Whether you’re getting travel freebies, no-cost gift cards to your favorite retailers or tax-free cash in the bank, people love reaping the benefits of a rewards credit card.
When used wisely, rewards cards can be a strategic asset in your household budget. We’ll help break down rewards cards so you know how to make them work for you – and get the most out of those rewards.
The basic premise of a rewards card is simple. Use the card to make purchases, accumulate reward points and redeem those points for a reward you get to enjoy.
But the details of the rewards system can vary significantly from card to card. “Today, there’s a variety of rewards cards out on the market,” says Thomas Crowley, vice president of retail payment solutions at U.S. Bank. “The most popular is cash back.”
With a cash back card, the purchases you make translate directly into a dollar value. Your card may convert that reward into a credit on your next card statement or even direct deposit the cash you’ve earned into your checking account.
Crowley points out that the way you earn cash back usually fits into one of two systems:
In addition to cash back cards, travel rewards are extremely popular. You earn points or miles for your purchases and redeem those points for travel-related freebies, such as hotel stays or airfare. Similar to cash back cards, travel rewards cards may let you earn points on a flat-rate basis or using a tiered system.
“If you’re an avid traveler, travel benefits are typically attached to these cards, so you might get benefits like no foreign exchange fees, TSA pre-check reimbursement or annual travel credits,” Crowley says.
Many cards give you even more options for cashing in rewards – magazine and newspaper subscriptions, gift cards, electronics, small appliances and even tickets to events. Some retailer-specific cards let you earn money-saving coupons, free shipping or early access to store deals. The possibilities are nearly endless.
You’ll always want to use a credit card responsibly. But the right rewards card can help you build your credit and earn extra perks with every use. Keep these tips in mind for choosing the best cards and supersizing your rewards:
The benefits of a rewards card are clear, but when should you think twice before applying for one?
First and foremost, you want a rewards card to be an asset to your finances – not a liability. So skip the card if you worry you’ll overspend simply to earn rewards. “No matter what rewards you get back, they’re never going to outrun the amount of money you owe to the credit card for the purchases you’ve made,” Crowley says.
Second, watch out for higher-than-average interest rates. Most rewards cards come with higher rates than their non-rewards counterparts, shares Crowley. So, if you’re planning to transfer a balance or carry one from month to month, he recommends exploring non-rewards cards with low introductory or long-term interest rates as a better option.
Third, find out if your desired rewards card comes with an annual fee. Crowley points out, however, that a card with that fee might still be a good fit for your wallet. “Customers just want to make sure that they’re getting the right value exchange in return for the amount of annual fee they’re going to pay,” he says.
Finally, Crowley says, be aware of hurdles to redeeming your points. Some cards let you cash in any number of points, while others will require you to redeem rewards only in increments of $25. Know which system your card uses and whether its rules will work with your spending habits.
Looking to boost your rewards? Try our credit card comparison tool to find the best U.S. Bank option for your lifestyle.