How to redeem credit card rewards
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- There are a lot of ways to redeem cash back, points and miles, and those options vary by card
- Cash back is typically able to be redeemed for a statement credit, direct deposit, check, gift cards and even donations to charities
- When it comes to points and miles, you can often heighten your rewards value with travel portal bookings and transfer partner travel
Rewards programs offer prime opportunities to get a payoff from your credit card purchases. To maximize that payoff, you need to know the ins and outs of redeeming the cash back, points or miles you’ve earned. What kind of rewards you’re redeeming depends on the type of rewards your card earns. There are three main types:
- Cash back cards reward you with a percentage of the purchases you make on the card. Most cash back cards are either flat rate, bonus category or tiered rewards cards.
- Points-earning cards typically offer at least 1 point for each dollar you spend. A few cards offer you the option of earning and redeeming your rewards as either cash back or points.
- Travel cards earn travel points, sometimes presented as “miles,” and tend to come with travel-related perks and benefits. Some travel cards are co-branded with a certain airline or hotel chain, so if you’re loyal to a certain brand, those cards can maximize your potential earnings.
We’re going to talk here about how to get the maximum value out of those rewards, whether they’re cash back, points or miles.
How to redeem cash back rewards
The best way to maximize your cash back rewards starts by getting a card with a rewards structure that matches your general spending habits. For instance, if you spend a significant amount of money on groceries each month, you are going to want to consider a card like the Blue Cash Preferred® Card from American Express for its 6 percent cash back at U.S. supermarkets (up to $6,000 per year, then 1 percent).
Or, you may be more interested in a cash back rewards card with rotating categories so you can maximize your return across an array of spending categories each quarter. If you do this, always activate the categories as soon as possible so you don’t miss out on those rewards.
Once you’ve made your purchases and have enough cash back saved up, it’s quite easy to redeem your rewards. On the card issuer’s website, there will typically be a redemption portal where you can see what you’ve earned and choose how you want to redeem it.
While cash back rewards essentially put cash back right back into your pocket, your cash back rewards are more lucrative depending on how you choose to cash in on the return.
Many card issuers will allow you to redeem your cash back with a statement credit, a direct deposit to your bank account or a check payable to you. Some issuers also offer redemption options like gift cards, tickets to concerts and sporting events or even charitable donations.
Every card’s reward structure is different, and how you benefit most will vary from issuer to issuer. With the Blue Cash Preferred Card from Amex, for example, your cash back is received in the form of Rewards Dollars that can be redeemed as a statement credit. However, you cannot use your Rewards Dollars to pay your minimum balance due.
This is one example of many, but it is important to read your card’s fine print to check your specific card’s redemption options, rules and limitations.
How to redeem points-based rewards
Similar to redeeming cash back rewards, you can claim point-based rewards through your card issuer’s redemption portal. Your options could include anything from cash back, gift cards and travel benefits to online shopping redemptions. Every issuer’s categories are different, so make sure you do the research and go with a card that offers redemptions that suit your spending habits and lifestyle.
Keep in mind with points-based rewards, the value of your redemption is not always the same. The same applies to travel and mile rewards, but more on that later.
In most cases, one point is often equivalent to at least one cent each, however, credit card points have different values depending on the issuer’s point system.
For example, the Chase Sapphire Preferred® Card’s current welcome offer allows new cardholders to earn 60,000 bonus points after spending $4,000 on purchases in the first three months. That’s worth $750 when you redeem through Chase Ultimate Rewards.
Chase Ultimate Rewards points redeemed for cash are worth 1 cent apiece, whereas points redeemed for travel through the Chase Ultimate Rewards portal are worth 25 percent more (1.25 cents apiece) with the Sapphire Preferred. Additionally, according to Bankrate’s point valuations, Chase Ultimate Rewards points carry as much as 2 cents apiece when used toward high-value transfer partner travel.
To put even further into perspective, points used on Amazon.com or PayPal are worth only 0.8 cents apiece. At this rate, you are better off redeeming your miles on travel.
Playing the points game can be exhausting, but you have the potential of getting way more bang for your buck when you play the game carefully. Even if you are not a Chase cardholder, take a look at your card’s point valuation and take the time to figure out how you can get the most value out of your points.
How to redeem travel and miles rewards
With travel rewards, your redemption options depend on the type of travel credit card you have. You typically redeem air miles for airline tickets and travel points for hotel stays, or you might have the option to apply some of your rewards toward certain travel perks. If you’re a loyal and frequent customer with a particular hotel chain or airline, you can probably get a lot of rewards value from a hotel or airline card that partners with your brand of choice.
Some credit cards add the option to transfer points or miles to airlines, hotels and other travel partners affiliated with your issuer. Whether you gain, lose or break even on value depends on the program, but ideally, the ratio would be 1:1 or greater. It’s important that you really dig into the program details when you transfer rewards to travel partners so you can get the most value possible.
For instance, the Capital One Venture Rewards Credit Card offers 75,000 bonus miles after spending $4,000 on purchases within three months of account opening, equal to $750 if you redeem through the Capital One Travel portal. However, based on Bankrate’s valuations, Capital One miles are worth up to 2 cents apiece toward Capital One transfer partner travel. This would make the current welcome offer worth nearly $1,500.
On this particular travel card, you’re better off transferring your miles to a partner airline or booking travel through the Capital One rewards portal in order to get the most value out of your miles.
Interestingly, redeeming for cash back is the worst thing you can do with your Capital One miles because doing so cuts the value to about 0.5 cents per mile. And while you can redeem miles for gift cards or purchases made on Amazon.com or PayPal, keep in mind your points will lose some value and come in at about 0.8 cents per mile.
What to look out for when redeeming credit card rewards
Every list of do’s should have a corresponding list of don’ts, and advice on redeeming credit card rewards is no exception. Some options could lead to getting less value out of your points, miles or cash back rewards.
With travel rewards, any redemption outside of the realm of travel purchases is typically a less valuable option. The points and cash back conversions generally don’t measure up to what you’d receive in miles.
Many rewards programs offer a 1:1 value ratio when you redeem rewards for gift cards or merchandise, but not in every case. The best time to redeem for gift cards is when the issuer offers a promotional discount.
Before using any of the less than straightforward options for redeeming rewards, check the terms and conditions and disclosures to make sure you won’t be sacrificing value.
The bottom line
The best rewards credit cards available today are designed to benefit you as long as you use them responsibly. In addition to earning cash back, miles or points, rewards credit cards come with plenty of perks including welcome offers or sign-up bonuses.
However, when it comes down to redeeming your credit card points, the value will vary depending on the issuer’s points system and how you ultimately decide to use them. To ensure you get the most value out of your rewards credit card, read your card’s fine print to learn exactly what your points are worth.