Are Rewards Credit Cards Worth It? | Bankrate (2024)

Key takeaways

  • Rewards credit cards can help you earn points, miles or cash back on your everyday purchases.
  • There’s a wide variety of rewards cards out there, so you’ll want to choose a card that fits your spending habits.
  • If you’re still building credit or paying off credit card debt, you might consider alternative cards that don't offer rewards but are easier to qualify for or allow balance transfers.

Rewards cards are popular for a reason — you can get cash or travel points on purchases you’d make anyway. When used responsibly, a rewards credit card can help you save money on flights, hotels, dining out, concert tickets and more.

But not everyone knows how to maximize their credit card rewards. What type of rewards card would best suit your needs? How do you earn a sign-up bonus? What are the best ways to redeem your rewards?

In most cases, rewards cards are worth it — as long as you’re not carrying a balance and the annual fee is less than the value of the rewards you earn each year. I spoke with Rick Conyers, Assistant Vice President of Credit Card Products at Navy Federal Credit Union, about some considerations for rewards cards.

Advantages of rewards cards

The value of a rewards card depends on whether you use the card responsibly — and that includes taking advantage of all the rewards you earn. Here are a few factors that make rewards cards worth it:

  • Rewards on everyday purchases: Naturally, the biggest benefit of using a rewards card comes from the rewards you earn. The best travel rewards cards earn points or miles on every purchase, while the best cash back cards earn cash back on everyday spending.
  • Welcome bonus: Rewards cards that offer a sign-up bonus, also called a welcome bonus, let you earn rewards after becoming a new cardholder and spending a certain amount in a set timeframe.
  • Travel redemption options: If you jet-set often, a travel rewards card lets you put points or miles toward flights and hotels. They can also come with perks like elite status, travel insurance and statement credits.
  • Cash back redemption options: People who love to spend on going out or simply use their card to pay for everyday expenses might benefit from cash back rewards. Flat-rate cash back cards earn the same amount on every purchase, while bonus category cash back cards earn more points in certain purchase categories. Whether you want a flat-rate card versus a bonus category card will depend on your spending habits.

Conyers says your lifestyle plays a big role in choosing a rewards card. “I encourage everyone to look at where they typically spend and make sure what they’re choosing aligns with their lifestyle,” he says.

His family of five doesn’t travel often, but they like to go on family outings. That’s why Conyers uses his cash back card for their regular spending. This summer, he and his kids are using cash back to go to the movies.

“We splurge and use cash back to cover things we don’t do as frequently throughout the year,” he explains.

Bankrate’s take: There are many rewards programs to choose from. After examining your spending habits and how willing you are to strategize for rewards, you can pick the right card for you.

Disadvantages of rewards cards

Rewards cards, like any credit cards, also come with potential risks worth thinking about before you apply, such as:

  • Overspending to earn rewards: It can be tempting to spend more than you can afford to max out your rewards or earn a welcome bonus. In fact, 2 in 3 Americans (67 percent) are chasing credit card rewards while in debt.
  • Untapped value: If you don’t actually redeem your rewards, you’re leaving money on the table. And some redemption options are less valuable than others, so it can take effort to maximize a rewards card’s value.
  • High interest rates: Credit card interest rates are at an all-time high, and rewards cards tend to also carry high rates. If you don’t pay off your balance in full each month, the interest you accrue may outweigh the value of your rewards. “Consider the cost of holding debt on a rewards card,” Conyer advises.
  • High annual fee: Many rewards cards charge an annual fee. When considering a card with a high annual fee, ask yourself if you can use the rewards and benefits that come with it. If not, “that annual fee will lose some of its luster,” Conyers says.
  • High credit score requirements: Rewards cards may also require you to have good or excellent credit. Keep in mind that card issuers pull a hard inquiry on your credit when you apply for a new card, which dings your credit score. So, it’s good to know whether you’re likely to qualify before applying — especially if you plan to apply for other loans, like a mortgage or car loan, in the near future.

“There are always a few signs you want to look for so you don’t have buyer’s remorse when it comes to a rewards card,” Conyers says. “I encourage someone to think of the long-term plan they have for the card they’re looking at.”

Bankrate’s take: It’s worth your while to check the interest rates, annual fees and credit score requirements for potential new rewards cards before you apply.

Should you get a rewards credit card?

With so many rewards programs out there, it can be overwhelming to consider whether a rewards credit card is right for you and which type you should apply for. Here’s when a rewards card might or might not be worth it:

When getting a rewards card is worth it

If you don’t already have a good rewards card in your wallet, you may be leaving money on the table — especially if you travel frequently, buy a lot of groceries, pump gas often or make retail purchases that can earn you points.

For example, applying for one of the best credit cards for groceries could earn you cash back on eligible supermarket purchases. Using one of the best credit cards for dining out means you could earn cash back on restaurants and takeout. And if you’re planning a vacation in the near future, you should consider a travel rewards card.

When getting a rewards card isn’t worth it

If your credit score is less than good or you have a limited credit history, it might be difficult to qualify for a rewards card. Instead, you’d likely be better off focusing on responsibly using a starter credit card to build up your credit.

And if you’re already in credit card debt, it’s not a good idea to take on more debt in order to earn rewards. Prioritize paying down your current card balances first, because the interest you’re accruing likely outweighs the value of any rewards.

Rewards credit card alternatives

While many people want to earn rewards with their credit card, it’s worth noting that there are other types of cards available. The following cards might be a better fit than a rewards credit card, depending on your creditworthiness and financial situation:

Credit cards for those with bad credit or no credit

People with poor credit or no credit can apply for one of the best cards for bad credit. While these cards don’t usually come with many rewards or benefits, they may be easier to qualify for. After building credit with responsible use, you can upgrade to a card with more perks.

Balance transfer credit cards

If you have existing credit card debt, you might be better off with a balance transfer card. The 0 percent introductory APR period can buy you time to pay off the balance and avoid interest charges.

The Citi® Diamond Preferred® Card* is one of the best balance transfer cards on the market — and will save you more money than a cash back card, if you have credit card debt. This card doesn’t earn rewards, but it does offer a 0 percent intro APR for 12 months on purchases and 21 months on balance transfers. After that, the variable APR will be 18.24 percent to 28.99 percent, based on your creditworthiness. Balance transfers must be completed within four months of account opening to qualify for the promotional rate.

Debit cards

If you prefer to stay away from credit, a debit card is the modern version of cash. Debit cards are linked to your checking account. They’re usually free to use and make it difficult to overspend. It’s rare for a debit card to earn rewards, but there are a few options out there, such as the Discover Cashback Debit. If you apply and are approved for a free Cashback Debit checking account, you could use your debit card to get 1 percent cash back on up to $3,000 per month.

The bottom line

Though rewards credit cards have their pros and cons, applying for a card with rewards will generally reap more benefits than a card without rewards — as long as you use it responsibly. But if you aren’t maximizing your rewards, you’re missing out on money toward travel bookings, retail purchases and more.

If you’re on the hunt for the right rewards credit card, Bankrate’s CardMatch tool can help you find cards that fit your credit history, spending habits and financial goals.

*Information about the Citi® Diamond Preferred® Card has been collected independently by Bankrate. The card details have not been approved or reviewed by the issuer.

Are Rewards Credit Cards Worth It? | Bankrate (2024)

FAQs

Are rewards cards a good idea? ›

Rewards credit cards can be tempting, and they might be worth it if you can earn rewards and get cardholder benefits that save you money. However, they may lead to overspending, and the cards could have high interest rates and annual fees.

What are the disadvantages of reward cards? ›

Cons of Loyalty Programs
  • Distinguishing between loyal customers and frequent shoppers. ...
  • Breaking even. ...
  • Market saturation. ...
  • Limitations of loyalty data. ...
  • Managing the loyalty program. ...
  • What if you decide to end the loyalty program?

What is the main advantage of reward cards? ›

Rewards credit cards typically offer cash back, points, or travel miles for every dollar you spend. Rewards cards make the most sense for consumers who pay their balance in full each month. Otherwise, the interest charges could easily exceed your rewards.

Do rewards credit cards build credit? ›

Using a rewards card responsibly can be part of building credit and improving your credit score. And that's true of any credit card, whether it offers rewards or not.

What does Dave Ramsey say about credit card points? ›

According to Ramsey, “… They know if they can convince you to play the points game, you're more likely to rack up a higher balance and pay them more in credit card interest.” While you can earn about one point per dollar spent, Ramsey said you'll probably find that redemption means one point equals one penny.

What are the risks of credit card rewards? ›

Disadvantages of rewards cards
  • Overspending to earn rewards: It can be tempting to spend more than you can afford to max out your rewards or earn a welcome bonus. ...
  • Untapped value: If you don't actually redeem your rewards, you're leaving money on the table.
Jul 1, 2024

What are the negative effects of rewards? ›

Rewards increase anxiety and shame: The fear of not receiving a reward can lead to anxiety and feelings of shame in students. In addition, students may feel anxious or ashamed if they do not receive a reward, or if they do receive a reward but feel that it is not commensurate with their effort.

Why are credit card rewards not taxed? ›

If earned through the use of the card, like a cash-back bonus, the rewards are viewed by the IRS as a rebate and not taxable income.

What are 3 pros and 3 cons of credit cards? ›

Biggest Pros and Cons of Credit Cards
RankTop 10 Credit Card ProsTop 10 Credit Card Cons
1Credit BuildingOverspending and Debt
2ConvenienceFraud
3RewardsFees
4Pay Over TimeFine Print
6 more rows

What is the difference between a credit card and a rewards card? ›

Rewards credit cards offer points that can be redeemed for merchandise, flights, and more, whereas cash back cards give you a fixed dollar amount for every purchase you make. Choose a credit card based on your lifestyle and what gives you the most bang for your buck.

Are credit cards actually worth it? ›

Why Nearly Every Purchase Should Be on a Credit Card. Credit cards are convenient and secure, they help build credit, they make budgeting easier, and they earn rewards. And no, you don't have to go into debt, and you don't have to pay interest.

What are the three main types of credit card rewards? ›

Credit cards generally offer one of three reward structures: cash back, points or miles.

How many credit cards should I have? ›

It's generally recommended that you have two to three credit card accounts at a time, in addition to other types of credit. Remember that your total available credit and your debt to credit ratio can impact your credit scores. If you have more than three credit cards, it may be hard to keep track of monthly payments.

Should I pay off my credit card in full or leave a small balance? ›

It's a good idea to pay off your credit card balance in full whenever you're able. Carrying a monthly credit card balance can cost you in interest and increase your credit utilization rate, which is one factor used to calculate your credit scores.

What card is best for building credit? ›

Best credit cards to build credit
  • Best for no fees: Petal® 2 “Cash Back, No Fees” Visa® Credit Card.
  • Best for travel rewards: U.S. Bank Altitude® Go Visa® Secured Card.
  • Best for small businesses: Bank of America Business Advantage Unlimited Cash Rewards Secured credit card.
  • Best for Chase customers: Chase Freedom Rise℠
Aug 1, 2024

Are store reward cards worth it? ›

If you do a lot of shopping at a single retailer, a store credit card might be worth it — but consider pairing your store card with a general-purpose credit card that offers lower interest rates and allows you to earn rewards on a broader range of purchases.

What are the disadvantages of cashback rewards? ›

There are a few drawbacks to a cash-back rewards card, including a higher-than-usual APR, having to wait to access your cash-back funds, and a cap on how much you can earn each year. Also, when it comes to travel rewards such as airline miles, sometimes the miles are worth more than the cash. Experian.

Are rewards programs worth it? ›

Retail rewards programs can be a smart way to save money at establishments you frequent. If you collect points, don't keep them indefinitely; they often expire. Many businesses are offering paid memberships to customers that offer a wide range of discounts on services and products.

Are Miles reward cards worth it? ›

Whether you should choose a cash back or miles credit card (or both) depends on the type of consumer you are. If you're a frequent traveler who can take advantage of airline perks, like free checked bags, airport lounge access, priority boarding and more, you'll enjoy the benefits of miles cards.

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