it’s important to choose one that aligns with your lifestyle and financial goals.
-
Most credit cards reward eligible purchases, such as groceries, dining or travel, but some bills (like rent or utilities) may not qualify for rewards. Always check your card’s terms to see which purchases earn rewards. Some cards may exclude certain transactions, like balance transfers or cash advances, from earning rewards.
-
In most cases, yes. Credit card rewards earned through eligible purchases are considered rebates by the IRS and are not taxable.However, rewards earned without a spending requirement — such as certain welcome bonuses, referral bonuses or airline miles awarded simply for opening an account — may be taxable.
If the value of these rewards is $600 or more, the issuer may send you a 1099-MISC form, and you’ll need to report it as income on your tax return. Always review the terms of your rewards program and consult a tax professional if you’re unsure.
Why we ask for feedback
Your feedback helps us improve our content and services. It takes less than a minute to
complete.
Your responses are anonymous and will only be used for improving our website.
Help us improve our content
Thank you for your
feedback!
Your input helps us improve our
content and services.
Read the full article here
