Credit Card Rewards Programs

By Nora Dunn. Last updated 3 April 2016. 5 comments

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A commenter on a recent article of mine on credit card usage, suggested a follow-up post with an eye to uncovering the mysteries of credit card rewards programs.

And in my research, I discovered it’s a murky world of points, rebates, fees, and interest rates out there! A lot of it comes down to personal choice, but here is some information to aid your plight for a suitable credit card rewards program: 

Types of Rewards

There are typically three types of rewards programs: point-based, cash back, and frequent flyer miles. Some programs offer combinations of these rewards, with varying value for point redeemed.

Points-based programs involve accumulating points (based on the amount you spend), and then redeeming your points for merchandise from their catalogue. Points leave a little to be desired, since depending on what you redeem your points for you might not get a lot of value.

Gift certificates tend to be the best value for your points when flipping through the catalogue, and it is generally recommended that you stay away from the merchandise, since it is over-priced and lacking in quality. The gift certificate option also carries an added value advantage, since credit companies strike deals with the retailers to give them a deal on the gift certificates, whereas a dollar is a dollar when it comes to cheques or merchandise.

Cash back is most common, and offers quick rewards for your buck. However they can also have limitations; Some will only start to honour the cash back policy once you have spent a minimum amount of money, and yet others will cap the total amount of cash they’ll reward.

Frequent Flyer Miles for airline tickets will sometimes give you the best bang for their buck, but can be a pain to redeem. Many issuers have blackout times, while others only designate a certain number of seats per flight as airline rewardable seats. If you don’t book your ticket early enough you can be out of luck, especially if you want a flight that’s commonly flown and redeemed for.

Saving for airline ticket rewards can also be tedious and take some time to accumulate for, and in this changing airline world, increasing fees and limitations could pose problems in the future. I have already noticed that one of the rewards programs I use have imposed a stipulation that if you do not use your points within seven years of the point being rewarded to your account, you lose it. So if you are saving up for a big reward (or on the flip side have accumulated tons of points over the years and haven’t used them), you may lose your chance.

Also, expect to pay out of pocket for the taxes, fuel surcharges, and other miscellaneous expenses (like a special booking charge if you redeem on the phone with an agent as opposed to online). But hey – a buck is a buck. To fly across the country (or around the world) for the cost of the taxes is rarely something to complain about.

Tips for the reward-hungry credit card user

Pay off that balance!

As stressed in my previous article and related comments, using a rewards program is for responsible credit card users. If you rack up a balance with an eye to getting rewards, and then spend the next 6 months or more trying to pay off the balance (and paying interest all the while), then the value of your rewards decreases significantly. Pay off those darn cards every month and treat your credit card like a debit card or chequebook – if you don’t have the money in your account, don’t whip out the plastic.

Don’t get sidetracked by the smaller rewards

Initially it can take time to build up a big enough balance to start redeeming for the rewards you really want. Don’t lose patience and redeem your 800 points for an item of insignificant value when what you really got the card for was airline tickets, or special gift certificates. Most rewards programs have tiered systems that offer sweeter rewards (with better value) for those with more points. Your patience in saving up will be rewarded.

Get the card for the rewards you want

If what you want is an airline ticket to Hawaii, then search for the best card to get you there. I found a program (in Canada) where flights to Hawaii required fewer points than even some continental flights, and I chose that card with an eye to getting that ticket. It took time, but my boyfriend and I are now living (temporarily) in Hawaii, and got return tickets for a total of $76 in taxes for both of us (whereas paying in cash would have been over $1,600 for both of us).

Look for bonus points

Lots of programs will offer bonus points depending on where you spend your money or what you buy. Check online for bonus offers regularly, and spend wisely. You can often get triple the miles with a little research and effort.

Look at points conversion programs

Some programs are in cahoots with each other, and you can transfer or convert miles from one program to another. Be wary of those that charge a fee to do so, and take a close look at the conversion ratio. Sometimes they’re way out of whack such that is makes no sense to convert.

Specific programs vary from country to country (and sometimes even within regions), so I won’t go into many specifics with regards to individual program choices. It's up to you to decide which rewards will ultimately benefit you the most. Just remember to use it wisely or else the interest fees will end up costing you more than you're getting in rewards, and it's a safe bet that that is exactly what the credit card companies are counting on.

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Guest's picture

I pay for everything with a credit card. Doesn't matter how small the purchase is it goes on the card. The rewards rack up and it is like a year long 1-5% sale on everything you buy. Within ten minutes of research on the web you can find the best rewards programs. I use one card strictly for gas. It pays 5% back but only on gas purchases but that is all I use it for.

Another tip for all of you. Business credit card programs offer superior rewards and they really don't require you to use them for a business. I've simply put my name in as the business name and my social security number in as the tax id. Never been declined and the cash back rewards are better than the standard 1% cash back everyone else is use to getting.

Guest's picture

Cash-back cards are preferable to points cards. A card that will refund you $38.65 at the end of the year is better than a card that will make you wait until you have 35,000 points to redeem for $35... it could take a lot longer before you have the optimal reward, and there will inevitably be points left over after redemption, so the cycle continues.

Similarly, if you want a miles card, better to find a card that will credit miles earned directly into your frequent flyer account, rather than make you earn 25,000 points before you can redeem for a free ticket. The Citibank AAdvantage card deposits accrued miles into your AAdvantage account every month. This way the miles earned from the card combine with miles earned through travel, dining, etc. and a free ticket is available much sooner.

Guest's picture

I prefer to only carry 1-2 reward credit cards and focus my purchases on these cards. Spreading purchases around on too many cards will thin your reward/rebate accumulation.

Guest's picture

I tend to agree that cashback rewards are the best, because you can spend them on anything. Schwab and Fidelity have cards that both pay a flat 2% cash on all purchases, assuming you have an account with them, and it's deposited on a monthly basis.

The AmEx Blue Cash is great if you spend a lot of money, but you don't get the check until year-end.

If miles are your thing, the Discover Escape has a great program where you earn 2 "miles" for every dollar you spend, but then you redeem those miles for travel certificates valid on any airline, hotel, or car rental. It works out to be effectively the same as 2% cash back.

Guest's picture

Discover, the card I use [and the stock of whose issuing parent, Discover Financial Services, I recommend you consider for purchase] offers 1% cash bonus on just about everything. I put our Travelers flood Insurance, car maintenance, employer paid seminar travel and attendance, charitable donations...everything I can onto this card. Of course, I carry zero balance; we don’t buy what we cannot afford to purchase for cash.

Of course, cash-back bonus notwithstanding, there is absolutely no future whatever in spending money but a rather splendid one in saving and investing it. Buy stocks, not junk at malls; don't run up bar room and restaurant tabs. Let others do that while you buy the stocks of the companies that sell them the things they really don't need but buy anyway. You can get rich doing just what I have told you and you can have the money to live very, very comfortably without worrying. You'll get to the Royal Hawaiian Hotel, but not on credit and what’s great is that the rest of society will pay the bill. Good Luck.