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Credit card rewards comparison

When we spend a huge amount of money through a credit card it becomes very tempting to be able to receive something in return – As we all know sharing is caring. Currently there are several ways you can get rewarded for your spending habits: cash rewards, bonus points, air miles, an extra discount at your favorite stores.
When banks first started reward programs they just wanted to encourage the loyalty for the best most spending customers. But then the competition pushed banks to offer more and more incentives to the new credit card customers.

According to the statistics more than 85% of US households participate in credit card rewards  programs. Such cards now share about 80 percent of all money spent on credit cards. Rewards are named the third-most important reason for applying for a specific credit card, next to the low interest rates and annual fees.

There are the three general types of credit card rewards to choose from:

  • Cash back
  • Reward points
  • Air miles bonus

You can read the main idea underneath all of them and check out some particular credit cards in the following comparison.

Cash back

Cash back is like a miracle – the bank sends back on your account a portion of the money that you spend from the credit card. The mechanics is simple – they take that money from the merchants (that pay the bank a share of all the purchases made through credit cards) and the merchants in turn take this money from all their customers including this in the price of all goods and services. Usually cash back options starts from 1% for all purchases. Some cards have specific spending categories that offer you advanced cash back rate – 2-3%, e.g. on Capital One Platinum Master Card you can get 2% additional cashback for all travel related purchases (tickets, hotels, gas, etc.). Top credit cards offer generous 5% cash back bonuses for travel, dining, or on a selected category that is changing every month. The problem is that this cards are usually either have a annual fee or more difficult to apply for – they target on the customers with good to excellent credit scores. A good example is a Chase Freedom card that offers you 5% cashback on selected categories that vary every month and have no annual fee. Another example is Discover More card that offers the same 5% cashback and no annual fee. Discover cards are easier to get approved for.

Reward points

This type of credit rewards offers you bonus points for your spending. It is very similar to grocery store bonus points – you collect rewards and after a certain threshold you can exchange them at the participating partners – shops or service providers, usually it can be the gift certificate or a gift card. Basically this option is not as flexible as the cashback – because with the money you can buy what you need, but banks are more generous with reward points than with cash back, so this is a good option for some of us who likes getting a department store gift certificate from time to time. E.g. Chase Sapphire offers 2x bonus for restaurant purchases along with no annual fee and no international transaction fee.

Air miles

Air miles cards offer you a certain amount of virtual air miles for every dollar spent from you credit card account. Some cards offer additional miles for travel related or restaurant purchases. After you collect a decent amount of virtual air miles you can redeem them for a one way or a round air travel, hotel reservation and similar. It is very convenient way to save towards your vacation and to get a free ticket at least once a year. Typically that type of cards is issued by banks together with a specific air line – e.g. Chase Southwest Air lines Rapid rewards card offer 2x miles for Southwest Airlines and Southwest Rapid Rewards Hotel spending but require a $69 annual fee. Discover Miles card in opposite doesn’t have any annual fee and is not affiliated with any air carrier – so the miles can be redeemed for any air flight or hotel reservation.

When people choose from rewards creMost attractive rewards credit cardsdit cards, mostly they prefer cash back. Almost 60% of cardholders give the highest rank to cash back cards. Although today most of cards offer only 0.5-2% cash back (5% offers are not for everyone and usually apply to selected purchase categories).

Merchant rewards and flexible points are preferred by 13% of consumers. Flexible points can be redeemed for merchandise, gift cards, travel or cash rebate. Store cards usually offer discounts, exclusive offers and cash back.

Opportunity to get free airline tickets attracts 10% of respondents and Gas rebates are cited by 5%.

Although credit card rewards offers seem to be very attractive they often can have higher APR or an annual fee. So the rule of thumb for people who are looking for a cash back card and use to carry a balance is don’t forget to calculate how much interest  they will pay for the outstanding balance plus the annual fee and check if the rewards still look attractive.


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