Are rewards credit cards worth the effort?

You might have thought about getting a rewards credit card to earn cash back, flights or even complimentary hotel stays. While getting a card with such perks might seem like a no-brainer, a rewards credit card is not right for everyone.

To determine if a rewards credit card is worth it for you, consider factors such as your spending habits, rewards goals and the card’s annual fee. Be sure to weigh the pros and cons before applying.

What are the pros and cons of a rewards credit card?

It’s important to understand what you hope to gain from a rewards credit card. However, the benefits are only worthwhile if the card’s drawbacks, such as its fees or interest rate, don’t cancel out the card’s potential reward value.

Consider these pros and cons of a rewards card:

Who should use a rewards card?

Types of rewards credit cards

Here are a few types of rewards credit cards that you might encounter. Remember that while a card may offer stronger accelerated rewards for one category, it can also offer lesser accelerated rewards for other categories.

What are accelerated rewards?

Accelerated rewards are cash back, points or miles that you earn at a higher rate than the base rate.

For example, a card might offer 1% cash back on all purchases as its base rewards rate. But it might offer 3% cash back for gas. This means the card offers accelerated rewards for gas.

Retail

Retail cards offer benefits and rewards tied to a particular retailer. You might only be able to use your card with the affiliated company.

Here’s an example: With the Forever 21 Credit Card, you’ll earn points for your spending, which you can redeem for rewards certificates at Forever 21. You’ll also receive perks like discounts and exclusive promotions. The card is valid only at Forever 21.

Cashback

You’ll receive your rewards in the form of cash back, which you can usually redeem for statement credit or a deposit into your bank account. Some providers let you redeem for travel, gift cards and merchandise.

Here’s an example: The Chase Freedom Unlimited® credit card offers unlimited 1.5% cash back. You can redeem points for statement credit and bank deposits. Gift cards, travel and experiences are also available through Chase Ultimate Rewards.

Category-specific — Gas, grocery, dining, etc.

You’ll receive accelerated rewards when you use your card for a certain category, such as restaurants or streaming services. For example, you might receive 3% cash back for one category instead of 1%, which is the normal rewards rate for purchases. Some cards have spending caps for the highest rewards rates.

Here are examples of credit cards for certain categories:

• Gas: Costco Anywhere Visa® Card by Citi. You’ll earn 4% cash back on eligible gas purchases worldwide for the first $7,000 per year, then 1%.
• Groceries: Blue Cash Preferred® Card from American Express. Earn 6% cash back at US supermarkets on up to $6,000 in purchases per year, then 1%.
• Dining: Capital One® Savor® Cash Rewards Credit Card. Earn 4% cash back on dining.
• Entertainment. Some cards have begun offering rewards on entertainment, such as streaming services, concerts and tourist attractions.

Airline

You’ll typically earn bonus miles when you spend on flights with a cobranded airline. Later, you can redeem miles for rewards like flights and car rentals through the airline’s rewards portal.

This card type often includes airline-specific perks like priority boarding and free checked baggage.

Here’s an example: United℠ Explorer Card

Hotel

A hotel credit card offers bonus points when you spend with a certain hotel chain. You can often redeem points through the chain’s rewards portal for hotel stays, travel packages, point transfers and more. Here are a few of our favorite hotel loyalty programs on the market.

Usually, this card type also includes hotel-specific perks like loyalty-program upgrades and resort credits.

Here’s an example: Hilton Honors American Express Card. Earn 7x points at the Hilton Portfolio of hotels and resorts. Earn 5x points at US restaurants, US supermarkets and US gas stations and 3x points on all other eligible purchases.

Compare credit cards that reward you for spending

How to maximize your credit card rewards

Were you approved for a rewards card? That’s great news. Now here are a few steps to squeeze as many rewards from it as possible. For more tips, check out our full reward redemption guide.

1. Grab the signup bonus.

   Your card probably has a signup bonus. This typically comes in the form of significant rewards if you reach a spending threshold within a certain time.

   Check your card’s signup-bonus requirements and calculate how much you need to spend per month to meet them. You don’t have to strain your budget just to get the bonus. However, there are many hacks that can help you reach the spending threshold.

2. Spend more in your bonus-reward categories.

   Your card might offer accelerated rewards for certain purchase categories. If that’s the case, use it for those purchases as much as you can.

   For example, if your card pays 6% cash back on groceries, it’s a no-brainer to use your card at the grocery store as much as you can. Meanwhile, the card might offer just 1% cash back on all other purchases. For those purchases, you might want to use a card that offers a solid rewards rate — for example, 1.5% cash back — on everything you buy.

3. Redeem your rewards for high-value options.

   With a cashback card, your rewards rate easily translates to your redemption value. For example, if your card pays 1.5% cash back and you spend $1,000 a month, you know you’ll earn $1,000 x 1.5% = $15 in rewards monthly.

   Point- or mile-based cards can be a little trickier. Some cards make it easy with automatic rewards redemption — usually for statement credit. Other cards have many redemption options, and give you different values for your rewards.

   The credit card industry generally values a point or mile at 1 cent each. If you have 10,000 points, then, they’re usually worth around $100. Try to get value from your rewards at or above this rate. Best of all, most rewards redeemed this way are not subject to taxes.

How to calculate redemption value

See how much your points or miles are worth for certain redemption options by following these steps:

1. Check the monetary value of the redemption option. For example, you might be looking at a $25 gift card.
2. See how many points or miles you must trade. Let’s say you need to redeem 3,000 points to get the gift card.
3. Divide the redemption’s monetary value by the number of points or miles you must redeem. With some quick math, you’d see that $25 / 3,000 = 0.008. That means your points would be worth 0.8 cents apiece if you redeemed them for this gift card. That’s less than the industry standard of 1 point = 1 cent, so it’s a mediocre deal.

Bottom line

Depending on the card you choose, you can get perks such as an intro APR period, free checked bags, airport lounge access and more. But watch out for your card’s interest rate, fees and point capping. If the drawbacks offset the value of your potential reward, a rewards credit card might not be worth it for you.

If you still haven’t found a credit card that fits your needs, compare all credit card options to find something that works for you.

Frequently asked questions

• What are the eligibility requirements?
  Most cards require you to be at least 18 years old and a US citizen. Additional requirements include your credit score and annual income.
• What kind of rewards can you redeem?
  This depends on the type of program you have. Cashback cards let you redeem for statement credit or a deposit to your account, while points and miles cards let you redeem for airfare, hotel stays and car rentals. Additional redemption options may include gift cards and merchandise.
• Do rewards credit cards come with other features?
  Yes, some rewards cards offer 0% intro APR period, cell phone protection, travel insurance, luggage insurance, car rental collision damage waiver, travel credit and more.
• Should I get a rewards card that offers the same rewards rate on all purchases? Or should I get one with different rewards rates?
  It depends on your spending. As a rule of thumb, get a tiered-rewards card only if you spend a lot in its bonus-reward categories. If your spending is dispersed throughout many categories, consider a flat-rate-rewards card instead.
• Why is it important to calculate redemption values for my rewards?
  The value of rewards can be deceptive, especially if you earn points or miles.

  Here’s an example: Card A has a welcome offer of 150,000 points, and Card B has a welcome offer of 75,000 points.

  It may seem like Card A has a more valuable welcome offer, but its points are worth only 0.5 cents apiece. Meanwhile, Card B’s points are worth 1 cent apiece. When you do the math, both card’s welcome offers are worth the same.

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