Types of bonus credit cards

Many Americans pay with credit cards. A 2021 survey by trading platform Slickdeals found that the average credit card holder earns $757 a year in rewards ranging from cash back to airfare and hotel stays to concerts and restaurants.

However, a cardholder who uses travel rewards to pay for airfare or hotel stays may rely on a different credit card than a cardholder who craves cash back.

Bonus credit cards are divided into three main groups: cashback, points and miles. While there is overlap in how each works, it’s important to know the difference so you can find the cards and rewards that work best for you.

Cash back

Cashback credit cards offer an easy path to rewards. Perhaps that is why they are so popular. Essentially, a cashback card provides cashback based on the purchases you make. The cashback rate is usually indicated as a percentage. The interest may be a fixed rate, or the card may offer so-called tiered rewards.

The fixed rate bonus card will give you the same money back for every purchase. Choose a card that offers at least 1.5% cashback on all purchases, although you can get up to 2% cashback with some cards like the Wells Fargo Active Cash® Card and the Citi® Double Cash Card (1% when you make a purchase). purchases and another 1% upon payment).

On the other hand, tiered rewards can be more lucrative, but the cashback depends on the expense category. These cards require a bit more work to get the most out of your rewards. They usually work best with a multi-card strategy where you use a card (or two) with a higher reward rate for your biggest spending category like groceries or restaurants, and then a flat rate card for everything. more. Two well-known lucrative cashback bonus cards are Chase Freedom Unlimited and Blue Cash Preferred® Card from American Express.

Another problem related to rewards: cashback cards with changing reward categories. These cards offer higher reward rates in different categories every quarter. You will need to activate these categories in advance to earn the higher rate, otherwise you will just earn the base rate, which is usually 1%. There is also usually a cap on spending in each category. The typical reward rate for cards with rotating categories is 5% cashback for bonus categories, and some also offer additional flat rate reward categories. Popular reward cards include the Discover it® Cash Back and Chase Freedom Flex℠ cards.

Advantages of cashback cards

• Most cashback cards do not have an annual fee.
• Flexible repayment options mean you can often get cash back in the form of a credit statement, check or direct deposit.
• You can easily navigate simple reward programs.

Cons of cashback cards

• Most cashback cards don’t have enough money for travel.
• Some cards limit annual or even quarterly cash back.

points

Another type of reward credit card provides bonus points rather than cash back. You get a certain number of points for every dollar spent, such as 2X, 5X or even 10X points. Points reward cards, such as the Chase Sapphire Preferred Card and Platinum Card® from American Express, can be especially lucrative, but tend to have (sometimes rather high) annual fees.

The value of points varies depending on the type of transaction. Some credit cards offer a fixed number of points for each purchase. Other credit cards change spending categories each month or quarter, earning more points per dollar spent in some categories than others.

Depending on your card, you can use points to book trips through your issuer’s travel portal, transfer points to a loyalty program, pay with points at the checkout, or redeem points for gift cards or purchases. Some Points cards are linked to specific hotel chains, such as the Hilton Honors American Express Card.

Pros of cards that earn points

• Most points reward cards come with a welcome offer or sign up bonus.
• Points usually don’t expire.
• Many cards offer more points for travel-related expenses than other purchases, making them a great choice for frequent travelers.
• Some cards offer the highest reward rate and even higher redemption value for a trip booked through the issuer’s portal.

Cons of cards that award points

• Some cards charge high annual fees.
• You may need to redeem points on the card issuer portal.

Miles

In addition to rewards credit cards that provide cash and points refunds, you’ll find cards that allow you to earn travel miles. These cards are either associated with an airline or are general reward cards that allow you to earn road miles.

Airline cards are designed to encourage loyalty to a particular airline. While you can earn these miles by spending them on other purchases, you can only use them to travel with that particular airline. Depending on who you fly with the most, you can choose from several cards from the same airline – Southwest offers several cards, as does United Airlines.

Other reward cards offer “miles”, which are actually some sort of travel points. The Capital One Venture Rewards credit card, for example, offers earned miles that can be used for a variety of travel options.

Benefits of cards that earn miles

• Miles earned with most travel cards do not expire.
• Many cards provide significant signup bonuses.
• Some cards allow you to transfer miles to their travel partners.

Cons of cards that earn miles

• Some cards may charge an annual fee of $500 or more.
• Miles must generally be redeemed through the issuer’s portals.

Which type of bonus credit card is right for you?

As a general rule, cashback rewards are easier to use – whether it’s a credit statement or a check, cash is cash – but you can earn them in a variety of ways, depending on the card and your own spending. On the other hand, points or miles are designed to maximize travel rewards. Use them well and the payoff can be big.

To figure out which credit card is right for you, consider your lifestyle and spending patterns. Do you load your cart at the grocery store every week? If so, your best bet might be a cashback card that offers additional rewards for shopping at grocery stores. If you stay almost as often in hotels as you do at home, a bonus card that entitles you to free hotel stays may be the solution. If you fly a lot, you can find a card to help you upgrade, and airport lounge access is the best value of all.

bottom line

Rewards credit cards are a popular choice – after all, it makes sense to be rewarded for purchases you would have made anyway. Whether you stick with simple cashback or decide to roll up your sleeves to get the most out of your points or miles strategy, make sure you choose a card that offers rewards for your main spending categories and comes with an easy-to-reach signup. bonus to start your reward stash.

John Egan is a writer, editor, and content strategist based in Austin, Texas. He is the author of CreditCards.com and his work has been published by Bankrate, HuffPost, Credit Karma, LendingTree, PolicyGenius, Vitacost, SpareFoot, LawnStarter and other online publications.