The Ultimate Guide to Choosing the Best Rewards Credit Card
In today’s world, rewards credit cards have become an essential tool for savvy consumers. These cards offer a way to earn cash back, miles, or points on your everyday spending, making them a valuable asset in your personal finance arsenal. But with so many options available, how do you choose the best rewards credit card for your needs? In this ultimate guide, we’ll break down everything you need to know to make an informed decision.
1. Understanding Rewards Credit Cards
What is a rewards credit card?
Rewards credit cards are a type of credit card that offer incentives to cardholders for their spending. These incentives can come in the form of cash back, miles, or points, depending on the specific card. The goal of these cards is to provide cardholders with a way to earn rewards on their everyday purchases.
How do rewards credit cards work?
Rewards credit cards work by offering cardholders an incentive (such as cash back, miles, or points) for their spending. Cardholders earn rewards based on the amount they spend on eligible purchases. These rewards can then be redeemed for various benefits, such as cash back, travel rewards, merchandise, or gift cards.
Types of credit card rewards programs
Rewards credit cards come in different types, including points programs, cash-back programs, and miles programs. Points programs allow cardholders to earn points for every purchase, which can be redeemed for various rewards. Cash-back programs offer a percentage of the purchase amount back to the cardholder, typically as a credit on their statement or a direct deposit. Miles programs provide cardholders with “miles” for every purchase, primarily tailored for frequent travelers, and can be redeemed for airline tickets, upgrades, or other travel-related benefits.
2. Exploring Credit Card Points
What are credit card points?
Credit card points are a type of reward system where cardholders accumulate points based on their purchases. These points can be redeemed for various rewards, ranging from merchandise and gift cards to travel and experiences.
Who are they best for?
Credit card points are best suited for individuals with varied spending habits who are looking for flexibility in their redemption options. They are particularly beneficial for those who prefer a range of rewards rather than being restricted to cash back or specific travel perks.
How to earn credit card points
There are several ways to earn credit card points:
- Sign-up bonuses: Many credit cards offer lucrative bonuses for new cardholders once they spend a certain amount within the first few months.
- Regular purchases: Cardholders typically earn points for every dollar they spend on eligible purchases.
- Bonus categories: Some cards offer higher point rates for specific categories, like dining, supermarkets, or gas stations.
- Shopping portals: Many credit card issuers have online shopping portals where users can earn extra points by shopping with partner retailers.
- Special promotions: Occasionally, issuers might run promotions or partnerships where cardholders can earn additional points for a limited time.
3. Decoding Credit Card Miles
What are credit card miles?
Credit card miles, often referred to simply as “miles,” are a type of reward system where cardholders earn miles for every purchase made on the card. Once accumulated, these miles can be redeemed for air travel, hotel stays, and other travel-related expenses.
Who are they best for?
Credit card miles are ideal for frequent travelers, be it for business or leisure. They cater to individuals who are looking to offset their travel expenses or enjoy travel perks, such as lounge access, priority boarding, and free baggage check.
How to earn credit card miles
There are several ways to earn credit card miles:
- Sign-up bonuses: Many miles-based credit cards offer a sizable chunk of miles as a bonus for new users who meet a certain spending threshold within the initial months.
- Everyday purchases: Typically, cardholders earn a set number of miles for every dollar they spend.
- Travel-related expenses: Many travel credit cards offer additional miles for expenses related to travel, like booking flights, hotels, or car rentals with the associated brand or partners.
- Dining programs: Some card issuers have dining reward programs that give extra miles when you dine at partner restaurants.
- Promotional campaigns: Issuers often run limited-time offers where spending in certain categories or with certain partners can yield bonus miles.
4. Unveiling Cash-Back Credit Cards
What are cash-back credit cards?
Cash-back credit cards are a type of rewards card where cardholders receive a percentage of their purchase amount returned to them as a reward. This “cash back” can be issued through statement credits, checks, or direct deposits, effectively reducing the amount the cardholder spends.
Who are they best for?
Cash-back credit cards are ideal for individuals who value straightforward rewards and are looking for tangible, immediate returns on their spending. They are especially beneficial for those who may not travel frequently and prefer a clear-cut, monetary reward over points or miles.
How to earn cash back
There are several ways to earn cash back:
- Sign-up bonuses: Some cash-back cards offer a bonus cash reward for new users who spend a specific amount within the first few months.
- Everyday purchases: Cardholders earn a defined percentage back on all qualifying purchases.
- Category-specific rewards: Many cash-back cards offer higher percentages for specific categories, such as groceries, gas, or dining.
- Rotating categories: Some cards offer higher cash-back rates on categories that change periodically, requiring cardholders to activate these categories to earn the bonus.
- Shopping through issuer portals: Similar to points-based cards, some cash-back cards allow users to earn additional rewards by shopping through the issuer’s online portal with partner retailers.
5. Finding the Best Rewards Credit Cards
How to find the best rewards credit cards
Choosing the best rewards credit card can be a daunting task, but with some careful consideration, you can find the perfect card for your needs. Here are some steps to guide you:
- Define your rewards objective: Start by pinpointing the type of rewards that align with your lifestyle and aspirations. Do you prefer cash back, points, or miles?
- Look at your spending patterns: Review your monthly expenses to identify where most of your money is spent. This insight can guide you to cards that reward those specific categories more generously.
- List and compare: Craft a concise list of potential cards, emphasizing those with higher rates and compelling introductory bonuses or welcome offers. This comparative approach ensures you’ll get the most value for your spending.
- Examine short-term vs. long-term benefits: Consider both the immediate benefits, such as sign-up bonuses, and the long-term benefits, such as ongoing rewards rates and redemption options.
- Explore prequalification opportunities: Before applying, check if you can prequalify for a card. This will give you an indication of your likelihood of approval without impacting your credit score.
How to compare rewards credit cards
When comparing rewards credit cards, consider the following factors:
- Annual fee: Determine if the benefits you’ll receive outweigh the cost of the annual fee, if any.
- Earning potential: Evaluate the rewards structure of each card to understand how much you can potentially earn based on your spending habits.
- Spending categories: Some cards offer bonus rewards for specific categories, so consider if those categories align with your spending patterns.
- Welcome bonus: Take into account any sign-up bonuses or welcome offers, but be aware of any spending requirements to receive the bonus.
- Intro APR offers: If you plan to carry a balance, evaluate the length of the introductory APR period and the regular APR that will apply after the promotional period ends.
- Credit score: Some cards have stricter approval requirements, so assess if your credit score aligns with the card’s eligibility criteria.
6. Calculating Credit Card Rewards
How to calculate credit card rewards
Calculating credit card rewards can be a straightforward process. Here are the steps you can follow:
- Identify the reward rate: Check your credit card’s terms and conditions to determine the percentage of rewards you’ll earn on your purchases.
- Determine the purchase amount: Calculate the total amount you spent on eligible purchases.
- Multiply the purchase amount by the reward rate: Multiply the purchase amount by the reward rate to calculate the cash back, points, or miles you’ll earn.
- Consider any caps or limits: Some cards impose limits on the amount of rewards you can earn within a certain timeframe, so ensure your calculated rewards don’t exceed these limits.
- Factor in bonuses: Take into account any sign-up bonuses or promotional offers that can boost your rewards earnings.
7. Redeeming Credit Card Rewards
How to redeem credit card rewards
Redeeming credit card rewards varies depending on the card issuer and the specific rewards program. Here are some common redemption options:
- Statement credit: You can apply your rewards as a credit toward your credit card balance, effectively reducing the amount you owe.
- Direct transfer to your bank: Some cards allow you to transfer your rewards’ cash value directly into your linked bank account.
- Check: The credit card company may issue a paper check representing the cash value of your rewards, which you can deposit or cash.
- Gift cards: Many cards offer the option to redeem rewards for preloaded gift cards that can be used for purchases at specific retailers or a group of retailers.
- Travel rewards: Depending on the card, you may be able to redeem your rewards for airline tickets, hotel stays, or other travel-related benefits.
- Merchandise and experiences: Some rewards programs allow you to redeem your points or miles for a wide range of merchandise or unique experiences.
- Charitable donations: Some cards offer the option to donate your rewards as a monetary contribution to a nonprofit organization or cause.
8. Factors to Consider When Choosing a Rewards Credit Card
Annual fee
When evaluating rewards credit cards, consider the annual fee associated with each card. Some cards have no annual fee, while others may charge a fee ranging from below $100 to over $500. It’s important to assess whether the benefits offered by the card offset the annual fee.
Earning potential
The earning potential of a rewards credit card depends on the rewards structure. Look at the rewards rate offered by each card and consider how it aligns with your spending habits. For example, if you spend $500 per week, a card offering a 1.5% cash back rate would earn you approximately $390 in cash back annually.
Spending categories
Take note of any bonus categories offered by the rewards credit cards you are considering. Some cards may offer higher rewards rates for specific categories, such as dining, groceries, or gas stations. Evaluate whether these categories match your spending patterns and if any earning caps or limitations apply.
Welcome bonus
Many rewards credit cards offer sign-up bonuses as an incentive to attract new cardholders. These bonuses can come in the form of cash back, points, or miles. Consider the requirements to earn the bonus, such as spending a certain amount within a specified timeframe, and assess if it is attainable for you.
Intro APR offers
Some rewards credit cards may provide an introductory APR offer, allowing you to enjoy a period of 0% interest on purchases or balance transfers. This can be beneficial if you plan to make a large purchase or want to transfer existing debt. However, it’s important to be aware of the regular APR that will apply after the promotional period ends.
Credit score
Credit card issuers often have specific eligibility criteria, including minimum credit score requirements. Before applying for a rewards credit card, check if your credit score aligns with the card’s requirements. Some issuers may offer prequalification opportunities, allowing you to gauge your likelihood of approval without impacting your credit score.
9. Top Picks for the Best Rewards Credit Cards
Best overall cash back card: Wells Fargo Active Cash® Card
The Wells Fargo Active Cash® Card offers a generous 2% cash back on all eligible purchases, making it an excellent choice for those looking for a straightforward rewards structure. With no annual fee and a 0% introductory APR for 15 months on purchases and balance transfers, this card provides great value.
Best cash back card for those who want the most value: Chase Freedom Unlimited®
The Chase Freedom Unlimited® credit card offers a competitive rewards program with 5% cash back on travel purchased through Chase Ultimate Rewards, 3% cash back on dining and drugstore purchases, and 1.5% cash back on all other purchases. It also comes with a $200 bonus after spending $500 in the first 3 months and a 0% intro APR for 15 months.
Best cash back card for the household CFO: Chase Freedom Flex℠
The Chase Freedom Flex℠ card is designed for those who manage the finances in their household. With a rewards program that includes 5% cash back on activated bonus categories, 5% cash back on travel purchased through Chase Ultimate Rewards, and 3% cash back on dining and drugstores, this card offers flexibility and value. It also comes with a $200 cash bonus and a 15-month 0% intro APR.
Best cash back card for students: Chase Freedom RiseSM credit card
The Chase Freedom RiseSM credit card is an excellent option for students who are new to managing credit. With 1.5% cash back on all purchases and a $25 statement credit for signing up for automatic payments, this card helps students build credit while earning rewards. It also offers a 0% intro APR for the first 6 months.
Best cash back card for a big sign-up bonus: Capital One Savor Rewards
The Capital One Savor Rewards card offers a substantial sign-up bonus of $300 after spending $3,000 within the first three months. With a rewards program that includes 4% cash back on dining, entertainment, and popular streaming services, 3% cash back at grocery stores, and 1% on all other purchases, this card provides great value for those who enjoy dining out and entertainment.
Best cash back card for avoiding fees and interest: Costco Anywhere Visa® Credit Card by Citi
The Costco Anywhere Visa® Credit Card by Citi offers a range of cash back rewards, including 4% back on gas, 3% back on restaurants and eligible travel, 2% back on all other purchases from Costco and Costco.com, and 1% back on all other purchases. With no annual fee and no foreign transaction fees, this card is great for Costco members who want to earn cash back while avoiding unnecessary fees.
Best cash back card for customer experience: Discover it® Cash Back Credit Card
The Discover it® Cash Back Credit Card is known for its excellent customer experience, ranking second overall in the J.D. Power 2022 U.S. Credit Card Satisfaction Study. With a rewards program that includes 5% cash back on rotating categories each quarter, 1% back on all other purchases, and a cash back match in the first year, this card offers great value and customer satisfaction.
Best cash back card for big-ticket purchases: US Bank Cash+ ® Visa Signature ® Card
The US Bank Cash+ ® Visa Signature ® Card is ideal for those planning to make major purchases. With 5% cash back on two categories of your choice, 2% back on one everyday category, and 1% back on all other purchases, this card provides flexibility and generous rewards. It also offers a 15-month 0% intro APR and a $200 bonus for new cardholders.
Best cash back card for paying off existing debt: Fifth Third 1% Cash/Back Card
The Fifth Third 1% Cash/Back Card offers a 21-month 0% intro APR on purchases and balance transfers, making it an excellent choice for those looking to pay off existing debt. With no annual fee and a flat 1% cash back on all purchases, this card provides value and a pathway to financial freedom.
Best cash back card for no-fuss rewards: TD Double Up Credit Card
The TD Double Up Credit Card offers a simple and competitive flat cash back rate of 2% on all purchases. With a 15-month 0% intro APR and no annual fee, this card is perfect for those who want straightforward rewards without the hassle of tracking bonus categories or spending limitations.
10. Conclusion
Choosing the best rewards credit card requires careful consideration of various factors, including the rewards structure, annual fees, and your own spending habits. By understanding the different types of rewards credit cards, calculating potential rewards, and comparing the top picks, you can make an informed decision that aligns with your financial goals. Whether you’re looking for cash back, miles, or points, there is a rewards credit card out there that can help you maximize your earnings and enjoy valuable benefits. Start your search today and reap the rewards of smart credit card usage.
