Credit card rewards are a great way to earn something back when you use your credit card. Many Americans use rewards cards to get cash back at the end of the year, earn plane tickets, or save money on gas.
Of Americans with a credit card, 56% have a cash back card, and 49% have a rewards card. Let's take a closer look at some of the most popular rewards and why people like them.
1. Cash back
A recent survey by The Motley Fool Ascent found that cash back cards are the most popular type of credit card. Among every generation, more than 50% have a cash back card. These cards often top the list because they're versatile, including earning cash back when you use the card at a restaurant or when buying gas.
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Often, these cards don't charge you an annual fee to use them. For example, the Wells Fargo Active Cash® Card (see rates and fees) earns unlimited 2% cash rewards on purchases and has no annual fee. The card even has a welcome offer of $200 cash rewards when you spend $500 in the first three months.
On average, Americans spend $300 per month going out to eat. If you use this card for your restaurant purchases, you can earn $72 back annually on eating out. Not too bad, considering you'd likely be spending the money anyway.
2. Travel rewards
Many people use travel rewards cards to access airport lounges, get free checked bags on flights, and earn discounted airline tickets. For example, business class tickets can often cost thousands of dollars, but by using travel credit cards, many people earn enough rewards to cover the cost.
Travel rewards cards are also ideal if you like a specific hotel chain or airline. For example, the Delta SkyMiles® Gold American Express Card (see rates and fees) lets you earn up to 2X miles on Delta purchases. It also has a welcome offer of 40,000 Bonus Miles if you make $2,000 in purchases within the first 6 months. Terms apply.
One thing to remember is that many travel cards have an annual fee, which costs an average of $139. If you only fly once per year and use the card to get one free checked bag, it might not be worth it. But for frequent travelers, the annual fee is likely a small price considering the rewards.
If you do a lot of online shopping, using a credit card that specifically rewards you for the places you shop the most is a great idea. For example, my family often shops on Amazon and has a Prime membership, so we use a Prime Visa.
We earn 5% back on our Amazon purchases, 2% at gas stations and restaurants, and 1% on other eligible purchases. Sometimes, we use the rewards to pay down the balance on the card, and we've also let the rewards build up throughout the year to use them toward buying Christmas gifts.
4. Gas and groceries
If you have a large family or drive a lot, having a gas and groceries credit card might be handy. Some cards will give 2% to 3% in rewards in those spending categories, and few go as high as 6%.
For example, the Blue Cash Preferred® Card from American Express (see rates and fees) earns 6% cash back at U.S. supermarkets, up to $6,000 per year, and then 1% back after that limit is reached (terms apply). The average family of four spends $13,055 annually on food. If you used this card and earned 6% back on the first $6,000 and 1% on the following $7,055, you'd earn an estimated $430.55 for the entire year. That cash would go a long way toward one month's grocery bill.
The Blue Cash Preferred® Card from American Express also earns 3% cash back on U.S. gas purchases. So, if you drive a lot and spend $200 per month on gas, you could get an additional $72 in cash back at the end of the year.
5. Store rewards
Finally, if you're committed to shopping at a certain store, choosing a credit that earns rewards at that specific location (and its online store) can be a good option. My family shops at Costco about once per month, so having a store card doesn't make sense for us, but it could if we did most of our shopping there.
For example, the Costco Anywhere Visa® Card by Citi, an advertising partner with The Ascent, has 2% cash back on Costco and Costco.com purchases. If you're an Executive Costco member, you'll earn an additional 2% back on purchases, bumping up the total reward to 4% on Costco purchases.
A few tips for finding the right rewards cards
Not all rewards cards are created equal. Once you've narrowed down which type of rewards you're looking for, take a look at a few cards and compare them based on:
- Whether they have a limit to their cash back and rewards
- If the rewards expire
- If the card charges an annual fee or not
- What welcome bonuses they offer
- If the card has a 0% intro APR offer
Rewards cards can be an effective way to earn a little extra back for money you'd be spending anyway. Just remember that paying off your credit card balance monthly is the best way to take advantage of these cards without getting into credit card debt.
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