How do travel rewards work?

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Many issuers shifted their rewards structures in 2020 and 2021 to focus on more everyday needs, like groceries and takeout from restaurants. But even with the ongoing pandemic, travel credit cards and their often lucrative rewards structures remain one of the most popular options when it comes to rewards credit cards.

Travel credit cards are best suited for those who frequently travel for leisure or business, since earning and redeeming rewards are primarily focused on travel.

Becoming a savvy rewards cardholder can help offset the cost of travel purchases and enhance your overall travel experience. So it’s important to understand how travel rewards work: how to earn them, how to redeem them and how to get maximum value.

What are travel rewards?

Travel rewards are points or miles earned by charging eligible purchases to your credit card. The more you spend with your card, the more rewards you collect. You can redeem your travel rewards for things like hotel stays, airfare and other travel expenses. Some issuers also let you redeem travel rewards for statement credits and other non-travel-related options.

How do points work?

With travel points, you earn a certain number of points for every dollar spent using your travel card. The amount of points you earn per dollar depends on the card and the purchase. A card might earn 3 points per $1 spent on airfare or hotels, for instance, while earning 1 point per $1 on all other eligible purchases.

Many points cards are co-branded hotel credit cards, which involve a partnership between a credit card issuer and a particular hotel chain. These cards typically earn a high rewards rate for booking hotel stays.

One example is the Marriott Bonvoy Brilliant™ American Express® Card, which earns 6 Marriott Bonvoy points for each dollar of eligible purchases at hotels participating in the Marriott Bonvoy™ program. The card also earns 3X points at U.S. restaurants and on flights booked directly with airlines, as well as 2X points on all other eligible purchases.

An example of a non-branded points card is the Bank of America® Travel Rewards credit card, which earns an unlimited 1.5 points per $1 spent on all purchases, including non-travel purchases.

How do miles work?

Miles are offered by airline credit cards and some general-purpose travel cards. Much like points cards, a travel miles card earns miles for every dollar spent on eligible purchases.

The Southwest Rapid Rewards® Plus Credit Card is a co-branded card that earns 2 points per $1 on Southwest purchases and 1 point per $1 on all other purchases. An example of a non-branded miles card is the Discover it® Miles. You earn an unlimited 1.5 miles for every dollar spent on all purchases with the card.

How to redeem travel rewards

Redeeming travel rewards is typically a simple process, as many issuers have online portals. Knowing exactly how to redeem your rewards is a great way to get the most value out of what you’ve earned.

The basics

Your card issuer will typically have a portal on its website that lists redemption options and points values. Examples of redemption options include statement credits, travel purchases, gift cards and cash back. Rewards programs typically use a 1:1 conversion rate, meaning each point or mile is worth $1. However, your rewards could gain or lose some value depending on how you choose to redeem them. Some issuers, like Chase, offer boosted points value or other perks for travel purchases made through their online portal.

Putting points and miles to work

The kind of card you have and its respective rewards program will determine how you can apply your rewards. With some cards, you can redeem your rewards for statement credits to offset the cost of past travel expenses. Other cards offer the option to apply rewards to upcoming travel purchases, such as airfare or hotel bookings. If you’re using miles to book airline tickets, for instance, you can typically redeem them during the booking process. The process is similar when applying points to a hotel booking.

Transferring points and miles

Some travel rewards cards let you transfer points or miles to the issuer’s travel partners, which may include airlines, hotels or cruise lines. If you choose the transfer option, be aware of conversion rates as the value of rewards transferred to a travel partner can fluctuate.

If it looks like you would lose value on a transfer, you’d probably be better off redeeming that batch of rewards for a statement credit.

Learn more: Best credit cards for travel insurance

Do travel rewards expire?

With most travel cards, your points or miles are unlikely to have an expiration date, as many issuers have no-expiration policies on rewards. Co-branded airline or hotel cards, on the other hand, will typically have an expiration date for rewards. Be sure to understand if and when your rewards may expire, so your hard-earned points and miles don’t risk going to waste.

How to maximize your travel rewards

Here are a few tips to help you get the most out of your travel rewards.

Take advantage of sign-up bonuses

Many travel cards come with generous sign-up bonuses. These welcome offers usually require you to spend a certain amount within the first few months of opening the account. Although these bonuses are often an attractive incentive to apply for a card, make sure the spending requirement is realistic for your budget and travel plans.

Be aware of all fees before applying

Credit card fees don’t directly affect the rewards you earn but the cost does affect a card’s overall value. Take note of all the fees associated with any card you’re interested in getting.

Not all travel cards come with an annual fee but those that do typically range from less than $100 to more than $500. If a travel card has an annual fee, you should be sure that the rewards and benefits will offset the cost.

Some credit cards also charge a foreign transaction fee for overseas purchases—typically an extra 3 percent added to the total price. Although many credit card issuers offer cards with no foreign transaction fees, frequent overseas travelers should be on the lookout.

Make sure you have the right card

Especially with travel cards, it’s important to make sure you have the right card for your preferences. For example, if you’re partial to a certain airline or hotel chain, a co-branded card can offer higher rewards rates, discounts and perks.

You should also pay close attention to a travel card’s rewards categories. Earning points or miles at restaurants won’t deliver a lot of value if you rarely dine out.

The bottom line

A travel credit card can help significantly reduce the cost of your travel if the spending categories and redemption options align with your budget and habits. Make sure you pick a travel credit card that will reward you for the type of purchases you make most often and doesn’t charge a fee that costs more than you’ll earn in rewards. Whether you’re earning points or miles, be intentional about your redemption options to get the best value for your rewards.

Written by
Hanneh Bareham
Student loans reporter
Hanneh Bareham specializes in everything related to student loans and helping you finance your next educational endeavor. She aims to help others reach their collegiate and financial goals through making student loans easier to understand.
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