Types of rewards credit cards

There are many different types of credit cards available, some of which are designed for different groups of people, such as students or small-business owners, or for different purposes, such as building credit or paying off debt. Then there are rewards credit cards, which offer some type of reward for eligible spending with your credit card. All of the above credit card types can be rewards cards, but not all rewards cards are designed for students, small-business owners and so on.

Each rewards credit card comes with different types of rewards you can earn and various rewards structures, potentially bringing a lot of value to your wallet. Rewards credit cards are also typically tailored to a certain kind of spending, such as everyday spending or travel spending.

When it comes to choosing the right rewards credit card for you, you’ll need to evaluate an 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’ll risk missing out on opportunities to earn rewards and get maximum value.

What are credit card rewards?

All rewards credit cards offer rewards in the form of cash back, points or miles. From there, you’ll be able to earn either a flat rewards rate on all purchases or a higher rewards rate on purchases made in select categories. For example, categories may include travel, dining or groceries.

Rewards credit cards that offer higher rewards rates in select categories typically offer fixed or rotating categories, the latter of which may change on a monthly or quarterly basis. Rotating categories are also more likely to be subject to monthly, quarterly or annual spending limits, after which you’ll earn a lower rate of rewards on those purchases. However, some rewards credit cards with fixed categories offer spending limits, too.

In addition to earning rewards on eligible spending with your credit card, you might also be able to earn rewards in other ways. For example, new cardholders are typically offered a welcome bonus, which can be earned by spending a certain amount on a card within a certain time frame. You can also typically earn more rewards through limited-time offers or referral bonuses.

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. Some cash back cards offer a flat rate on all purchases (for example, 2 percent cash back on all purchases). In this case, making a $100 purchase with a 2 percent cash back card would put $2 into your rewards balance.

Other cash back cards offer higher cash back rates for particular types of purchases (bonus categories) and a lower rate on general purchases (for example, you might be offered 3 percent cash back on grocery purchases, 3 percent cash back on gas purchases and 1 percent cash back on all other purchases). There are also some cash back cards that offer higher rates of cash back on categories that rotate each month or quarter. These cards usually have a spending cap and require category activation to earn the higher rate.

The Chase Freedom Unlimited®* is a good example of a card with several bonus categories. This card offers 5 percent cash back on travel purchased through Chase Ultimate Rewards, 5 percent cash back on Lyft purchases (through March 2025), 3 percent cash back on dining and at drugstores and 1.5 percent cash back on all other purchases. Plus, as a new cardholder, you can 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.

How cash back 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 for cash back cards include statement credits, direct deposits to a bank account or checks, but you may also be able to redeem rewards for gift cards, select merchandise or charitable donations. Before redeeming, check with your issuer to make sure you’re aware of the rules for 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 offer a 1:1 redemption conversion for several options. Every issuer has different rewards rates, conversion rates and redemption options, but you’ll typically be offered more redemption options with a points card than a cash back card. Many of the best credit card rewards programs, along with co-branded hotel cards and some co-branded airline cards, offer rewards in the form of points.

For example, the Chase Sapphire Preferred® Card offers 5X points on travel purchased through Chase Ultimate Rewards; 5X points on Lyft rides (through March 2025); 3X points on dining (including eligible delivery services), select streaming services and online grocery purchases (excluding Walmart, Target and wholesale clubs); 2X points on other travel purchases; and 1X points on all other purchases. Some Chase Ultimate Rewards redemption options include travel, cash back, statement credits, gift cards and select merchandise.

How points programs work

With credit card points systems, you’re earning points instead of dollars. Because it’s a different type of rewards currency, understanding the value of your rewards is a bit more complicated than it is with cash back cards.

The value of your points can depend on what you redeem them for. For example, you’ll typically get 1 cent in value for travel redemptions through issuer portals. Some credit cards even offer a higher value for travel redemptions through an issuer portal, such as the Chase Sapphire Preferred, which offers a 25 percent points boost on travel redemptions through Chase Ultimate Rewards. But if you’re able to transfer your points to a high-value airline or hotel partner, you could get much more than 1 cent in value for your points.

Points have more flexible redemption options, too — you can usually redeem them for 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 frequent flyers

Miles-earning credit cards are typically a type of co-branded airline credit card — one notable exception here is the Capital One miles rewards program — that allow you to redeem rewards for flights, 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.

For example, the Delta SkyMiles® Gold American Express Card is a great card for those who fly with Delta frequently. It offers 2X miles on purchases at restaurants (plus takeout and delivery in the U.S.), U.S. supermarkets and eligible 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 miles programs work

Credit card miles work in a similar way to points, but they’re mainly associated with co-branded airline cards. As with points cards, you’ll typically 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 in to your account during the booking process — and the same goes for booking other types of travel. Some miles-earning travel cards allow you to transfer miles to travel partners, which usually include airlines and hotels.

You can find more information on travel credit cards, including how different points and miles programs work, in Bankrate’s travel toolkit.

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 credit cards that are available. From there, you can decide what is most important to you. Cash back is a great choice if you value simplicity and flexibility, while points are great for those who enjoy comparing redemption options to snag the best deal. And if you frequently fly with a particular airline, a co-branded credit card that earns miles 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, you might want to consider accumulating several cards over time. That way, you can maximize your rewards earnings by using the right credit card for each type of purchase you make.

*The information about the Chase Freedom Unlimited® has been collected independently by Bankrate.com. The card details have not been reviewed or approved by the card issuer.