Co-branded credit cards: What they are and how they work

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No matter where you shop, it always feels like there’s a rewards credit card offer waiting for you at the checkout line. The advertising promotes a number of benefits if you apply today—discounts, rewards points and other exclusives you can only get by owning the brand’s co-branded credit card.

Once reserved for airlines and hotels, more and more businesses are introducing co-branded credit cards to their customers. Household names including Apple, Expedia, PlayStation and Uber all have cards bearing their names, and they want you to add them to your wallet. But, do they make sense for your spending?

While co-branded credit cards do offer a lot of upsides, they usually make the most sense for those who can turn the points into big rewards. Before applying, it’s important to understand how the programs work and if spending over time can turn into valuable experiences at a discount.

What are co-branded credit cards?

Co-branded credit cards combine the best aspects of store credit with traditional rewards credit cards. However, instead of just offering flexible payment terms at one shop, cardholders can use them everywhere and get rewarded for using them.

In the 1980s, competition for loyal flyers aboard airlines was heating up, as both American Airlines and Continental Airlines (now United Airlines) launched the industry’s first frequent flyer programs. Flying was the only way to earn reward miles toward flights, but Continental saw an opportunity to expand customer loyalty beyond the airport. In 1986, the Continental loyalty team partnered with Marine Midland Bank (now a part of HSBC) to launch the first modern co-branded credit card, allowing holders to earn OnePass miles every time they spend with the card. By 1987, nearly every other major airline at the time—including American Airlines and United Airlines—had a bank partner offering a co-branded credit card.

Today, there’s no limit to the number of brands offering perks for signing up for the right credit card. From Starbucks to Sam’s Club, a plethora of companies offer their own co-branded credit cards and provide a variety of benefits and rewards for using them.

How do co-branded credit cards work?

The biggest draw of co-branded credit cards is the rewards cardholders get every time they spend on the card. Hotel points, credit card miles and cash back rewards aren’t free—and odds are, the bank is paying less than one unit per $1 spent to pass them on to you.

Under a co-branded credit card arrangement, a company—like an airline, hotel, or retail store—will partner with a bank to offer credit cards bearing their name or loyalty program. In turn, the bank will offer those credit cards to individuals, with the additional perk of earning rewards every time they use the card.

To offer those rewards, the banks will pay a premium to the airline, hotel or other partners to distribute them. In the case of airline miles and hotel points, the credit card company buys the rewards from the carrier or hotelier in bulk, which are then handed down to the customers.

For the travel industry, co-branded credit cards aren’t just about getting people on the aircraft. Rather, rewards cards are a major boost to their bottom line annually. In 2019, American Express paid Delta Air Lines around $4.1 billion to deliver SkyMiles to their cardholders.

Best co-branded credit cards for 2021, by category

While there is seemingly no limit on the number of co-branded credit cards to choose from, we did the research and selected some of the best cards in their respective categories. If you’re looking to travel, shop online or simply save some money, these are the cards you’ll want in your wallet.

Citi® / AAdvantage® Platinum Select® World Elite Mastercard®: Best airline travel card

  • Welcome offer: 50,000 AAdvantage bonus miles after spending $2,500 within the first three months of account opening
  • Rewards: Earn 2X AAdvantage miles for every $1 spent at gas stations, restaurants, and eligible American Airlines purchases; 1X AAdvantage miles for every $1 spent everywhere else
  • Perks: First checked bag free on domestic American Airlines itineraries for you and up to four companions traveling on the same reservation; $125 American Airlines flight discount after you spend $20,000 or more in purchases during your card year and renew your card
  • Annual fee: $99, waived for the first 12 months

So far, 2021 is shaping up to be a big year for American Airlines, mostly because of the partnerships they are forming. With Alaska Airlines joining American’s airline alliance, Oneworld, and American Airlines forming a strategic alliance with JetBlue, there will be more ways than ever to use American miles toward free travel. And with the 50,000-mile bonus (earned after spending $2,500 within the first three months of account opening), your imagination will be the only thing holding you back from going places with this American Airlines credit card.

Hilton Honors American Express Surpass® Card: Best for hotel nights

  • Welcome offer: 130,000 Hilton Honors Bonus Points with the Hilton Honors American Express Surpass® Card after you use your new Card to make $2,000 in eligible purchases within the first 3 months of Card Membership.
  • Rewards: 12X points per dollar spent at Hilton hotels and resorts; 6X points per dollar at U.S. restaurants, U.S. supermarkets and U.S. gas stations; 3X points per dollar on all other eligible purchases
  • Annual fee: $95
  • Terms apply

According to hotel industry tracker MKG Consulting, Hilton Hotels is the fourth largest hotel chain worldwide with over 6,000 properties in its footprint. No matter where you go, there’s likely to be at least one Hilton hotel nearby. If you can earn enough points from everyday spending to get one free hotel night, this hotel credit card will bring value beyond its annual fee every year.

Hotels.com® Rewards Visa® Credit Card: Best for casual travelers

  • Welcome offer: One reward night worth $125 after spending $1,000 in the first three months
  • Rewards: Earn 1 stamp each time you spend $500 with your card, plus the 1 stamp for each night stayed at an eligible property you earn as a rewards member (10 stamps is equal to 1 reward night)
  • Annual fee: $0

Casual travelers can appreciate the simplicity of the Hotels.com Rewards Visa. Instead of collecting thousands of points and being locked into one hotel program, this co-branded Visa credit card lets you earn free nights at nearly any hotel with every $500 you spend. With no annual fee, there’s nothing but upside for casual travelers holding this card.

Amazon Prime Rewards Visa Signature Card: Best for online shopping

  • Welcome offer: $70 Amazon gift card upon approval
  • Rewards: 5 percent back at Amazon.com and Whole Foods Market; 2 percent back at restaurants, gas stations and drugstores; 1 percent back on everything else
  • Annual fee: $0 ($119 Amazon Prime subscription required)

The current state of affairs has forced everyone to do more shopping online—so why not get rewarded for it? Along with the 5 percent cash back shopping at Amazon.com and Whole Foods Market, cardholders get bonus cash back for spending at restaurants, gas stations and drugstores. Smart spending in the bonus categories could help you offset the annual $119 membership to Amazon Prime.

Costco Anywhere Visa® Card by Citi: Best for wholesale store shopping

  • Welcome bonus: None
  • Rewards: 4 percent cash back at eligible gas stations, including gas at Costco (for the first $7,000 in purchases per year, then 1 percent); 3 percent back on restaurant and eligible travel purchases; 2 percent back on all Costco and Costco.com purchases; 1 percent on all other purchases
  • Annual fee: $0 (with your $60 paid Costco membership)

Even if you don’t shop for groceries and home goods in bulk at Costco, the Costco Anywhere Visa offers some of the most generous cash back categories among all co-branded credit cards. The bonuses on gas, restaurant and travel purchases rival some of the best rewards cards, and the cash back can be taken as either cash or credit at Costco stores.

Is a co-branded credit card right for me?

The biggest allure of co-branded credit cards is the promise of continual rewards you can turn into cash back, free flights or even bigger vacations. Should you start carrying around plastic bearing the logos of your favorite brands? Before you apply, be sure to understand when it makes the most sense and when you should think twice.

Pros of co-branded cards

  • Rewards for everyday spending: Before hotel and airline credit cards, the only way to earn hotel points and airline miles was to spend money with those brands. With a co-branded credit card, you can earn points or miles without stepping foot in an airport, hotel or doing any online spending—building up your bank toward future returns.
  • Bonuses at your favorite brands: You’re going to spend at your favorite brands anyway—why not multiply the rewards? Using a co-branded credit card, you can often earn bonus points, miles or cash back for purchases at your favorite stores.
  • Value of rewards may outweigh cash back: Especially with airlines and hotels, collecting points and miles over time can turn into deeply discounted airline tickets or free hotel nights. With smart spending on your co-branded credit card, your overall return could outweigh the annual fee every year.

Cons of co-branded cards

  • Rewards are limited to one brand: With most co-branded credit cards, your rewards are limited for use with the branded company only. For example, the Costco Anywhere Visa gives you cash back, but you have to redeem it at a Costco store. Even with airline partners, your choices are subject to their program rules.
  • Don’t expect to use your points immediately: Although co-branded credit cards often come with big sign-up rewards, you may not get to use them for months to come. The average reward varies between programs, meaning it may take some time (and spending) to earn enough to use them.
  • Finding rewards can be difficult: For those who have never done it before, finding rewards with airlines and hotels can be a challenging experience. Unless you are comfortable using rewards programs, a co-branded credit card may not be the best option to gain big returns.

Other options

If you’re unsure about carrying numerous co-branded credit cards, there are several options that might better serve you. Many travel credit cards offer flexible points that can either be transferred to airline and hotel partners or be used directly with the provider. If you decide to use them with the institution, they often carry a flat rewards rate and can be used across airlines and hotel chains, which can make it incredibly easy to use and understand.

There’s also nothing wrong with using cash back credit cards to earn flexible rewards that can be used toward anything you want. Simply spend as you normally would with the card, and use your built-up cash back balance to remove the charge!

The bottom line

Co-branded credit cards offer an easy pathway to getting rewards toward travel, shopping or even video games and free coffee. However, the points and miles you earn are only as good as your ability to use them. Before you start applying, be sure to have a plan on how to use the points (and ultimately gain rewards in excess of your annual fee).

The information about the Hotels.com® Rewards Visa® Credit Card, Costco Anywhere Visa® Card by Citi and the Amazon Prime Rewards Visa Signature Card has been collected independently by Bankrate.com. The card details have not been reviewed or approved by the card issuers.