A rewards credit card is a type of credit card that gives you benefits-called rewards-every time you use it to make purchases. Instead of just spending money, you earn something back, such as cash, points, or travel miles, which you can redeem later for various perks.
What is a Rewards Credit Card?
- Rewards cards let you earn cash back, points, or miles on your everyday spending.
- You earn rewards at a certain rate, for example, 1% cash back or 2 points per dollar spent.
- Some cards offer higher rewards in specific categories like travel, dining, or groceries.
- Rewards can be redeemed for things like statement credits, gift cards, travel, or merchandise.
- Many cards also offer sign-up bonuses when you spend a certain amount in the first few months.
How Rewards Credit Cards Work
- Use your card for purchases as usual.
- Earn rewards based on your spending and the card’s rewards structure.
- Redeem your rewards through the card issuer’s program for cash, travel, or other options.
- Pay off your balance in full each month to avoid interest charges that can outweigh rewards.
Why Choose a Rewards Credit Card?
- Earn extra value from your everyday spending.
- Get perks like travel discounts, free flights, or cash back.
- Take advantage of sign-up bonuses for a big initial boost.
- Customize rewards to fit your lifestyle and spending habits.
In short: A rewards credit card helps you get more from your purchases by giving back cash, points, or miles. It’s a smart choice if you pay your balance in full and want to maximize your spending power.
For a detailed comparison of the best rewards credit cards, check out our top picks.
Rewards Card vs. Cash Back Card: What’s the Difference? (Beginner’s Guide)
Understanding the difference between a rewards credit card and a cash back card can help you pick the best option for your spending habits and goals.
What Is a Rewards Credit Card Again?
A rewards credit card gives you something back every time you spend-usually in the form of points or miles. These points can be redeemed for things like:
- Flights and hotel stays
- Gift cards
- Merchandise
- Vouchers for specific retailers
- Experiences or travel perks
Key points:
- Rewards are usually earned as points or miles.
- Redemption options vary and are often tied to travel or specific brands.
- Some rewards cards offer extra perks like travel insurance or airport lounge access.
What Is a Cash Back Card?
A cash back credit card is a type of rewards card, but instead of points or miles, you earn a percentage of your spending back as cash. This cash is usually:
- Credited to your card statement
- Deposited in your bank account
- Used to pay for purchases
Key points:
- Rewards are paid as cash, not points.
- Redemption is simple-often just a credit on your bill.
- Some cards offer higher cash back in certain categories, like groceries or fuel.
Main Differences at a Glance
| Feature | Rewards Card | Cash Back Card |
|---|---|---|
| What you earn | Points or miles | Cash (as a % of your spending) |
| How you redeem | Travel, gift cards, merchandise, etc. | Statement credit or bank deposit |
| Flexibility | Varies by card/program | Very simple and flexible |
| Best for | Travel, brand loyalty, extra perks | Simplicity, direct savings |
Quick Tips for Beginners
- Choose a rewards card if you want to save up points for travel, hotels, or specific experiences and don’t mind learning how to maximize redemptions.
- Choose a cash back card if you want straightforward savings you can use for anything, with no restrictions or complicated programs.
In summary:
– All cash back cards are rewards cards, but not all rewards cards are cash back cards.– Rewards cards may offer points or miles for travel and merchandise, while cash back cards give you money back for each purchase.
For deals and comparisons between the two, check out our Best Rewards Credit Cards available.
In summary:
- All cash back cards are rewards cards, but not all rewards cards are cash back cards.
- Rewards cards may offer points or miles for travel and merchandise, while cash back cards give you money back for each purchase.
How to Choose a Rewards Card
1. Identify Your Spending Habits
Before picking a rewards card, take a close look at where you spend the most money. Most rewards cards offer higher rates in specific categories, so aligning your card choice with your lifestyle is key.
- Travelers: Look for cards offering higher points on flights, hotels, or other travel-related purchases. Cards like the Chase Sapphire Preferred® or American Express Gold excel in these areas.
- Everyday Spenders: If you spend a lot on groceries, dining, or gas, consider cards that reward these categories, such as the Blue Cash Preferred® from American Express or the Citi Custom Cash℠ Card.
- Big Purchases: If you’re planning a significant expense, a card with a large sign-up bonus and a higher rewards rate for the first few months can be valuable.
Pro Tip: Review the last few months of your bank or credit card statements to identify spending trends.
2. Cashback vs. Points vs. Miles
When it comes to rewards, you generally have three options: cashback, points, or miles. Each type has its own advantages depending on how you plan to redeem them.
- Cashback: The simplest option. Cards like the Chase Freedom Unlimited® offer straightforward cashback on every purchase. This is perfect for people who want flexible, easy-to-understand rewards.
- Points: Best for flexibility. Points cards (such as Chase Ultimate Rewards or Amex Membership Rewards) allow you to redeem for travel, gift cards, or even cashback, depending on the issuer. These cards work best for people who like having multiple options.
- Miles: Ideal for frequent flyers. Travel credit cards like the Capital One Venture Rewards Credit Card allow you to rack up miles that can be redeemed for flights or hotel stays. This type of card is best if you’re a frequent traveler.
Pro Tip: If you travel often and want premium perks like lounge access or no foreign transaction fees, a travel rewards card is a better bet.
3. Evaluate the Annual Fee of Rewards Cards
While many rewards credit cards come with no annual fee, others charge a fee that can range anywhere from £20/$50 to £450/$550 or more. High annual fees can be worth it if the card provides perks that outweigh the cost.
- No Annual Fee Cards: Great for budget-conscious users. Examples include the Chase Freedom Flex℠ or the Discover it® Cashback card, both of which offer valuable rewards with no yearly fee.
- High Annual Fee Cards: These typically offer premium perks like airport lounge access, travel credits, and higher reward rates. Cards like the Chase Sapphire Reserve® or American Express Platinum may have fees upward of $500, but their benefits can easily outweigh the cost if you use them regularly.
Pro Tip: If you’re unsure about paying an annual fee, do the math. Estimate how much you’ll earn in rewards and weigh it against the fee.
4. Rewards Credit Card: Sign-Up Bonuses and Introductory Offers
Many rewards credit cards offer sign-up bonuses or introductory offers that can give you a significant boost in rewards within the first few months.
- Look for Big Bonuses: Some cards offer huge sign-up bonuses if you meet a minimum spending requirement within the first 3 months. For example, the Chase Sapphire Preferred® often offers 60,000 points if you spend $4,000 in the first three months. That’s worth $750 toward travel when redeemed through Chase Ultimate Rewards.
- Take Advantage of 0% APR Offers: Some rewards cards also offer 0% APR for a limited time on purchases or balance transfers. This can be useful if you’re planning a large purchase and want to pay it off over time without incurring interest.
Pro Tip: Sign-up bonuses can be lucrative, but don’t overspend just to hit the minimum requirement. Only spend what you would normally.
5. Additional Perks and Benefits
Beyond rewards, many credit cards offer extra perks that can add significant value. These might include:
- Travel Insurance: Cards like the Chase Sapphire Preferred® offer built-in travel insurance for flight cancellations or delays.
- Purchase Protection: Many cards offer protection against theft or damage for new purchases.
- No Foreign Transaction Fees: If you travel abroad, make sure your card doesn’t charge foreign transaction fees (typically 3% per transaction). Cards like the Capital One Venture or Chase Sapphire Reserve® waive these fees, saving you money on international purchases.
Pro Tip: These perks may seem small, but they can add substantial value, especially for frequent travelers or those making large purchases.
6. Redemption Flexibility
The best rewards card is one that fits into your life. Some cards offer more flexibility than others when it comes to redeeming points or miles.
- Flexible Travel Redemption: Cards like Chase Sapphire Preferred® and American Express Gold offer the ability to transfer points to various airline and hotel partners, making them a favorite among travel hackers.
- Cashback Simplicity: If you prefer simple cashback, look for cards that allow you to redeem your rewards as a statement credit or direct deposit. Cards like the Capital One Quicksilver Cash Rewards or the Discover it® offer straightforward redemption options.
Pro Tip: Make sure to check if the rewards have an expiration date or limitations on how you can redeem them.
Rewards Credit Card: Final Thoughts
Choosing the right rewards credit card comes down to knowing your spending habits and aligning them with a card that offers the best perks. Whether you’re focused on cashback, travel rewards, or maximizing your points, there’s a perfect card out there for you. Take your time to research and compare the options, and soon you’ll be on your way to earning rewards on every purchase.
Ready to start earning? Apply for your perfect rewards card now.
By targeting your specific spending habits and being mindful of the fees and perks, you can find a rewards credit card that gives you the best bang for your buck while fitting into your financial goals.
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