Rewards credit cards come in so many flavors, it’s hard to know where to begin when looking for one. Learning the key features of each rewards card type will help narrow down which are the most rewarding for your financial lifestyle.
Let’s get started.
There are four kinds of rewards credits: cash-back, generic travel, co-branded airline and hotel, and gas cards. Each type rewards spending differently and provides a variety of perks and bonuses.
Cash-back credit cards
These cards, which simply give you money back on each purchase, are good options if you want to easily redeem rewards, get a higher rewards rate on everyday purchases such as groceries, and avoid annual fees.
There are two types of cash-back cards: those with a fixed cash-back rate and those with rotating categories. The former is by far the simplest and most common. These offer one cash-back rate—say 1.5%—on all purchases or on certain types of purchases, such as restaurants or gas.
Cards with rotating categories are more complicated and require more work from you. These cards provide a cash-back rate for a certain type of purchases that change quarterly. For instance, a card may give a whopping 5% back on Amazon and department store purchases in the fourth quarter—just in time for holiday shopping. Come January (and through March), that same card will reward you 5% on groceries or restaurants.
There are few downsides to this. First, you must register online every quarter to qualify for the 5% categories. If you don’t, you miss out on the accelerated rate. Also, any purchases that don’t qualify for the rotating category are typically rewarded at a much less generous rate. That means you may be better off rewards-wise to charge any purchases in non-rotating categories to another card with a higher rate.
Generic travel rewards cards
If you travel and eat out often, a generic travel rewards card might be best for you. These cards offer a higher rewards rate for entertainment, travel and restaurant purchases. They also have more flexible rewards redemption, so you can maximize the value of your rewards.
You can redeem rewards on generic travel cards for cash back, flights, hotel stays or statement credits, gift cards and merchandise. But if you want the best value, use your points for travel expenses. Some rewards programs— such as Chase's Ultimate Rewards and Amex's Membership Rewards—are even more flexible and allow you to transfer points to airline and hotel loyalty programs.
Co-branded airline and hotel rewards cards
Avid travelers—especially those loyal to a particular airline or hotel—may want to consider a rewards card linked to that specific brand. What you may lose in flexibility (such as booking at any airline or hotel through a generic card), you more than gain in perks. You can earn such benefits as early boarding on flights, late checkout at hotels, free companion tickets, free lounge access and no luggage fees, many of which aren’t available from generic travel cards.
If you’re worried about tying yourself to one airline through a co-branded card, consider airline alliances. These are agreements among multiple airlines that allow consumers to use miles from one to book a flight on another. For instance, you can use your American Airlines miles to fly with British Airways. These alliances increase the flexibility of co-branded cards. Unfortunately, there isn’t a similar alliance system among hotels, but many hotel brands offer chains that run the gamut from economical to luxury.
Co-branded gas credit cards
If you’re a car-trip fanatic or have an ungodly commute to work in a gas-guzzling SUV, it may pay to add a gas rewards card to your wallet. These cards should be used as a supplemental credit card because the rewards rates for other purchases aren't as rewarding as other cards.
These cards are co-branded with a gasoline company such as BP, Shell or Chevron and typically offer the best rewards on gas purchases—but only at their own stations. Gas cards typically don’t charge an annual fee, but you can only use points for discounts on gas purchases. If you want more flexibility or if you fill up at different stations, it may be better to get a cash-back or travel rewards card that offers an accelerated rate on gas purchases while also providing varied redemption options.