Making purchases with a credit card offers advantages such as convenience and flexibility. But many savvy card users are convinced that the greatest benefit of plastic is the potential for rewards. In 2017, consumers received $15 billion in rewards value through cash back, miles and points.
In general, credit card rewards programs are set up either as points that can be redeemed for travel, merchandise and other awards, or cash back based on a percentage of your purchases. It's a good idea to think about which option you prefer before you choose a card that comes with such a program, to ensure you're making the most of your credit card purchases.
“The best option really depends on the individual," said Hiram D. Carrington, personal credit cards product manager at City National Bank. “You have to think about how you use your card, how you would use the rewards, and what option really matters the most to you."
If you're trying to decide between a credit card rewards program that earns points or cash back, this primer can help you learn the ins and outs of each one.
If you like lots of options, a credit card with a points-based rewards program may be ideal for you. When you make purchases with your card, you'll earn points that can be redeemed for goods and services.
For instance, if you travel frequently, a card that earns points that can be redeemed for airfare, hotels, resorts and car rentals may be your best bet. If you like to redeem your points for merchandise such as high-end accessories or electronics, you'll also appreciate a points-based rewards program. You may also want to look for a program that allows you to redeem points for gift cards, cash-back statement credits, and even donations to charities, if those options are important to you.
“Points allow you to have a multitude of options for redemption," said Robert Ricasa, who manages the points-based City National Rewards® program. “You want to look for a program that offers the flexibility and choices that best meet your needs."
Another factor to consider is how much you have to spend to earn enough points to redeem for what you want, and what those points are worth. Not only do points values vary by issuer, but they also tend to be different when redeemed for travel versus a retailer gift card.
“We encourage clients to understand how much they have to spend to earn enough points to get what they want," explained Vincent Hruska, senior vice president of City National's Enterprise Cards group. “While there are slight differences in the value you get for your points from various issuers and when redeeming them for certain items, the differences in how much you have to spend to earn those points can be quite dramatic."
While virtually all points-based credit card rewards programs offer at least one point per net dollar spent, some credit card rewards programs also offer “bonus points" – which can mean earning double, triple or even more points per net dollar spent – when you purchase goods or services in certain categories such as travel, dining, groceries and gasoline. This allows your purchases to go further toward earning points and allows you to accumulate points more quickly.
Consider choosing a credit card rewards program with bonus points in categories where you actually use your card. Avoid cards with rewards programs that only earn bonus points at certain places, such as a specific group of restaurants or gas stations, unless they're establishments you frequent.
Another thing to keep in mind is that some credit card rewards programs rotate or change the bonus points categories from time to time, while others always offer the same bonus points opportunities. Be aware that rotating categories can make it difficult to fully leverage bonus points earnings because you'll have to keep track of which purchases will earn you bonus points at any given time.
If you think you may want a credit card with a points-based rewards program, check to see if the points expire and if so, when or how. Ideally, your credit card rewards program won't impose expiration dates on the points you earn. But if it does, you'll want to make sure you redeem your rewards points before they expire.
Also find out whether there is a limit on the number of points you can earn. Many credit card rewards programs don't have a cap; if you choose one that does, make sure to redeem your points before they reach the cap so you don't miss out.
Another factor to consider when choosing a credit card with a points-based rewards program is whether you can combine points you earn on multiple cards enrolled in the same program into a single rewards account. This is referred to as “householding" and allows you to accumulate points more quickly, especially if you have multiple cardholders on an account or have both business and personal credit card accounts with a credit card issuer.
“At City National, points earned on a client's personal and business credit cards that come with City National Rewards are automatically 'householded' into the same Rewards account," explained Ricasa.1
Many card issuers offer introductory offers such as 50,000 bonus points when you open a new credit card account that comes with a points-based rewards program. But before you take them up on the offer, make sure you understand the requirements.
"Most offers require you to make a certain level of purchases within a certain time frame, such as 90 days from account opening," said Carrington. "Plus, these offers are usually not available if you already have, or have had within the past year or two, a credit card account with the card issuer."
If the spending requirements and eligibility criteria for the bonus points offer work for you, it may be a good opportunity. If you're not eligible for the bonus points offer, you'll want to make sure the features and benefits of the credit card – including the points you'll earn on your purchases and the annual percentage rates (APRs) and annual fee, if any – fit your needs before you apply for the card.
If you'd rather not have to keep track of how many points your purchases earn, or decide what to redeem your rewards points for, you may want to opt for a credit card that offers strictly cash back rewards.
“Cash back is straightforward in that you earn a set percentage value of your purchases," Carrington said.
Keep in mind that some points-based credit card rewards programs offer the option to redeem points for cash back statement credits, but if you expect to redeem your points only for cash back, you may want to choose a card that offers strictly cash back rewards.
If you're thinking about a cash back card, find out how frequently the card issuer pays cash back, how the cash back is credited to you, and whether you must earn a benchmark amount before you'll get the cash.
For instance, some issuers pay cardholders at the end of a calendar year. City National's Cash Back Visa Signature® Credit Card pays on a quarterly basis when at least $25 in cash back has been earned.2
Choosing a card with lower benchmarks can mean you receive cash back on a regular basis, as opposed to the credit card issuer holding on to the cash back rewards until you meet a higher benchmark.
A typical credit card with a cash back rewards program offers between 1 and 2 percent cash back on net purchases. Many card issuers offer promotions through which you can earn bonus cash back – sometimes as high as 5 percent – on certain purchase categories. When considering a credit card rewards program with bonus cash back purchase categories, look for a program that includes bonuses in categories where you often make purchases. That way, you'll be optimizing your cash back rewards.
Similar to a credit card with a points-based rewards program, you'll want to know if there's a limit on how much cash back you can earn in a certain time period. Many cash back rewards programs don't have a limit, which means your ability to earn cash back won't be hindered. If you do choose a credit card that imposes a limit on its cash back rewards, you'll want to make sure the credit card features, benefits, rates and fees meet your needs.
If you're having a difficult time determining which type of credit card rewards program is best for you, ask your card issuer for advice.
“At City National, we talk to our clients to uncover their needs, then suggest the credit card and rewards program that is most useful for them," Hruska said.
1 See City National Rewards Program Terms, Conditions and Program Rules and FAQs for details on earning Points. Certain restrictions apply for combining Points from business and personal City National Visa® Credit Cards that come with City National Rewards. See City National Rewards Combining (Householding) Points Program Rules for details.
2 The Cash Back Visa Signature Card account earns 1.5% cash back for every U.S. dollar of net purchases (purchases less returns and credits) made by a cardholder using a card issued under the account. Net purchases do not include cash advances, balance transfers, interest charges, finance charges, fees and other charges, adjustments, disputed purchases and any unauthorized or fraudulent transactions. For complete details on the terms and conditions of the City National's Cash Back Visa Signature program ("Program"), please refer to the Cash Back Visa Signature Terms and Conditions. City National Bank may change the Program and the terms and conditions of the Program at any time.
All City National Bank credit cards are subject to credit approval.
Visa and Visa Signature are registered trademarks of Visa International Service Association and are used under license.
This report is for general information and education only and was compiled from data and sources believed to be reliable. City National Bank does not warrant that it is complete and has no obligation to update or notify of inaccuracy or change. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.