Not all reward cards are created equal. Although they all work the same, they differ in the types of rewards they offer, fees, and redemption options. Remember that you may not get all these features on a single card. While travel reward cards don’t typically offer cashback rewards, cash-back cards can offer travel perks. The features vary from one issuer to the next. Some of the most common features of rewards cards include:
- Fixed or tiered cash-back, points, or miles
- Sign-up bonuses
- Flexible redemption options
- Discounts for travel-related purchases or at selected merchants
- Access to exclusive airport lounges
- Travel Insurance
- TSA PreCheck reimbursement
- Global Entry reimbursement
- Insurance for delayed or cancelled flights
- Free checked baggage
- Insurance for lost or delayed luggage
- Rental car insurance
- Roadside assistance
What Are the Advantages of Rewards Cards?
Depending on the type you choose, you can enjoy many attractive benefits when using a rewards credit card. Here are some of the best perks to consider.
Earning Cashback, Air Miles, or Points on Purchases. The best thing about having this type of card is that you earn rewards every time you use it. You can earn a particular cashback percentage on every purchase, which may be limited to specific categories. They can be fixed or rotating (quarterly or annually). Some issuers even allow you to select your desired categories from a specified list. You can also earn points on purchases. Depending on the issuer, this can be flat (e.g., making 1 point per dollar on all purchases) or tiered (e.g., earning 3 points per dollar on restaurants, 2 points per dollar on gas and groceries, and 1 point per dollar on other purchases). Earning travel rewards is yet another excellent advantage. You can earn air miles or hotel points, which can be helpful if you’re a frequent traveler.
Sign-Up Bonuses. Not every issuer offers sign-up bonuses, but many do because they’re a great incentive. However, you don’t get a bonus just for opening an account. You need to spend a specific amount of money during a particular period to earn that bonus. Usually, that’s several hundred dollars.
Flexible Redemption Possibilities. There are plenty of options for redeeming your rewards. Cashback is straightforward, and you can redeem air miles for flight tickets (usually only at selected airlines). As far as points go, you can use them for merchandise, gas, gift cards, airline tickets, hotel stays, and many other purchases. You can even redeem points or miles for a statement credit, thus reducing your outstanding balance.
Are There Any Disadvantages?
The following disadvantages may not outweigh the benefits of this card type. You can even avoid some of them altogether.
High APR and Annual Fees. These cards have a high APR, but some issuers provide a $0 intro APR. Interest rates are usually very high, especially with travel cards. Many issuers offer cards with no annual fees, while others only waive them for the first year. However, cards with the best rewards require high yearly fees. They can range from several hundred to several thousand dollars.
Possibility of Rewards Caps, Expiration, and Minimum Redemption Thresholds. Some cards don’t allow you to earn more rewards than specified for a certain period, usually three months. Some even offer expiring rewards, which you may lose after each quarter ends or after a year or more, for instance. While caps and expiration dates may be frustrating, minimum redemption thresholds might be a disadvantage. Credit cards with such limitations don’t allow you to redeem what you’ve earned until you’ve reached a specified amount. That could mean spending thousands of dollars before you can get some real value.
Good-to-Excellent Credit Required. While you can avoid the disadvantages, you can’t get around this one. To be eligible for any rewards card, you must have a good-to-excellent credit score (typically 690 or higher). But if you’re qualified and want to improve your credit, this card type may be a good choice if you use it responsibly and maximize its potential.
Should You Use a Rewards Card?
Using this card type can be very lucrative if you use it regularly and responsibly. Since you can avoid annual fees and high interest rates, you can save money while earning some of it back. However, if you’re looking for really high rewards, you must be ready for hefty annual fees. That’s usually the case with travel cards, but it’s also possible with other cards. Whether you should use this card depends entirely on your spending habits – what you spend money on, how much, and how frequently. Getting a travel card might be an excellent idea if you’re a frequent traveler. If you’re a big spender, a cashback or points card may be just what you need.
Bottom Line
Rewards cards can be an excellent choice for anyone with good-to-excellent credit who frequently travels or pays for the bulk of their spending with a credit card. Earning rewards just for using the card is something to consider.