The Different Types of Credit Card Rewards

For most credit card owners, rewards are one of the most attractive features of credit cards. With the variety of different credit cards out there, it's important to know the different types of rewards available so you can best determine which credit card is best for your lifestyle. Generally, rewards provide benefits for using the card more often, but the amount of rewards you earn and what you can use it on varies by card. The three categories rewards fall into are: cash, points, and miles.

Cash

Cash rewards are the most straightforward out of the three types, and are most often associated with cash back credit cards. Cash back cards typically give you anywhere from 1% to 6% cash back on purchases made with your credit card. Generally, the more flexible the card is on what transactions you can earn cash back on, the better investment it will be for you. Cash back does not always mean straight cash deposited into your bank account. Most times, cash back will come in the form of statement credit that will lower the balance or the next credit card bill. Nevertheless, it is still the most flexible reward type as you don’t have to wait to accumulate a large sum of rewards in order to see its effect.

Points

Points are awarded for every dollar spent, with the most common ratio being one point for every one dollar spent. Once you accumulate enough points, you can redeem them for merchandise, cash, gift cards, and other items from the bank’s internal store. You usually have to spend a significant amount to redeem anything worthwhile. Thus, many card owners prefer cash back due to the instant flexibility it provides. Cash back is automatically redeemable while enough points must first be earned in order to be used. Points are most common with rewards credit cards and pair best with cards that offer a welcome bonus.

Miles

Lastly, travel rewards credit cards compensate card owners with miles that can be redeemed for airline tickets. The structure is quite similar to points but the ratio of miles earned per dollar spent largely depends on the card. The number of miles needed to purchase a plane ticket also largely depends on the frequent flier program. 

Conclusion

Qualifying for rewards or travel credit cards is often more difficult than qualifying for cash back cards. Annual fees are also common with cards that reward points or miles. When applying for these types of cards, make sure to look out for annual fees, caps on points or cash back, and interest rates. A good rule of thumb is that the best credit cards for points and miles tend to offer high welcome bonuses. The best cash back cards generally have a tiered rewards system or a flat of at least 1.5%. If used properly, these rewards can help you earn a lot of bang for your buck.