With seemingly endless credit card offers, it can be a head-spinning experience choosing the right one. But your credit card can do a lot more for you beyond simply paying for purchases. A key part to finding the right card for you involves reviewing and deciding on credit card rewards.
If you’re the kind of credit card user who spends wisely and pays your bill each month, you’ll find that many cards will offer rewards in the form of cash back, points or miles. Typically, the more you spend with your credit card, the more you earn, so find the right card based on your lifestyle and goals.
If you prefer the freedom and simplicity of getting money each month, you’ll want cash back. If you love to book last-minute flights for weekend trips, you might reach for a card that offers miles. Maybe you want flexible rewards where you can redeem a portion for travel and some for cash back. If so, points might be for you. Here’s how to weigh your options.
Why Choose Cash Back?
This one is simple: Who doesn’t want cash back with each purchase?
Cash-back cards provide you with a small portion of each of your purchases in cash that can be applied as a credit on your monthly statement, or even deposited in your bank account in some cases. With some credit cards, there’s no need to “redeem” cash, as it hits your account without you having to do anything. What could be easier?
Cash back often depends on how you spend your money. Some cash-back cards will give you a flat rate of return (such as 1%-2% of each purchase). Others give higher amounts of cash back for different categories like groceries, gas or subscriptions to streaming services. These “accelerated” categories may rotate every quarter or year. Note that these categories also often have limits, so once you reach that level your earn rate goes back down to the base earn rate.
Why Choose Points?
If you like to shop around, you’ll enjoy the flexibility of points.
The term “points” has evolved as credit cards have evolved, and now defines many types of rewards programs. Travel-focused credit cards, for example, may use points that are redeemable for hotels or airline fares. Other cards may offer points that you can trade for cash back or merchandise credit at a particular store. Think of points as a currency that can be redeemed in flexible ways.
To maximize your use of points, find a credit card that lets you redeem your points for the categories you want, be it travel, retail, merchandise or cash back. The value of points can be greater than their dollar amount, which means that using points for things like booking a hotel might save you money. Many cards also offer sign-up bonuses with points.
Although points are flexible, keep in mind that they can expire if you don’t spend them in a certain period of time. There is also often a steeper learning curve with points, as opposed to cash back. For example, some point systems are fixed (like one point for each dollar spent), but there may be “multipliers” for certain categories of purchases. Redeeming points can be complex if you are just learning the ins and outs.
Why Choose Miles?
Jet-setters, take note: If you love to travel, consider cards that offer airline miles!
Airline miles are like a frequent flyer program. They are a form of points that can be earned with airlines and redeemed for discounted flights or other travel perks, such as hotel stays. While the rewards are called miles, they are not the amount of miles that you’ve actually flown: The term is just a way to describe the currency of the rewards.
Miles can be earned by flying or by simply using the credit card for your everyday purchases. But because they are usually limited to a single airline (or their partner airlines), they can be more valuable than their cash equivalent. Higher earn rates are awarded when you use the card to purchase airline travel on that airline.
While almost all miles cards come with an annual fee (some in the hundreds of dollars), if you are a frequent traveler the rewards may still make the card worthwhile. Plus, they often have added bonuses, such as access to airport lounges.
Miles are best when you travel often and prefer to travel with the same airline. Keep in mind that, as with some other points, miles can expire, so make sure you book your flight before they do.
Choose the Card That Meets Your Needs
If you’re currently one of the 28% of people making your purchases with a debit card (or the 19% still using cash!) remember that you’re getting zero rewards for those purchases. So find a credit card that’s right for you and start earning rewards on all your purchases.
Remember that rewards are an excellent perk, but they are just one feature of a credit card. When shopping for a card, also review fees, rates and introductory offers to make an informed decision.
William Myers is a financial writer based in Dallas.
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