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Are rewards credit cards worth it?

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A rewards credit card is exactly what it sounds like: a credit card that rewards you for your purchases. Used responsibly, a rewards credit card can help you save money on everything from travel bookings to Amazon purchases.

However, not everybody knows how to maximize their credit card rewards — and not everybody knows what a good rewards card can do for them. How do you earn a sign-up bonus? What are the best ways to redeem your rewards? These questions are especially worth investigating if your credit card charges an annual fee.

Are rewards credit cards worth it? In most cases, yes, as long as you’re not carrying a balance and the annual fee (if it charges one) is less than the value of the rewards you earn each year. In any case, it doesn’t hurt to know how to get the most out of your rewards credit card. Let’s start by looking at the three most common types of rewards credit cards: Cash back, points and miles.

Cash back

Cash back cards are some of the easiest rewards credit cards to use. With cash back credit cards, you have the opportunity to earn a cash back percentage on every qualifying purchase. For example, 3 percent cash back on a $100 purchase would earn you $3 in cash back rewards.

Some credit cards offer the same flat-rate cash back percentage on everything you buy, like the Wells Fargo Active Cash® Card, which offers unlimited 2 percent cash rewards on purchases. Flat-rate cash back cards are best for people who want to use a single credit card for all of their everyday spending.

Other cash back cards reward cardholders with higher cash back percentages when they spend in certain categories and a lower rate for general purchases. The Blue Cash Preferred® Card from American Express, for example, offers 6 percent cash back on U.S. supermarket purchases (for up to $6,000 in purchases per year, then 1 percent) as well as 6 percent back on select U.S. streaming subscriptions, 3 percent cash back on transit, 3 percent back on U.S. gas station purchases and 1 percent back on all other purchases.

Points and miles

Point-based cards and miles-based cards are a lot like cash back rewards cards — but instead of earning dollars on every purchase, you earn points or miles. Travel credit cards almost always fall in this category of rewards cards.

Like cash back, you usually earn points or miles on your purchases at a set rate — one point per dollar spent, for example. Many points and mile-based rewards cards increase your rate when you spend in certain categories.

The Capital One Venture Rewards Credit Card, for example, offers a flat rate of 2 miles per dollar on general purchases. Cardholders can also earn 5 miles per dollar on hotels and rental cars booked through Capital One Travel.

The Chase Sapphire Preferred® Card, on the other hand, offers 5 points per dollar on travel purchased through Chase Ultimate Rewards; 3 points per dollar on dining (including eligible delivery services), select streaming services and online grocery purchases (excluding Walmart, Target and wholesale clubs); 2 points per dollar on general travel purchases and 1 point per dollar on all other purchases. Plus, cardholders can earn 5 points per dollar on Lyft rides through March 2025.

Not sure where you stand in the cash back vs. points and miles debate? Points and miles cards can be more complicated than cash back cards, especially because the value of your points and miles may change depending on how you redeem them. However, the best redemption options generally offer a lot of value — and points and miles cards often come with other perks, such as free airport lounge access or free hotel nights, that make them even more rewarding.

Redeeming credit card rewards

Most credit cards have multiple options for redeeming rewards. Some people prefer to redeem their credit card rewards as a statement credit, which means that they use the value of their credit card rewards to reduce their monthly credit card bill. Other people use their credit card rewards to book travel. You may also be able to redeem your credit card rewards for gift cards, charitable donations and—in some cases—paper checks.

Make sure you understand the potential value of each redemption option. Redeeming your rewards for gift cards, for example, is often less valuable than redeeming your rewards for a statement credit or a travel booking. Credit card issuers may even increase the value of your rewards if you redeem them for specific types of purchases — Chase Sapphire cardholders, for example, can increase the value of their points by redeeming them for travel through Chase Ultimate Rewards.

The pros and cons of rewards credit cards

Is a rewards credit card worth it? It all depends on whether you’re able to use your rewards credit card responsibly — and that includes taking advantage of all of the rewards you earn. Here are some of the biggest credit card rewards benefits and drawbacks:

Pros

  • Earn cash back, points or miles on every purchase
  • Redeem rewards for money-saving opportunities like travel bookings, statement credits and online shopping credits
  • Many rewards credit cards don’t charge an annual fee

Cons

  • You may be tempted to spend more than you can afford in order to max out your rewards or sign-up bonuses
  • You must redeem your rewards to save money, and some redemption options give you less value for your rewards
  • The best rewards cards may charge an annual fee or require you to have good or excellent credit

Should you get a rewards credit card?

Is it time to apply for a rewards credit card? If you don’t already have a good rewards card in your wallet, you may be leaving money on the table — especially if you buy a lot of groceries, pump a lot of gas or make a lot of retail purchases.

If your budget matches the average household budget, you’re probably spending close to $5,000 per year on groceries and a little more than $2,000 a year on restaurants. By applying for one of the best credit cards for groceries, you could earn as much as 6 percent cash back on eligible supermarket purchases — and if you add one of the best credit cards for dining out, you could earn 3 to 5 percent cash back on restaurants and takeout.

There are a lot of high-earning rewards credit cards with specialized bonus categories, so take the time to research your options and choose the rewards card that might be best for you.

When should you consider alternatives to rewards credit cards?

While most people will probably want a credit card that offers rewards, it’s worth noting that some non-rewards credit cards have their advantages.

If you have existing credit card debt, for example, you would be better off prioritizing a long balance transfer offer over rewards. The Citi® Diamond Preferred® Card doesn’t earn rewards — but it does offer 0 percent intro APR for 12 months on purchases and 21 months on balance transfers. This makes the Citi Diamond Preferred one of the best balance transfer credit cards on the market, and a much better money-saver (for someone with credit card debt) than a cash back card.

The bottom line

Though credit card rewards have their pros and cons, applying for a credit card that offers rewards is generally better than applying for a card that doesn’t. If you aren’t maximizing your credit card rewards, you’re missing out on money you can put toward travel bookings, statement credits and more.

If you’re on the hunt for the best rewards credit card for you, consider using Bankrate’s CardMatch™ to find a perfect match for your credit history, shopping habits and financial goals.

Written by
Nicole Dieker
Personal Finance Contributor
Nicole Dieker has been a full-time freelance writer since 2012—and a personal finance enthusiast since 2004, when she graduated from college and, looking for financial guidance, found a battered copy of Your Money or Your Life at the public library. In addition to writing for Bankrate, her work has appeared on CreditCards.com, Vox, Lifehacker, Popular Science, The Penny Hoarder, The Simple Dollar and NBC News. Dieker spent five years as writer and editor for The Billfold, a personal finance blog where people had honest conversations about money. Dieker also teaches writing, freelancing and publishing classes and works one-on-one with authors as a developmental editor and copyeditor.
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Part of  Introduction to Rewards Credit Cards