What is a rewards credit card?
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Rewards credit cards help you maximize your purchases with cash back, points or miles.
Depending on the card you choose, you may earn a return on everything you buy, or varying rates in certain bonus categories. These cards can also differ when it comes to redemption options and the value you'll get from the rewards you've earned.
Here's what to know about rewards cards so you can starting saving on your most frequent spending.
Types of credit card rewards
There are generally three types of rewards you can earn with a credit card: cash back, points or miles. Your most frequent spending categories and the redemptions you're looking for can help you decide which is best for you.
Cash back rewards
With a cash back rewards credit card, you'll earn a percentage of your spending back on eligible purchases. Some cash back rewards cards offer a flat rate back on every purchase. You might get 2% back on all your spending with no limit, for example. Others offer different cash back rates (3%, 5% or even up to 6%) on different spending categories. Common cash back bonus categories include groceries, gas stations, restaurants and more — making cash back rewards cards great for everyday spending.
Points rewards
A points-earning rewards credit card works similarly to cash back. Each time you make an eligible purchase, you'll earn a certain amount of points rewards. If you have a rewards card that earns 4X points per dollar at restaurants and you spend $30 dining out, for example, you could rack up 120 points on that meal alone.
Points largely differ from cash back in their redemption value. While a good baseline redemption is 1 cent per point, rewards programs often have even more lucrative options that can help you maximize the points you earn. Common options to redeem points rewards include statement credits, gift cards, travel, transfers to partner airlines or hotels and more.
Miles rewards
Rewards credit cards that earn miles are typically geared toward travel. Like other rewards cards, you'll earn a specific number of miles for every dollar you spend in eligible bonus categories.
Points and miles rewards cards may be co-branded with travel companies (often an airline or hotel chain).
How to use a rewards credit card
To start, make sure your rewards card's bonus categories align with where and how you spend most.
If you spend a lot of money at the supermarket and primarily cook at home, a card with grocery rewards will offer you a lot more value over time than one with higher rewards at restaurants. Or, if you live in a city and often take public transportation, you may not get a lot of use from a card with great rewards at gas stations.
You'll also want to consider how much effort you want to put into maximizing your redemptions. Cash back rewards credit cards can be the most straightforward type to use and redeem. Points and miles may offer more rewards value, though — especially if you travel a lot. But they also require doing some research to choose the best redemptions.
Finally, rewards credit cards only really add value to your spending if you use them responsibly. Credit card interest rates are much higher than the cash back or points value you'll get with even the best rewards cards, so carrying a balance can quickly negate the rewards you earn. Use your rewards credit card like a debit card — only charge what you know you can afford to pay down when your monthly statement is due.
The bottom line
A rewards credit card can help you save on your most common purchases. Choosing the right rewards card — with the combination of earning categories and rewards that best fit your spending habits — can be a great way to put some money back into your wallet over the long term.
Before you choose a rewards card, compare your spending with the rewards offered, and make sure you have a plan in place to pay down your purchases in full each month.
