Rewards Credit Cards

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Getting something back for spending money? Cha-ching! Reward credit cards give you something back every time you use the card. 

Our experts have compiled everything you need to know about choosing a rewards credit card – and raking in the benefits for purchases you already make.

How Do Rewards Cards Work?

Credit card rewards are incentives that encourage cardholders to use their cards more often. Generally, the more you utilize your credit card, the more rewards you earn. 

You can redeem these rewards for many things – including travel and cash – in the form of a check or statement credit. Many reward credit cards offer higher redemption values in specific categories. That’s why the type of rewards credit you choose should:

1. Reward you for what you spend the most on and,
2. Offer a way to redeem the rewards that benefits you

The 3 Kinds of Rewards Credit Cards

Reward credit programs come in many forms, the most common being:

• Cash back
• Points
• Miles

1. Cash Back Reward Cards

Cash back rewards are probably the easiest to understand as they have a straightforward system. For each purchase you make, you earn a percentage of cash back. 

Cash back reward rates come in one of the following categories:

Flat Cash Back Rate

The Citi® Double Cash Credit Card is an example of a flat rate cash back rewards card. It offers 1% cash back for every dollar you spend and 1% cash back for every dollar you pay on your balance.

Tiered Cash Back Rate

This type of card has a standard flat rate and special cash back rates in specific categories. For example, the Blue Cash EverydayⓇ Credit Card from American Express offers 3% cash back at US supermarkets, 2% cash back at US gas stations and select US department stores, and 1% back on other purchases. (Terms Apply)

Tiered Cash Back Rate That Changes

Some credit cards may offer tiered cash back rates in categories that change periodically. For example, the Discover ItⓇ Cash Back Credit Card offers 5% cash back in categories like groceries, gas, and online shopping. These categories rotate each quarter. 

How to Redeem Cash Back Rewards

Redeeming the cash back rewards depends on the credit card issuer. Generally, you can redeem them in one of the following ways: 

• Statement credit 
• Check 
• Direct Deposit

Some credit card issuers even have the option to redeem your cash back with an online retailer like Amazon.

Who Cash Back Reward Cards Are Best for

Cash back reward cards are best for everyday spenders who want a simple and straightforward rewards program. 

Tiered cash back credit cards can be especially rewarding if you find a card with a high cash back reward for areas you spend regularly. If you do not spend regularly in one category, then a flat-rate cash back reward credit card may be a better option.

2. Point Reward Cards

Point reward credit cards allow you to earn points for every purchase you make. With many point reward cards, purchases in certain categories earn you even more points. For example, the Chase Sapphire PreferredⓇ Credit Card offers 1 point per dollar spent on all purchases and 2x points on travel and dining at restaurants worldwide. 

Points are common with travel reward credit cards, but they aren’t exclusive to them. The Citi Rewards+℠ Card has a point rewards system though it’s not considered a travel reward card. This card offers 1 point per dollar spent and 2x points at supermarkets and gas stations. You can redeem the points for statement credit, online shopping, or gift cards.

What to Look for in a Point Reward Card

Credit card points are a common type of rewards program, but they can be a bit tricky to navigate if you don’t know what to look for. 

Before you apply for a point reward credit card, be sure you understand how to earn points and redeem points. In most cases, you’ll be able to redeem points for their highest value on specific items (like travel). 

For example, the Ultimate RewardsⓇ points earned on the Chase card carry 25% more value when they’re redeemed for travel (instead of another redemption option like statement credit).

Who Point Reward Cards Are Best for

If you’re a frequent traveler, the point reward cards can be especially valuable (if this is the case, Chase cards with Ultimate RewardsⓇ points should be at the top of your list).

Looking at a point rewards card that isn’t a travel credit card? Make sure you understand the earning and redemption systems. Next, compare these types of cards to cash back reward credit cards to see which one is a better fit for you.

3. Mile Rewards Cards

Just like points, you can earn airline miles when making purchases with certain reward credit cards.

How Mile Reward Cards Work

Most of the time, reward credit cards which offer miles are co-branded travel rewards cards. This means that they’re offered by a credit card issuer who has partnered with an airline. The Delta SkyMiles® Gold American Express Card or the Southwest Rapid Rewards® Plus Credit Card (issued by Chase) are examples of co-branded travel rewards cards. 

Miles earned on these credit cards can only be used with that specific airline or an airline transfer partner. Before you sign up for a miles travel rewards card, make sure the airline flies to your desired destinations.

What is a Good Mile Reward Rate?

You’ll also want to check the reward rate for airline mile cards. A high reward rate is 1 mile for every $1 spent on normal purchases (just like with points). This combined with a higher rate for purchases in specific categories – like 3 miles per $1 spent on travel – is a decent reward rate.

Who Mile Reward Cards Are Best for

If you regularly fly with a specific airline, this type of travel rewards system might benefit you most – as long as you find a high reward rate. 

Note: If you’re a business owner, you can find business rewards credit cards in the same reward categories (i.e. cash back, points, and miles) listed above. 

How to Choose the Best Rewards Credit Card

Choosing a rewards credit card isn’t an easy task since there are plenty of options. The most important considerations are as follows:

1. Check the Annual Fee

Annual fees are often attached to high reward credit cards. They’re pesky and you should make sure that they won’t set you back. It’s only worth paying if the rewards outweigh the cost. If they don’t, sidestep the annual fee and choose a reward credit card without one.

2. Review the Credit Requirements

The best reward credit cards are only available to those with good to excellent credit. This may be great news for you if you fall within that range. However, if you have bad to fair credit, you’re not totally out of luck: There are plenty of secured credit cards with rewards, like the Discover it® Secured which offers cash back rewards.

Before you choose any reward credit cards, always review the eligibility requirements to see if you qualify.

Analyze your Own Spending

You’ll want to review your own monthly spending and financial situation for two reasons:

A. You want to be able to meet a spending requirement for a sign-up bonus.

Many credit cards offer a sign-up bonus when you first apply. This is a major perk but it does come with a minimum spending requirement to get that reward. If making all your purchases on the rewards card will allow you to earn the sign-up bonus, great! If not, find another credit card.

B. You don’t want to get into credit card debt.

Reward credit cards are only ‘rewarding’ if you can afford to pay off your credit card each month. If the spending requirement for a sign-up bonus is so high it will put you in debt – or you haven’t been able to regularly pay off your credit card balance – a rewards card may not be the right choice for you. 

Why Choose a Rewards Card?

Rewards credit cards can be valuable, but only if you’re fully informed and know the pros and cons:

How to Benefit from a Rewards Card

To benefit the most from your rewards card, choose one based on the type of spender you are. 

Note: Always practice responsible borrowing by paying off your credit card balance each month to avoid debt.

Our Top 5 Favorite Reward Credit Cards

The options for reward credit cards are endless, but we have highlighted five of our favorite reward credit cards below.

Best Travel Rewards Card (with points): Chase Sapphire PreferredⓇ Credit  Card

Chase Ultimate RewardsⓇ points are some of the most valuable credit card points in existence.  With the Chase Sapphire PreferredⓇ introductory offer, you’ll receive 60,000 ultimate rewards points after spending $4,000 on purchases within the first 3 months. That’s the equivalent of $750 towards travel, making this an ideal card for the jetsetter.

Highlights of the Chase Sapphire PreferredⓇ Credit  Card

• Introductory offer of 60,000 bonus points after spending $4,000 on purchases within the first 3 months of opening your account. 
• 2x points on travel and dining at restaurants worldwide and 1 point per dollar spent on all other purchases.
• Ultimate RewardsⓇ points carry 25% more value when they’re redeemed for travel through Chase Ultimate RewardsⓇ. 
• Earn 5X points on Lyft rides through March 2022. 

Who This Card Is Best for:

Frequent travelers who don’t mind the annual fee and can meet the spending requirements to  redeem points for airfare, hotels, cruises, car rentals. 

Best Travel Rewards Card (with airline miles): American Airlines AAdvantage MileUp℠ Credit Card

The American Airlines AAdvantage MileUp℠ credit card is made for those who love getaways but don’t want the annual fee. You’ll also need to love American Airlines because the airline miles earned on this card are exclusively meant to be used with the airline.

Highlights of the American Airlines AAdvantage MileUp℠ Card

• Earn 10,000 American Airlines AAdvantage® bonus miles and receive a $50 statement credit after making $500 in purchases within the first 3 months.
• No annual fee
• Earn 2 AAdvantage® miles for each $1 spent at grocery stores and on eligible American Airlines purchases.
• Earn 1 AAdvantage® mile for every $1 spent on other purchases.
• Save 25% on in-flight food and beverage purchases when using your card on American Airlines flights.

Who This Card Is Best for:

The frequent American Airlines traveler who wants to be rewarded in miles for their purchases. 

Best Flat Rate Cash Back Rewards Card: Citi® Double Cash Card

The Citi® Double Cash Card is a flat rate card that offers two rounds of cash back rewards with every purchase. Get 1% cash back when you make a purchase and 1% cash back when you pay.

Highlights of the Citi® Double Cash Card:

• Earn 2% on every purchase with unlimited 1% cash back, plus an additional 1% once you pay for those purchases.
• To earn cash back, pay (at least) the minimum due on time.
• 0% intro APR on balance transfers for 18 months. (Note: Balance transfers do not earn cash back).
• No annual fee.

Who This Card Is Best for:

The everyday spender who puts all purchases on one card and pays it off on time each month (to reap the second round of cash back benefits). 

Best Tiered Cash Back Rewards Card: Discover It® Cash Back Credit Card

The Discover It® is our top changing tier cashback credit card for those with excellent credit. Discover automatically matches all the cash back you've earned at the end of your first year. Best of all, there’s no limit to how much is matched.

Highlights of the Discover It® Cash Back Credit Card:

• Cashback Match® introductory offer.
• Earn 5% cash back on everyday purchases each quarter. This includes grocery stores, restaurants, gas stations, and online shopping.
• Automatically earn unlimited 1% cash back on all other purchases.
• Use your rewards at Amazon.com checkout.
• No annual fee.

Who This Card Is Best for:

Everyday spenders looking to maximize their cash back (with no annual fee). 

Best Secured Cash Back Rewards Card: Discover it® Secured

This secured credit card can be established using your tax return refund as a deposit (as long as it is $200 or more). This card has no annual fee, allows you to build credit with responsible use, and provides a cash back benefit.

Highlights of the Discover it® Secured:

• No annual fee.
• Reported to the three major credit bureaus. 
• Can establish your credit line with your tax return. 
• Automatic reviews starting at 8 months to see whether a transition to an unsecured line of credit is possible. 
• Earn 2% cash back at gas stations and restaurants (up to $1,000 in combined purchases each quarter). 
• Earn unlimited 1% cash back on all other purchases.
• Introductory offer of a Cashback Match®. This means Discover will automatically match all the cash back you've earned at the end of your first year. There's no limit to how much is matched.

Who This Card Is Best for:

The dedicated credit builder who makes everyday purchases on the card and pays off their balance in full each month. 

Ask the Experts About Rewards Credit Cards

At InvestingAnswers, every piece of content is approved by a financial expert. Below, the experts answer reader questions about reward credit cards. 

Are Cash Back or Reward Points Better?

One type of reward is not better than the other. The best reward credit card for you depends on the type of spender you are and whether you travel frequently. Review the options (located in the table above) to determine what type of card might be best for you.

What Can You Do with Rewards?

You can do anything you want with your rewards! Spend them, collect them and redeem them- it’s all up to you. Remember that some rewards are more valuable when redeemed for certain purchases. In addition, some cards make it easy (and free) to transfer rewards points to family members who have the same card family. Read the terms and conditions of each credit card to make sure you understand how their reward system works.

Do Rewards Miles, Cash, or Points Expire?

Yes, some rewards will expire if you don’t use them within a certain amount of time. Always read the fine print so you don’t miss out on your rewards. 

Also note that if you miss a payment – or otherwise lose good standing on your account – you may forfeit your rewards.

Do I Need to Pay Taxes on Credit Card Rewards?

Generally, cash back rewards are non-taxable by the Internal Revenue Service (IRS) and can be thought of as rebates or discounts. Just like you don’t account for the money saved with coupons, you don’t need to worry about rewards. That said, it’s always a good idea to look at the disclosure for a credit card and make sure you’re not missing any fine print regarding taxes.

Find the Best Rewards Credit Card for You

If you want to find the perfect rewards card, use the CARDMATCHTM solution, offered by creditcards.com.  Fill out a simple form and then browse a personalized selection of credit cards designed for your financial needs

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