Types of rewards credit cards

There are many different types of credit cards available, including rewards credit cards. These cards come in a variety of forms, offering various types of rewards for the eligible spending you do on the card. They are typically tailored to a certain type of spending, such as everyday spending or travel spending, which may allow you to earn bonus rewards on the types of spending you do most. To choose the right rewards credit card for you, you’ll need to evaluate the rewards program for each card you’re considering. You’ll also need to analyze 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?

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, bonus categories may include travel, dining or groceries. Cards that offer higher rewards rates in select categories typically come with 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 spending, 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.

Advantages and disadvantages of the different types of credit card rewards

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, offering:

• 5 percent cash back on travel purchased through Chase Travel℠
• 5 percent cash back on Lyft purchases (through March 2025)
• 3 percent cash back on dining and at drugstores
• 1.5 percent cash back on all other purchases

How cash back programs work

When you make an eligible purchase with a cash back credit card, you 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 redemption options for cash back cards include:

• Statement credits
• Checks or direct deposits to a bank account
• Gift cards
• Select merchandise
• 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 (which typically comes from getting statement credits or direct deposits).

Points: Best for rewards maximizers

Many of the best credit card rewards programs offer rewards in the form of points. Points cards typically reward cardmembers with a fixed amount of points per dollar spent. There are usually more ways to redeem points than with a simple cash back card, although every issuer offers different rewards rates, conversion rates and redemption options. For example, the Chase Sapphire Preferred® Card offers:

• 5X points on travel purchased through Chase Travel
• 5X total points on Lyft rides (2X points on general travel and 3X bonus points through March 31, 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
• 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. The value of your points often depends on what you redeem them for. For example, you’ll typically get 1 cent per point in value for redeeming your points through an issuer portal. However, some credit cards may offer more value for specific types of redemptions through an issuer portal — like the Chase Sapphire Preferred, which offers a 25 percent points boost on travel redemptions through Chase Ultimate Rewards. On the other hand, 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. Additionally, points are often more flexible than cash back and can usually be redeemed for:

• Merchandise
• Cash back
• Gift cards
• Travel purchases
• Concerts
• Sporting events

Most issuers have an online portal that lists the redemption options and values of their points. 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 co-branded airline credit cards 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. The miles you earn are housed in your loyalty account for the connected airline rather than with the credit card. For example, the Delta SkyMiles® Gold American Express Card is a great card for those who fly with Delta frequently since it offers the following rewards:

• 2X miles on purchases at restaurants worldwide (plus takeout and delivery in the U.S.)
• 2X miles at U.S. supermarkets
• 2X miles on eligible Delta purchases
• 1X miles on all other purchases

The inclusion of non-travel bonus categories makes it a great card for everyday use. One thing to keep in mind is that miles credit cards aren’t just for airline loyalists. One notable exception to the co-branded card lineup of miles-earning cards is the Capital One miles program. These cards are popular choices for travel enthusiasts and aren’t tied to a specific airline but rather function more like a points card. In fact, what the rewards are called isn’t the most important feature. Like Capital One calling its rewards “miles” even though they function like points, some airline credit cards refer to the rewards as points instead of miles. For example, the Southwest Rapid Rewards® Plus credit card lets you earn points on your purchases. But you can still redeem those points for Southwest flights just like you would with a card that earns miles. So as you consider which type of credit card rewards you want to pursue, you may want to focus more on how you can redeem the rewards rather than what they’re called.

How miles programs work

Credit card miles work in a similar way to points. 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. Booking a flight with miles is usually quite easy. Simply sign into your airline account while booking the flight and choose to pay with miles. Keep in mind that some miles-earning travel cards allow you to transfer miles to travel partners — which usually include airlines and hotels. Doing so can sometimes boost the value of your points, so don’t forget to look into this before booking your next trip. Check out Bankrate’s travel toolkit to learn more about how to make your points and miles work for you.

The bottom line

The credit card rewards landscape is vast and can be overwhelming for those who are just starting out. By understanding the different types of rewards credit cards that are available, you can decide what type of rewards are most important to you. Cash back is a great choice if you value simplicity and flexibility, whereas 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.