Choosing a rewards credit card that’s right for you
Rewards credit card programs have exploded in recent years, offering everything from flights to merchandise to cash in your pocket. With so many options, it’s important to choose a rewards card that suits your lifestyle and preferences. Here’s how.
What is a rewards credit card?
Rewards credit cards typically work by letting you accumulate a certain number of “points” for every dollar you spend and you can later redeem these points for valuable goods and services like flights, household items or even cash back.
Many cards these days offer rewards from all categories, although it’s common for them to target a particular lifestyle. For example a travel credit card might offer travel and cash-back rewards but offer a better points-to-reward ratio when you use the points for travel.
The difference between rewards cards and perk cards
Don’t confuse rewards with perks like discounted movie tickets or free travel insurance. Rewards cards may contain perks like this, but cards can offer perks without having a points-based rewards system.
What types of rewards cards are there?
Here are the most common types of rewards cards, although many of them will offer rewards from multiple of these categories:
- Travel cards. These cards let you earn points redeemable for travel-related rewards like flights, hotel stays, cab rides, amusement park tickets and airport lounge access.
- Cash-back cards. These cards let you earn points redeemable for cash, usually in the form of a deduction on the balance you owe.
- Shopping cards. These cards let you earn points redeemable for merchandise raging anywhere from sporting goods to appliances to children’s toys.
It’s also possible to find cards that cater to specific hobbies. For example a golf rewards card might let you earn extra points when you use the card at a golf course and/or offer golf-related rewards at a points discount.
How do you earn points?
There are several ways you can earn points using your rewards credit card:
- Being approved for a card. Some rewards cards will give you a lump sum of points just for signing up and being approved for the card. They may give you the points right away, or only after you have charged a specific amount to the card within a specific timeframe.
- Everyday spending. Most cards issue a certain number of points for every dollar you charge to the card. Some charges may not be eligible for points, for example, balance transfers.
- Spending on specific products and services. Your card may issue additional points, above and beyond the points you get for everyday purchases, when you use the card for specific products and services. For example, a travel card might issue additional points for every dollar you spend on travel-related purchases.
How do you choose the right rewards card for you?
Don’t just apply for the first rewards cards that offer a bunch of points just for signing up. Instead take your time to consider what you want out of a rewards program and how you plan on using your card. Here are some factors to consider:
- Will you pay your balance in full every month? Most rewards cards come with an annual fee, so if you plan on carrying a balance (ie, paying interest), consider skipping the rewards in lieu of a no-annual fee card instead. Otherwise, look for one with a low fee or that offers other valuable perks.
- What rewards are you interested in? Many rewards cards aim to appeal to certain types of people, for example travel cards are aimed at travelers, shopping cards are aimed at people who like to shop and cash back cards are aimed at the frugally minded. You’ll obviously want a card that offers rewards that actually excite you.
- Is there a cap on points? Some cards will limit the number of points you can earn every year. If you plan on using the card a lot, it might be worth seeking out a card with a higher cap or no cap at all.
- How much are points worth? You can make a rough estimate by noting the number of points it takes to get a particular item and then dividing that into the item’s monetary value. You can then use this information to compare the point value on a few different cards.
- How easy is it to redeem points? With some rewards, it might take several steps to redeem your points: for example, a travel card that lets you exchange your points for an airline’s frequent flyer miles, where you’d still have the extra step of redeeming those miles for your flight. If you’re considering a card, find out what the redemption process is and decide if you’re comfortable with it.
A rewards card can be a great way to extract additional value from your credit card, provided that you use the card responsibly and don’t rack up fees and interest charges that cancel out all that added value. Just make sure you choose a card that suits your interests and makes it easy to redeem and enjoy your rewards.
The information in this blog post is general in nature and does not constitute personal financial or professional advice. It is not intended to address the circumstances of any particular individual. We do not guarantee the accuracy and completeness of the information and you should not rely on it. Before making any decisions, it is important for you to consider your personal situation, make independent enquiries and seek appropriate tax, legal and other professional advice.