Rewards credit cards

Earn points as you spend to get free flights, upgrades, free gifts, shopping vouchers, cash back and more with rewards cards.

By   |   Updated 10th December 2021

Comparing rewards credit cards

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Overview

A rewards credit card is a type of credit card which earns rewards points (also know as loyalty points) for each dollar spent on eligible purchases. Eligible purchases are transactions which are not purchases of cash (such as purchases of foreign currency banknotes), or cash equivalents (such as a balance transfer), or other non-qualifying transactions as defined by the card issuer (such as interest charges and other account fees).

Rewards point redemption options

Rewards points (also known as loyalty points) can be exchanged for benefits chosen by the cardholder from a range of redemption options, which may include:

  • Merchandise from an online catalog
  • Retail gift cards
  • Money off supermarket or other shopping at the checkout
  • Movie tickets and other entertainment
  • Exchanging the card’s brand of rewards points for airline frequent flyer points
  • Cashback to the card account
  • Payment of the card’s annual fee
  • Travel and accommodation
  • Charity donations

Frequent flyer credit cards

Frequent flyer credit cards are a type of rewards credit card. In this case the card is linked to an airline’s frequent flyer program (e.g. Delta Skymiles or United Club). The rewards points earned take the form of frequent flyer points directly credit to the cardholder’s frequent flyer points account, rather than converting the card’s brand of reward’s points into frequent flyer points.

American credit card rewards programs

There’s a wide variety of credit card rewards points programs in the US. Among the most popular are:

  • American Express Membership Rewards
  • Capital One Rewards
  • Chase Ultimate Rewards
  • Citi Rewards
  • HSBC Rewards
  • Wells Fargo Rewards
  • US Bank Rewards

Points earning rates

Points earning rates are expressed in terms of points earned per dollar spent on eligible purchases (e.g. 1.5 points per dollar). Earning rates vary from card to card, with more expensive cards (i.e. those with a higher annual fee) tending to have a higher points earning rate.

However, earning rates are not directly comparable across different rewards programs. For example, a card may have a high earning rate, but the number of points required for an identical redemption may be higher than the required points in a different reward program where card earning rates per dollar are lower. The required number of points for a David Jones $50 gift card, for example, is not consistent across all American credit card reward programs.

Points caps and thresholds

Some cards have limits on the number of points that can be earned in a single month or year.

Where there is a points cap, after the points cap is reached the points earning rate drops to zero for the remainder of the period (e.g. 1.0 points per dollar, up to $5,000 spending or 5,000 points earned per month, 0 points per dollar thereafter).

Where there is a points threshold the earning rate falls but does not disappear, once the threshold is reached (e.g. 1.0 points per dollar, up to $5,000 spending or 5,000 points earned per month, 0.5 points per dollar thereafter).

However, a few cards do have both a points threshold and an absolute cap on points.

Points expiry

Each rewards program has its own rules about points expiry, so it’s important to read the rewards program’s Terms & Conditions if you have a rewards credit card.

While some reward programs say that points do not expire as long as your credit card account is current (and they may give you a 90 days grace period in which to spend the points after your card account is closed), other programs require some earning or redemption activity in your points account to prevent points expiry (e.g. points expire if there has been no points earning or redemption in the previous 24 months). In some cases points automatically expire within three years if they are not used.

First purchase bonus points

Many rewards cards offer large quantities of bonus points as an incentive to new cardholders. There is usually a target spending amount to be reached within a nominated period in order to qualify for the bonus points (e.g. spend $3,000 in the first 90 days after card approval and earn 80,000 bonus points). These bonus points can be worth several hundred dollars, depending on the rewards program and the way they are redeemed.

Higher annual fees and interest rates

Rewards credit cards tend to have higher annual fees and interest rates than cards with no rewards points on offer. In some cases the high annual fee is charged to partly offset the cost of other complimentary benefits (such as free travel insurance or airport lounge access) often attached to rewards credit cards.

However, there are a few rewards credit cards with a low or no annual fee and/or a relatively low interest rate on balances carried from month to month.

Learn about rewards credit cards

Confused about how rewards programs work? Get the answers to your questions here.

  • Pros & cons

  • Tips

  • FAQs

Get a quick boost of points in your account

Many rewards credit cards offer substantial bonus points to new cardholders.

Get something for nothing

Assuming you are able to pay off the balance in full each month, a rewards credit card is a great way to effectively get ‘something for nothing’ without changing your spending pattern.

Higher annual fees

Rewards credit cards tend to have higher annual fees than cards without rewards points, particularly for higher end black cards.

Higher interest rates

Rewards credit cards usually have interest rates at the highest end of the scale.

Interest and fees incurred negate the value of points

If you regularly fail to repay your balance in full, or pay late, you’ll end up paying more in interest and penalty fees than the value of the points you earn.

Points can expire

Rewards points in some rewards programs can expire if you don’t redeem them for a long period, and most will expire when you close your credit card account, or shortly afterwards.

Some redemptions are very poor value

Some types of reward redemptions, especially merchandise like home appliances, deliver very poor value per dollar spent in earning points.

There's more on offer than just earning points

Many rewards cards come with valuable complimentary benefits. These can range from international travel insurance to free flights and airport lounge access. The value these benefits represent varies: if you don't fly overseas, then having free overseas travel insurance won't matter to you. However, access to the lounge for your domestic flights could be a meaningful benefit.

Avoid rewards credit cards if you don’t intend to pay off your balance every month

Rewards credit cards can be extremely lucrative if they are used in the most cost-effective way. But avoid them if you don’t intend to repay your balance in full each month, otherwise you’ll end up paying far more interest charges than you can possibly earn in points value.

Channel as much of your eligible spending as possible through the card

Don’t forget to use your rewards cards at every possible opportunity, from your takeaway coffee through to big-ticket items like TVs, appliances and technology (if you can afford to pay for them at the end of the month). The rewards points you’ll earn mean that you are effectively getting a discount on all your spending.

Choose a card to suit your income and spending level

There’s no point in paying a high annual fee for a premium rewards credit card, with a high points earning rate, if you won’t be spending enough each year to earn a quantity of points that can be redeemed for a value at least equal to the annual fee. Most card issuers have a range of rewards cards to suit a variety of income and spending levels. Low income earners are likely to find an entry-level rewards card the most cost-effective. Big spenders will find it worthwhile to pay for a card with a high points earning rate, because they should easily recover far more than the cost of the annual fee while potentially accessing complimentary benefits worth many thousands of dollars.

Compare complimentary benefits as well as points eaning rates

Rewards points and complimentary benefits often go hand-in-hand. So don’t be carried away by a high points earning rate and forget to compare the complimentary benefits on apparently similar cards. If you choose a card that suits your lifestyle (e.g. a card with free travel insurance and airport lounge access if you’re a regular traveller, or a card with extended warranty provisions and purchase protection insurance if you enjoy online retail therapy) you may reap even more rewards by using these benefits than you will earn in points.

Compare points redemption rates as well as points earning rates

No two rewards programs are identical in their redemption rates, charging varying amounts of points for the same merchandise, gift cards and movie tickets. So when you are deciding which rewards card is best for you, take a quick look at each program’s points redemption requirement for an option you are likely to choose, and work out which card will see you spending the lowest amount in order to earn it.

Here’s an example:

Rewards card A – points earning rate of 2.0 points per dollar, 10,000 points required for a $50 retail gift card. So you need to spend $5,000 to earn a $50 card.

Rewards card B – higher points earning rate of 2.5 points per dollar, but 15,000 points required for a $50 retail gift card. So you need to spend $6,000 to earn a $50 gift card.

Keep an eye on expiry dates

While your rewards points won’t expire if you’re regularly earning and redeeming them, don’t forget that points can expire. Make sure you’re aware of any time-related expiry conditions for your card’s rewards program, so that you don’t lose your hard-earned points. And if you’re planning to close your credit card account, it would be a good idea to spend the points first, or convert them into frequent flyer points.

Use your points wisely

Not all redemption options give you the same value for money – or in this case, per point.

If you think you’ll be travelling by air within USA at least once a year, or overseas once every couple of years, frequent flyer points (earned directly or by converting from other rewards points) will usually be your best value option.

The next best options are probably accommodation and holiday packages, if they’re available, followed by retail gift cards and movie tickets. You’re likely to get slightly less value per point for cashback to your credit card account, and the redemption option delivering by far the worst value is merchandise like kitchen appliances, technology and fashion items from the online catalog.

Am I eligible to get one?

To qualify, you’ll need to be over 18 and a US resident. If you have a poor credit rating, or your income is very low, you might have trouble getting approval for a new rewards credit card and the rejection could damage your credit rating, so be careful.

Do balance transfers and cash advances earn reward points?

They do not. And, in fact, a rewards credit card may have higher interest rates on these transactions than a regular card.

How can you tell a good rewards program from a bad one?

There are several factors to consider.

Points are not equal across programs: You usually earn 1 point per $1 spent, but sometimes this goes as high as 3 points. But a point with one program is not equivalent to a point with another program - it depends on what those points actually buy.

Points capping, points expiration:  Most programs limit the amount of points you can earn in, say, a year. For the big spender particularly, this can be limiting and frustrating. Secondly, some points expire. This is a frustration for the lower spender who might take a while to build up enough points to get anything of real value. Both capping and expiry information will be found in the small print of the program.

Annual fees and interest rates: You should see whether there are annual or start up fees involved in signing up for the reward program and for the credit card. In addition, rewards points credit cards often come with both higher fees and interest rates.

Flexibility: Some cards only allow points for flights on one airline; others allow users to exchange them for flights on several airlines, or redeem them for cash back, merchandise or gift certificates.

Ease of points redemption: Unfortunately, some companies make it quite difficult to redeem points in the hope that people won’t bother. You might have to squint through the depths of the fine print to find out how on earth to get something back for your points. Look for a rewards points program that makes redemption simple and straight forward. Some even offer automated redemption, where cash back goes straight into your account at the end of the month based on the points you’ve earned.

Bonus points: As an introductory offer, many reward credit cards will offer you the opportunity to earn bonus points. Sometimes to get them you have to spend a lot of money or shop in a particular store.

Is this the right card for me?

If you travel a lot, for business or pleasure, you’ll be spending enough on flights and hotels and other things to earn good points toward more flights and hotel stays. Keep in mind that not all reward points programs give you the option of redeeming points for travel, but most do. On the other hand, if you’re spending more than, say, $2,000 per month, you’ll be able to earn good points whether you travel or not. If you don't use a credit card often, you won’t be earning many points unless you’re happy to change your lifestyle and use your credit card for everything, making sure you pay back the balance on time each month of course.

What types of rewards are available?

There are a host of programs with which you can redeem your points for flights. Make sure you check whether they’re just redeemable with specific airlines, like Qantas or Virgin, or whether you can choose between a good selection of reputable airlines.

Other cards allow you to redeem points for things like hotel stays. Sometimes you have to book through certain partner travel agencies or with certain hotel brands, so check to see how much freedom you actually have. If you’re a traveler, you might also want to check if you get complimentary travel insurance included in the features of the card.

If travel isn’t your thing, you’ll be looking for other ways to redeem points. Many programs have online stores where you can purchase a range of products and merchandise - everything from watches, to technical gadgets, to cologne. Have a look at the store before you sign up and make sure they sell things you’d actually want or need and that items are a good deal.

Fourthly, you can redeem points for gift cards or cashback. Sometimes it is more efficient to do one rather than the other so you want to read the fine print.