The Basics of Rewards Credit Cards

A woman pays for coffee using a credit card at an outdoor cafe.

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Some credit cards simply charge you interest for using their product. Others offer incentives in the form of credit card rewards.

Credit card rewards come in different forms, but they all provide a benefit for using your card more. The value of the rewards you earn and the types of purchases that earn rewards can vary by credit card.

Key Takeaways

  • Simply put, rewards credit cards offer cardholders incentives for making purchases with the card.
  • The types of incentives rewards credit cards offer may be simple cash back, or points or miles redeemable via complex schemes.
  • Rewards credit cards often include annual fees and steeper interest rates, so it's important to be sure you don't carry a balance and you evaluate whether the rewards you earn justify the additional fees.

Types of Credit Card Rewards

Rewards generally fall into two categories: cash and points or miles.

The cash rewards can help reduce your credit card balance. Travel rewards can help you earn free trips for yourself and your loved ones. You can use rewards to purchase holiday and birthday gifts. You also can invest the rewards you earn. For example, the Fidelity Investment Rewards Signature Visa puts your rewards into an investment account.

Cash Rewards

Cash rewards cards are the most straightforward and easiest to use, but they don't always result in cold, hard dollars in your hand. Some programs allow you to redeem your cash rewards only as a credit to your account.


Rewards paid as a statement credit reduce your balance, but the redemption doesn't count as a payment to your account. You will still need to pay at least the monthly minimum to remain in good standing.

Other cash rewards credit cards give you the option to cash in your rewards for a check or direct deposit to a bank account. You also may be able to redeem your cash rewards for gift cards with your card issuer’s merchant partners. There may be a minimum redemption amount—$25, for example—or a requirement to redeem your rewards in certain increments.

Points Rewards

Points rewards are also based on how much you spend. For example, you might earn one point for every dollar you make in purchases. Depending on the card issuer, you may be able to redeem your rewards for gift cards, cash, or even travel. Redeeming your points for gift cards may give you more bang for your buck since many merchant partners give you 10% to 20% off the gift card price.

Travel Rewards

Travel rewards cards earn you points or miles that you can redeem for airline tickets or hotel stays or other travel expenses. Many travel rewards cards are "co-branded" with leading airlines and hotel chains. To get the most value, you usually have to use your points with the airline or hotel chain associated with the card. General travel rewards cards are not co-branded, and allow you to use your points with a variety of brands.

The number of points or miles you can earn varies by credit card, and the number of miles you need to purchase a flight or hotel stay varies by program. You may be able to convert miles between programs, but you may lose some points in the conversion process.

Flat Rate vs. Tiered Rewards Earning

Rewards programs generally are structured in one of two ways: flat rate or tiered. You might earn a flat rate of rewards on all your purchases. For instance, a credit card may pay a 2% cash-back rewards or two points for every dollar you spend. You also may earn rewards in different amounts based on different categories of spending. Some travel credit cards, for example, pay higher rewards on travel purchases and a smaller reward on all other types of spending.

What To Look Out For

Qualifying for a rewards credit card generally depends on having a good credit score. If your credit score needs improvement, you may have a harder time getting approved for a rewards credit card.

Rewards cards may have higher costs than other credit cards. For example, annual fees are common with rewards cards, sometimes even more than $500 per year for higher-tier rewards. Not only that, rewards cards often have higher interest rates than other credit cards, which means you shouldn’t carry a balance on a rewards card.

There may be stipulations for earning rewards buried in the fine print of your credit card terms. For example, a program may advertise 5% cash rewards, but there may be a limit on the rewards you can earn at a higher rate. Restrictions, caps, or minimum redemption amounts can make it difficult to redeem your rewards.


Credit card issuers might change their rewards programs without warning, so make sure you read everything that comes with your billing statement.

Not all rewards are forever. With some reward programs your points or miles may expire if you don’t use them within a certain amount of time. The best reward programs don’t let your rewards expire, but most programs will forfeit your rewards if you fall behind on your credit card payments.

Frequently Asked Questions (FAQs)

What are the benefits of a rewards card?

The primary benefit of a rewards credit card is that it offers incentives for use of the card, usually in the form of cash back or points or miles that you can exchange for goods, services, airline flights, hotel stays, and more. Some rewards cards offer other benefits, like higher levels of customer service and perks.

What is the best credit card for rewards?

According to The Balance's analysis of more than 350 credit cards, the best rewards card for cash back is the Citi Custom Cash card, and the best rewards card for travel rewards is the Chase Sapphire Reserve.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Fidelity. "Fidelity Rewards Visa Signature Card."

  2. Experian. "What Credit Score Do You Need to Get a Rewards Card?"

  3. JP Morgan Chase & Co. "Chase Sapphire Reserve."

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