Credit card rewards allow you to earn points, air miles, and cashback on every purchase or transaction you make using your credit card. However, these reward programs are different and each bank’s credit card has a different set of rules that can create confusion. If you are own three different credit cards like the average American, it becomes even harder to understand all the benefits of multiple rewards programs.
So, we have made this simple guide that will help you understand the basics of different credit card rewards programs.
Features of credit card reward program
The commonly found reward programs you’ll come across are
- Cashback
In this program, you earn a certain percentage of cash on the basis of your total spendin. For example, the Citi Bank credit card provides up to 2% cash in total, which includes 1% on all purchases and 1% after you pay your credit card bill. However, some cards accrue points. These points can be converted into a dollar value that is credited back to your card. - Points
Here, instead of earning cash backs you earn points. These points can be used for shopping, buying fuel, buying movie tickets, and more. For example, the American Express Gold Card offers membership rewards points. - Miles
When you make purchases or buy tickets using your credit card, you earn air miles that provide a discount on your next ticket. One great example is co-branded Delta Cards, like Blue American Express Card, which offers rewards like SkyMiles.
Value of credit card rewards
The reward amount you earn varies from the credit card company and the reward program. Cashback cards are the easiest to understand, as you receive a percentage of your total spending. A 2% reward means when you spend $100 to get $2 back as a cashback reward. However, a program that offers 2x points or miles isn’t the same as getting $2 as cashback.
When deciding on how you can use your miles or points, it is a great idea to strive for a 1:1 value. This means 1 point worth 1 penny. To calculate, if you are getting a 1:1 value, divide the cost of the redemption item by how many points you need.
Redemption options
Most credit card issuers offer similar redemption options, such as
- Deposit to a linked account
- Gift cards
- Pay using points
- Statement credit
- Buying air tickets
- Merchandise
- Movie tickets
There are many other redemption options offered by banks, but these are the most common and the majority of issuers provide these options to their customers.
Redeeming rewards
After making a purchase, you are excited to spend your reward points. However, rewards can take up to two billing cycles to post into your account. Only after completing this process are you allowed to start the redemption process.
Once you sign in to a reward program, you get access to a reward portal where you can come across user info like total reward points and how and where you can redeem your reward points.
Before you begin redeeming your points, make sure you calculate the exact value of your rewards. Aim to get 1:1 value so that you do not devalue the cashback, miles, and points.
Time taken by each reward depends on the option you choose. You receive your gift card instantly in your inbox, while a statement credit can take up to a week to post in your account.
Things to consider
These two factors need to be accounted for when redeeming credit card rewards:
- When you can redeem rewards
Some card issuers let you redeem your points at any point, while other issuers require you to reach a certain threshold like $25 or 2500 points before you are allowed to redeem the rewards. - Rewards expiration
If your account remains open and in good standings, you are allowed to access your rewards. But if you close your account or miss your bill payment, you are at risk of losing your rewards.
A credit card reward program is a great way to earn cashback, points, or miles that encourages people to spend more using their credit cards instead of cash or debit.