Rewards credit cards offer cardholders the chance to gain additional value from their everyday purchases by earning rewards points per dollar spent. These rewards can be classified as rewards points, frequent flyer points, or cashback. After accumulating enough, you can redeem your rewards for a variety of benefits, including flights and upgraded seats, hotel stays, merchandise, gift cards, or even statement credits to reduce your credit card bill.
David Boyd, co-founder of Credit Card Compare, explains further, "Over the years, I've used rewards credit cards extensively in business and in a personal capacity. When you redeem rewards points for high value items like business class seats on long haul flights, it's hard to put a value on the experience."
Different types of rewards credit cards
Several types of rewards credit cards are available, each catering to different preferences and spending habits. Some common types include the following:
- Cashback cards: Cashback cards reward cardholders with a percentage of the amount spent on the card back into your account as cash.
- Points and miles cards: Points and miles cards allow cardholders to earn points or miles for every dollar they spend. These can be redeemed for various rewards like flights, hotel stays, or merchandise.
- Co-branded cards: These are cards are affiliated with a specific retailers, airlines, or hotel chains and offer rewards specific to the respective brand. These cards are ideal for frequent customers of the affiliated brand.
How rewards credit cards work
Rewards credit cards typically operate on a points-based system where cardholders earn certain points for every dollar spent on the card. These points accumulate over time and can be redeemed for rewards based on the card issuer's redemption options. Some cards may offer bonus points for specific spending categories or sign-up bonuses for new cardholders.
Benefits of rewards credit cards
- Earn rewards on everyday spending: One of the main advantages of rewards credit cards is the ability to earn rewards on everyday purchases like groceries, gas, and bills. This can help cardholders maximise their spending and get more value from their purchases.
- Travel benefits: Many rewards credit cards offer travel perks such as airline miles, hotel discounts, and travel insurance. These benefits can make travelling more affordable and convenient for cardholders.
- Sign-up bonuses: Some rewards credit cards offer lucrative sign-up bonuses for new cardholders, which can include bonus points, cashback, or statement credits. These bonuses can provide an excellent value for cardholders who meet the spending requirements.
How to choose a rewards credit card
When choosing a rewards credit card, it's essential to consider your spending habits, redemption preferences, and any associated fees. Here are some factors to keep in mind:
- Rewards structure: Consider how the card earns rewards, the redemption options available, and whether the rewards align with your preferences and lifestyle. Rewards structures can vary significantly from card to card, on spending thresholds as well as rewards earn rates.
- Annual fees: Some rewards credit cards come with annual fees. Evaluate whether the rewards and benefits outweigh the annual fee cost in your case.
- Interest rates: Check the card's interest rates, especially if you plan to carry a balance. High-interest rates can negate the value of the rewards earned.
- Bonus offers: Look for cards with attractive sign-up bonuses and promotions that can boost your rewards earnings in the short term.
