How do Travel Rewards credit cards work?

For many users of bonus credit cards, the opportunity to earn a free vacation is much more attractive than receiving cash or goods. Using Travel Rewards credit cards allows you to dream of relaxing days in beautiful places, not just reducing your credit card statement balance by a percentage or two.

What is a Travel Rewards credit card?

The Travel Rewards credit card is a card that allows you to earn points or miles that you can use to book travel. In addition to rewards, these cards are also more likely to offer other features and benefits that are valuable to frequent travelers.

Travel reward credit cards were among the first travel reward cards and have become very popular in recent years – there are now several different types.

One of the most well-known types of travel reward cards are airline cards, often referred to as frequent flyer cards. These cards allow you to earn miles as part of the loyalty program of one airline. In addition, there are many hotel bonus cards issued in conjunction with major hotel chains.

Most credit card issuers also offer general purpose travel reward cards that earn points or miles in their own loyalty programs. Some of these card issuers have created programs that allow you to use your rewards directly to book trips through their own travel agencies.

Other travel reward programs allow you to redeem their points and miles for travel statements you book yourself. And several popular programs allow you to convert your rewards into airline miles or hotel points, as well as allow you to directly book trips or offer statement credits for travel bookings. There are also travel credit cards designed for small business owners.

Types of travel credit cards

Airline

Airline credit cards are co-branded with an airline and offer both travel rewards and benefits when flying with that carrier. Standard airline card rewards are 2 miles (or Reward Points) for every dollar spent with an airline, sometimes more in some reward tiers, plus 1 mile for every dollar spent elsewhere. Airline cards also offer perks such as priority boarding, discounts on in-flight food and beverages, and free checked baggage.

Hotel

Hotel credit cards are also co-branded, in this case with a hotel chain, and are designed to reward purchases made on that chain. Some of them offer enticing perks and bonuses that allow you to earn points towards free nights and benefits such as room upgrades and late check-out. Hotel credit cards differ from airline cards in that they do not have a standard reward structure.

General travel cards

Travel Rewards credit cards not co-registered with a travel provider offer points or miles through a program created by the card issuer. Credit card users who receive these rewards can redeem them directly with their card issuer for travel bookings such as American Express Membership Rewards and Citi ThankYou, or transfer them to partner airlines and hotels. Flexibility is a key benefit of shared travel rewards.

Premium Travel Cards

Luxury road cards usually have a high annual fee. But if you fly frequently and enjoy luxury perks, you can probably justify the $200 or more annual fee. Most elite cards come with valuable perks—airport lounge access, travel credits, luxury travel insurance, elite status benefits, and luxury hotel perks—that can more than offset these hefty annual fees if you use them regularly.

How do I get rewarded with a travel credit card?

There are many ways to earn points and miles with your Travel Rewards card, including:

Bonuses for signing up

First, most Travel Rewards credit cards offer new applicants the opportunity to earn a signup bonus. However, card issuers prefer to refer to these offers as “New Account Bonuses” or “Welcome Offers”.

Whatever the case, these offers allow new applicants to earn a large number of valuable points or miles, usually after meeting minimum spending requirements. For example, a Travel Rewards credit card co-issued with an airline can offer new applicants 50,000 miles after they spend $4,000 within three months of opening an account.

Points and miles

In addition to new account bonuses, travel reward cards offer points or miles for spending. Typically, a Travel Rewards credit card offers one point or mile per dollar spent on most purchases. But these cards almost always offer extra bonus points on other purchases as well.

For example, airline and hotel cards will offer additional rewards for purchases from their brands, and many cards offer bonuses for common purchases such as food, groceries and gasoline.

Permanent bonuses and promotional offers

Many Travel Rewards credit cards also contain bonuses and promotional offers for certain activities, such as reaching an annual spending threshold, adding an additional cardholder, or simply renewing your card for another year.

Other Benefits of Travel Credit Cards

Travel Rewards credit cards not only offer points and miles for award travel, but also offer valuable benefits to cardholders:

• Flight benefits: Airline credit cards often come with perks such as priority boarding, discounts on in-flight purchases, and one or more free checked bags. Premium reward cards with high annual fees may offer membership to their airport lounge programs.
• Elite status: Hotel and airline rewards cards can often give you elite status, qualifying for room upgrades, late check-outs, and even free breakfasts.
• Travel Insurance: Many travel cards may offer travel insurance policies that cover theft and damage to rental cars, trip delays/cancellations, and lost luggage.
• Special offers: Many Travel Rewards credit cards also have special offers. For example, an airline or hotel card may give you additional access to award flights and free night stays on top of what is offered to non-card holders.

How to redeem travel points

Many common travel credit cards have their own loyalty programs that award bonus points. When you’re ready to use your rewards in these programs, you have a range of options, including cash back, gift cards, merchandise, travel bookings, and charitable donations. Here are our guides to some of the most popular travel reward programs:

To redeem airline miles, log into your frequent flyer miles account with the airline your card is associated with. Major carriers—American, Delta, and United—often use cash-based pricing systems for new bookings, making it hard to get great deals on domestic award flights. But they also allow you to use your miles on flights operated by foreign carriers, which can make a big difference if you’re traveling around the world.

Other carriers, such as JetBlue and Southwest, have frequent flyer programs with more or less fixed fees. Thus, you can exchange your rewards for any unsold seat, and the required number of points directly depends on the price of the ticket. Most airline programs also offer options to redeem miles for other rewards such as merchandise, gift cards, hotel reservations and car rentals, but non-travel options rarely offer the same value as award flights.

When it comes to redeeming hotel bonuses, you often get the most value by using your points during peak tourist season when rooms are at their most expensive. But you may need to book premium stays in advance to find available rooms.

What to look out for

It’s also important to understand that award rides are usually not free:

Annual Fees

First, the most attractive travel reward cards have an annual fee, although some waive it within the first year. And if you choose to leave a balance on your credit card, the value of the accrued interest may exceed the value of the travel rewards you earn.

Because non-rewarding cards offer lower interest rates than similar cards that offer travel rewards, it’s best to avoid travel reward cards unless you’re avoiding interest charges by paying your statement balance in full. Most travel reward cards have eliminated foreign transaction fees, so it’s not the problem it used to be.

Taxes and allowances

When it comes time to redeem your rewards, there may also be taxes and fees that you must pay. For example, airlines levy taxes, fees, and “carrier surcharges” on many award tickets, including passenger fees imposed by the Transportation Security Administration (TSA). On domestic flights, it’s unlikely you’ll pay more than $5.60 for a one-way trip.

But for international travel, you can end up paying hundreds of dollars in government taxes and fees. In extreme cases, you may be asked to pay more than $1,000 in additional fees charged by airlines when you redeem miles for an award ticket.

How to avoid unnecessary payments

When you can use your points or miles directly to book flights or checkout, you can avoid any cash payments. You can generally avoid additional fees when redeeming hotel points, as stay taxes are usually tied to the dollar amount paid, which means there are no taxes or fees charged on award stays. However, some hotels charge so-called resort fees for premium stays, while others waive these fees when paying with points.

You may also have to pay a fee to transfer points or miles from one person to another. But even when programs charge these fees, you can easily avoid them by simply booking travel seats from one account in the name of another traveller.

Other fees to look out for include flight change and cancellation fees. When you cancel your hotel reservation during the cancellation period—often up to 48 hours before arrival—there is usually no cancellation or change fee.

bottom line

Travel Rewards Credit Cards give you the opportunity to receive an exciting bonus booking in exchange for opening a new account and using your card. At the same time, these cards can provide you with valuable privileges and benefits just for being a cardholder.

By understanding all the benefits, as well as the potential costs, you can decide if it makes sense for you to apply for a Travel Rewards credit card and which one is right for you.