Rewards credit cards come in three types: cash back, points and miles. Each card comes with different rewards you can earn and various structures, potentially bringing a lot of value to your wallet.
Each type of rewards credit card is tailored to a certain kind of spending. When it comes to choosing the right card for you, you’ll need to evaluate the issuer’s rewards program, your spending habits and the overall structure of the card. If the card you choose doesn’t match your spending habits or lifestyle, you risk missing out on opportunities to earn rewards and get maximum value.
Here’s what you need to know about the types of credit card rewards, how rewards credit cards work and how you can maximize your rewards earning.
Cash back: Best for simplicity seekers
Cash back is a straightforward way to get rewarded for using your credit card. You’ll earn a percentage of cash back on each eligible purchase you make with the card. For example, making a $100 purchase with a 2 percent cash back card would put $2 into your rewards balance. When you redeem your rewards, it can be as simple as a direct deposit to your bank account.
Some cash back cards offer a flat rate on all purchases (2 percent cash back on all purchases, for example). Others offer higher cash back rates for particular types of purchases or “bonus categories” and a lower rate on general purchases (5 percent cash back on groceries and 1 percent cash back on all other purchases, for example).
The Chase Freedom Unlimited® is a good example of a card with several bonus categories. This card earns 5 percent cash back on travel purchased through Chase Ultimate Rewards, 5 percent cash back on Lyft purchases (through March 2025), 3 percent on dining, 3 percent at restaurants and drugstores and an unlimited 1.5 percent on all other purchases. Plus, earn an additional 1.5 percent cash back on top of all purchases’ original cash back rate (on up to $20,000) for the first year via an offer from Bankrate.
How cash back rewards programs work
When you make an eligible purchase with a cash back credit card, you’ll receive a small percentage of your purchase back. The percentage you earn depends on the card. As mentioned, you might earn the same rate of cash back on all purchases, or you might earn a higher rate on particular types of purchases.
The redemption process is typically simple. Your issuer should have a redemption portal on its website that offers different ways to redeem. The most common options include statement credits, direct deposits to a bank account, merchandise and gift cards. Some issuers also allow charitable donations.
Before redeeming, check with your issuer to make sure you’re aware of the rules on cash back redemption and that you’re getting the best value (typically statement credits or direct deposits).
Points: Best for rewards maximizers
Points cards typically reward borrowers with a fixed amount of points per dollar spent and 1:1 redemption conversion. Every issuer has different rewards rates, conversion rates and redemption options.
For example, the Chase Sapphire Preferred® Card earns 5X points on travel purchased through Chase Ultimate Rewards, 5X points on Lyft rides (through March 2025), 3X points on select streaming services, online grocery purchases and dining (including eligible delivery services) and 2X points on all other travel purchases. It also offers 1X points on other purchases. Chase Ultimate Rewards redemption options include travel, cash back, statement credits, gift cards and merchandise.
How points rewards programs work
With credit card point systems, you’re earning points instead of dollars. Because it’s essentially a different currency, this makes understanding the value of your rewards a bit more complicated than cash back.
The value of your points can depend on what you redeem them for. For example, if you redeem 20,000 points for a $200 flight, your points are worth one cent apiece. But if you’re able to find a deal and use those 20,000 points to book a $400 flight, your point value increases to two cents apiece.
Points have more flexible redemption options — you can redeem them for things like merchandise, cash back, gift cards, travel purchases or even concerts and sporting events.
When it comes to redeeming your points, typically the issuer will have an online portal on its website that lists redemption options and values. Remember to be strategic when redeeming and choose the option that gives you the most bang for your buck.
Miles: Best for airline loyalists
Miles-earning credit cards are a type of airline card that allow you to redeem rewards for flights, airport lounge access, seat upgrades and other travel-related expenses. These cards earn miles for every dollar that you spend and often offer boosted rewards rates for travel-related purchases.
The Delta SkyMiles® Gold American Express Card, for example, is a great card for those who fly Delta frequently. It earns 2X miles on purchases at restaurants (plus takeout and delivery in the U.S.), U.S. supermarkets and Delta purchases. It also offers 1X miles on all other purchases. The inclusion of non-travel bonus categories makes it a great card for everyday use.
How travel and miles programs work
Credit card miles work in a way similar to points but are associated mainly with travel cards. As with points cards, you’ll earn a fixed amount of miles for every dollar you spend, although the rate could be higher in some purchase categories.
If you’re using your miles to book a flight, you can typically redeem them by logging into your account during the booking process — and the same goes for booking a hotel. Some travel cards offer the option of letting you transfer miles to the issuer’s travel partners, which usually include airlines and hotels.
The bottom line
The credit card rewards landscape is vast, and it can be overwhelming if you’re just starting out. But the first step to choosing the next addition to your wallet is understanding the different types of rewards.
From there, you can decide what is most important to you. If you value simplicity and flexibility, cash back is a great choice. Points are great for those who enjoy comparing redemption options to snag the best deal. And if you frequently fly with one airline, a miles-earning card co-branded with that airline will likely work in your favor.
If you think each type of rewards credit card could benefit you in a different way, consider accumulating several cards over time. This way, you can match all of your most common purchases with a card that rewards them at a high rate.