- Rewards Programs
- How Do They Work?
- Point Rewards
- Travel & Cash Rewards
- Amex Rewards
- Capital One Rewards
- Chase Rewards
- CitiBank Rewards
- Discover Rewards
How to Choose the Right Rewards Card that is Right for You
Everyone likes free stuff. The banks and credit card issuers know that which is why many have made their rewards programs the centerpiece of their credit card offerings. The fact is that some of these programs can be very…well….rewarding.
Then again, some can lead you down an expensive path that offers little beyond a lot of frustration. So, if a rewards program is an important criterion for you in selecting which credit card to use, it’s important to know how they work and how they can benefit you in order to choose the one that’s best for your situation.
What Exactly is a Credit Card Rewards Program?
Rewarding customers for loyalty has been a long established practice of retailers and businesses dating back to the Stone Age.
Offering discounts, freebies, and preferential treatment as a way to encourage repeat business and attract new customers is a proven marketing technique that knows no bounds in the type of businesses that use it and the type of customers it attracts.
And make no mistake, it is all about marketing, and it is designed to increase the revenues and profits of merchants and businesses. But, careful and astute consumers can also come out ahead if understand how the rewards programs work. Credit card rewards programs are the most widely used and they can also be the most difficult to fully understand.
The most important thing to be mindful of is that credit card companies make their money in two ways – interest and fees, and they are not about to give away anything unless they are certain that they will be able to generate a certain amount of revenue from each card user.
How Do Credit Card Rewards Work?
The basic premise of a rewards program is this: A credit card issuer awards a certain number of points per dollar spent using its credit card.
Airline affiliated credit cards awards points based on air miles and travel-related purchases made with travel partners.
Cash-back credit cards award points based on all purchases although most have certain requirements that must be met for a purchase to qualify for points. In both cases, bonus points are awarded when purchases or travel reaches a certain threshold.
With an airline or travel rewards program, points can be accumulated and then redeemed for a variety of travel rewards such as airline flights, hotel stays, car rentals and vacation packages.
Cash back cards offer redemptions in cash, gift cards, or merchandise available through their online shopping malls comprised of many top retailers.
Some programs offer some very creative travel packages that include exotic locales and exciting adventures.All programs have certain restrictions and limitations that need to be studied in order to determine which ones can generate the best overall benefits for the card user.
What You Need to Know about Rewards Programs
The Cost of Rewards
Regardless of whether a rewards program is offered or not, most credit cards charge annual fees for their use. And, although it’s not a universal rule, many credit cards offering rewards tend to charge higher interest rates or APRs than non-rewards cards.
So, the very first consideration should be whether the potential costs of use could outweigh the potential benefits of the rewards program. There are a small number of issuers offering rewards cards with no annual fee. And, if you know for certain that you will be able to pay your monthly credit card balance in full each month, you shouldn’t incur much in the way of interest expense.
Be sure to study the card’s grace period policy to determine when interest charges begin to accrue on your purchases. If, however, you fall into the marketer’s trap of chasing points and going into debt as a result, you will most likely come out on the losing end.
Points & General Rewards Programs
This is where you really need to study the fine print. Many cards place a limit on the amount of points you can accumulate in a given year, which may not be a big deal if you are aware of it.
Some people get around this limitation by switching to another rewards card when the limit is reached. The better course might be to choose a card that has no limitation or a high cap.
Conversely, some card issuers require a minimum level of spending before points are awarded. These cards should be avoided if possible because they could lead to forced spending just to start earning points.
It’s not uncommon for rewards programs to place a time limitation on point’s redemption. So, if you don’t redeem you points before they expire, you will lose the benefit of your credit card usage.
More and more cards are lifting point expiration dates or extending them. The other important considerations for point’s redemption are any restrictions on how and when they can occur. Some cards limit redemptions to certain periods of time or certain increments that reduce your flexibility. Look for cards that place no restrictions on redemptions.
The biggest problem with airline rewards programs are the travel restrictions imposed by the airlines on redemptions. Airlines block out a certain number of seats per flight for rewards travelers, and with economic conditions being what they are, they have substantially reduced the available seats.
Add to that the fact that the airlines will eliminate those available seats if they think they can book paying travelers. The bottom line is that it is becoming increasingly difficult to book rewards travel. Some cash-back cards and non-airline affiliated travel cards offer travel rewards with fewer restrictions.
That’s because they actually purchase the seats on behalf of the rewards recipient. The trade-off is that it takes longer to earn enough points for an airline ticket on those cards.
Travel & Cash Back Reward Programs
. Travel Rewards of Cash-Back Rewards
The most important consideration in choosing the right rewards card for you is how much you expect to benefit from the rewards. If you’re not a regular traveler, you probably wouldn’t benefit much from an airline rewards card.
However, if you are planning a special trip in the future, you could save a lot of money by accumulating travel rewards for airline tickets, hotel stays and car rentals for that particular trip.
If you are a frequent traveler, the quickest way to upgrades and free travel is with the airline rewards programs.
Otherwise, the most flexible, and often most rewarding programs are the cash-back cards.
You just need to be aware of the restrictions on purchases and any limitations on redemptions.
Some of the best ones offer a flat percentage, as high as 5%, cash back on all purchases, while others restrict cash back points to certain types of purchases, such as groceries or gas.
But, even those can generate nice savings throughout the year. If your card awards you 3% cash back on grocery purchases, and you normally spend $7000 a year on groceries, you would pocket $210 in cash.
With some programs you can set up automatic redemptions, or you can leave them on account to accumulate for cash rewards or merchandise purchased through retail partners or an online shopping mall.
American Express - Membership Rewards
Some consider the American Express Membership Rewards Program the most comprehensive rewards program available, that is if you spend a lot of money on your card and do a lot of traveling. While there are many ways to redeem your Membership points on merchandise, the real value of the program is maximized through its extensive partnership arrangements with most major airlines, hotels, and travel-related services.
Big spenders can earn unlimited reward points and they are also going to be able to get the value they need to offset the high annual fees. There are three levels of Membership, each offer progressively higher level of rewards and features. For purposes of this review, we’ll focus on the American Express Gold Premier Card which comes in at a $175 annual fee (waived the first year). At just $50 more than the next lower tier Gold Card, its value is substantially greater.
American Express Membership Rewards Essentials
- You earn 15,000 bonus points if you spend just $1000 within the first three months.
- When used to purchase airline tickets you earn three points per dollar spent.
- For every dollar spend on groceries and gas, you earn $2 of rewards and $1 per dollar on all other purchases.
- No limit on rewards earned
- If you spend at least $30,000 in a year you are rewarded with 15,000 bonus points.
- Triple points are awarded on online purchases through the Bonus Points Mall Shop with top retailers.
- No expiration on points.
Although the basic structure of the program is the same for all Membership levels, the bonus points available in the upper tier levels enable you to accumulate points much more quickly which can easily offset the higher annual fees. For the difference of $50 between the Gold and Gold Premier levels, you can more than offset the additional cost with the additional points you will earn.
Redeeming Qualities of Membership Rewards
Your points can be redeemed for a wide variety of rewards, including merchandise, entertainment, gift cards and travel-related purchases. Frequent travelers can transfer their points directly to their own frequent flyer program or they can cash in their points for direct purchases of air travel using Pay with Points. With the Pay with Points method they can book with any airline and fly anytime without restrictions. Membership Rewards is famous for its offerings of exotic and adventurous vacation packages.
While the point value varies on merchandise rewards, sometimes providing a one-to-one value exchange, many fall below that. Gift cards are often a better value with a one-to-one exchange. The best value is with air travel, especially when bonus points are applied to certain airline partners.
Additional Card Features
American Express is renowned for its travel features including its $250,000 of accident insurance, free rental loss and damage insurance, lost baggage insurance and 24/7 roadside assistance.
Or purchases, few cards can beat their purchase protection plan which will protect you against accidental damage or theft on eligible purchases up to $1,000 for each purchase or $50,000 per account per year. Also, its extended one-year warranty is good towards any purchase with a warranty of five years or less. And, if you want to return something but lost your receipt, you will want American Express in your corner. They’ll refund up to $300 on an item that the store won’t take back within 90 days of the purchase.
One feature many Gold cardholders really enjoy is the Gold Card Event access in which you get first crack at major events and upgrades to preferred seating.
American Express Membership Rewards Basics (Gold Premier)
- $175 annual fee – waived the first year. $125 fee for the Gold Card; $95 for the Green card
- 0% interest because balances need to be paid in full each month
See All American Express Reward Cards
Capital One - No Hassle Rewards
For people who are frustrated with rewards programs that offer great point bonuses and marvelous redemption choices under a complicated structure of rules, limitations, and restrictions, the Capital One No Hassle Rewards card may be the answer.
In the end, it can enable you to accumulate points as quickly as many bonus-laden programs, and its redemption policies and procedures are truly hassle-less.
The bottom-line is that you can earn 1% cash back on all purchases and 2% cash back on the purchases that count most – your groceries and gas. If you purchase merchandise through one of its 300 retail partners you receive up to 15% more cash back.
Capital One No Hassle Essentials
- 2% cash back on groceries purchased at major chains and gas purchases from most stations.
- 1% cash back on all other purchases.
- No purchase limit or points cap.
- No point expiration.
- Easy, anytime point redemption by phone, online, or through automatic redemption ($25 minimum for automatic redemption)
- Low minimum rewards redemption.
On its face, Capital One’s No Hassle Rewards cards may seem to fall short of some of the other offers which tout 5% cash back on certain categories and other first year bonuses that can boost your rewards quickly.
But beneath the surface, it addresses a key frustration of cardholders who complain that some of these programs are too complicated and too difficult to manage. In the end, many aren’t able to take advantage of the 5% purchases because the category rotation is confusing and requires too much effort.
No Hassle users seem to appreciate the straightforward structure and the no-nonsense redemption process. And, if you are like most people whose groceries and gas comprise the bulk of their budgets, the 2% cash back can generate more rewards more quickly anyway. If you just want cash back without the hassles, this program may be ideal for you.
Additional No Hassle Features
- You get a free extended warranty on most new items purchased when the manufacturer’s warranty is 12 months or less.
- When you book travel with your Capital One card you are automatically covered with $100,000 of travel accident insurance.
- You have a 24/7 travel concierge who can help you with passports, visas, lost credit cards, medical and legal assistance.
- Automobile rentals are automatically covered against accidental damage or theft.
- For world travelers, there is no foreign transaction fee.
Capital One Hassle Free Notables
- No annual fee (for excellent credit only)
- No balance transfer fee (Capital One does not currently offer 0% balance transfer APR)
- No over limit fee.
See All Capital One Reward Cards
Chase – Ultimate Rewards Program
Chase’s top three credit cards are all offered with the same Ultimate Rewards program which ranks very high for value and flexibility. Whether you hold their Freedom, Sapphire or Ink Business card, you can enroll in Ultimate rewards which awards cash back on every purchase with no purchase limits or points expiration.
The award ratio for all cards is about $0.01 for each point earned, and, for Sapphire Preferred or Ink-plus cardholders, there is a 25% point bonus on travel redemptions which increases your point value to $0.125.
Ultimate Rewards Essentials
- Ultimate points are redeemable for cash, merchandise, and travel.
- When used for booking air travel, your Chase card earns double points.
- Points can be transferred to travel partners on a one to one point basis.
- The minimum point increment for cash back is 2,000 which is good for $20. Cash back rewards can be applied to account balances.
- The program offers 5% cash back on rotating categories every three months
Chase’s Ultimate Rewards program makes it very easy to accumulate points and redeem them for just about any type of purchase or cash back. But, as with any rewards program, you need to study the redemption options in order to determine how to maximize the value of your points.
As mentioned earlier, the base cards generate $0.01 per point. So, for every 2,000 points accumulated, you earn $20. Using that as a baseline, you can then compare the value of points used for merchandise purchases and travel booking.
Ultimate Travel Rewards
The great thing about Ultimate Rewards is that it gives travelers a lot of flexibility and, in some cases, extra value. Airline travel purchases earn double points. There are no blackout dates because, when you book travel through their Travel Tool, your airline ticket is directly purchased on your behalf.
The added advantage of this is that you will earn mileage points on your flights. Plus, your point value (for Preferred and InkPlus holders) is increased by 25%. Based on customer experience, air travel purchased with Ultimate Rewards is priced about the same as if you were to purchase the ticket on your own, so you’re not losing out on price.
Also, Ultimate points are transferable to any of the travel partners such as Continental Airlines, at a one-to-one ratio.
Ultimate Merchandise Rewards
While Ultimate Rewards offers many merchandise purchase offers, customer experience has shown that the point value drops somewhat and you may be better off redeeming your points for cash and then purchasing the item on Amazon.com or directly from the retailer.
The Ultimate Rewards program is one of the better cash back offerings around with the ultimate in point value, flexibility and point management. For travel, it holds tremendous advantages over airline affiliated programs because there are no travel blackouts.
You just need to determine whether your points go further redeeming them for airline tickets or the cash to buy the airline tickets on your own. That would largely depend on your status with the airlines and whether you are a Preferred cardholder (for the 25% points boost).
Chase Card Notables
- No annual fees.
- Currently offering 0% Intro APR for 12 months on balance transfers and six months on purchases
- Now through December 31, 2011, you can earn 5% cash back on up to $1500 on certain categories such as dining, entertainment and charitable contributions.
- You can earn a 10% cash back bonus for purchases made through select Chase merchant partners.
See All Chase Reward Cards
Citi – ThankYou Rewards
Citi introduced its ThankYou rewards program as a replacement for its Diamond program but it applies to all Citi credit cards. It joins the growing ranks of cash back rewards programs now available through most of the major issuers. So, points can be earned on everyday purchases, travel bookings, and even from the use of other Citi services such as checking and savings accounts.
The one distinguishing feature of the Citi ThankYou program is its generous point awards on purchases made in the first year. After that, there’s not much to set it apart from other cash back programs. In fact, point-for-point it tends to lag behind some of the others in terms of the value it brings.
Citi ThankYou Essentials
- You earn two points on all purchases in the first 12 months (one point per dollar after that)
- Currently offering 100 bonus points for enrollment in online services
- 6000 points are earned if you spend at least $300 within the first three months (good for a $50 gift card)
- No point expiration
Citi’s ThankYou rewards program offers a wide variety of ways to earn points, and, if your purchase activity is high in the first year, you can really boost your point total with all of its first year point bonuses. On the redemption side, there are even a wider variety of choices including cash, merchandise, gift cards and travel.
You can even use points to make student loan and mortgage payments (originating through Citi of course). In terms of point value, ThankYou will really make you work hard in order to determine how to maximize it as it varies widely depending on your choice of rewards.
As a baseline, its cash back point value is about $0.0063, less than the one-to-one ratio available on Chase’s Ultimate Rewards. Merchandise redemptions also, fall below the one-to-one ratio. The only rewards we can find that translate one point for one dollar of value is through travel redemptions and certain restaurant and retail partners.
ThankYou for Travel
The one area in which Citi’s ThankYou offers a good value is in its travel rewards which, when booked through its travel booking partner (currently Connexions Loyalty Travel), provides a one-to-one ratio in exchange value depending on the airline and specific flight booked.
ThankYou for Merchandise
Unfortunately, because the point value for most merchandise redemptions are less than $0.01 per dollar, just as the point value for cash back is less than $0.01 per dollar, you’re damned if you do and damned if you don’t. Your best bet to get a one-to-one redemption is to go for one of the gift cards offered through certain retail and restaurant partners. Just know that most gift cards come with expiration dates.
Citi ThankYou Card Notables
- 0% Intro APR for 12 months on balance transfers and purchases. (12.99% to 21.99% thereafter)
- No annual fee
- Fair to excellent credit rating
See All CitiBank Reward Cards
Discover - Cash Rewards
If you’re up for some hands-on management of your rewards program and navigating through a myriad of rules and limitations, the Discover Cash Rewards program can be very rewarding. But, if you are a hands-off type of person, you may get less value from it as compared with some other programs.
For cardholders with excellent credit, the biggest attraction is its 15 month, 0% intro APR on balance transfers and purchases. Discover is doing something right because they have earned top customer loyalty awards consistently over the last 15 years.
Discover Cash Rewards Essentials
- .25% cash back on all purchases until $3000 spending threshold is reached. 1% cash back thereafter.
- 5% cash back on seasonal purchases through rotating categories (i.e., gas, groceries, home goods, dining)
- Double-back cash back rewards when used with retail partners.
- No rewards expiration.
Seems simple enough so far. But then there are the rules and limitations. For instance, in order to be eligible for the 5% cash back on seasonal purchases, you have to sign up for each category, which isn’t a big deal so long as you remember to do it.
Any purchases made in the 5% categories are not applied to the $3000 threshold. Within each category there is a limit to how much you can spend to earn the 5% reward. Plus, if you shop a lot at the warehouse stores, such as Costco, those purchases are only eligible for the .25% reward and they don’t count towards the $3000 threshold.
Redeeming Qualities of Discover Cash Back
While it may get a little confusing on the reward accumulation side, the reward redemption side is fairly straightforward and a pretty decent value. Cash rewards can be redeemed for a number of things including cash, gift cards and merchandise.
If you redeem your rewards for gift cards from any one of a hundred retail, hotel or restaurant partners you can double the value of your rewards. For instance a $50 reward can be exchanged for a $100 hotel certificate with some partners. Also, your cash rewards are worth double when used with certain retail partners.
Many cardholders appreciate the capacity to use cash rewards to automatically pay regular monthly bills, such as phone, internet, cable, and even some insurance.
Discover Cash Rewards Basics
0% intro APR on balance transfers and purchases for 15 months. 11.99% to 20.99 thereafter.
- 0% intro APR on purchases and balance transfers for 15 months, then the variable APR of 11.99% - 20.99%
- No annual fee
- 0% fraud liability
- Requires very good to excellent credit
See All Discover Reward Cards