Choosing the right rewards card
Rewards cards aren’t one-size-fits-all. With the proper consideration, you can score a card that will help you achieve your financial goals and earn some cool rewards in the process.
Step 1: Analyze your spending.
Since rewards cards work based upon where and how you spend your money, the first thing that you should do is review your spending habits. Travel, dining, and gas are three super common rewards categories, so focus on those first. Ask yourself questions like: Do I frequently spend money on hotels or airfare? Do I eat out often, or do I prefer to stock up on groceries and cook at home instead? Am I am member of a travel loyalty program like Delta Skymiles or SPG®?
Great budgets make this part really easy. If you use personal finance tracking software, your spending history will be a great jumping off point. If you don’t, you needn’t worry — this doesn’t have to be an exact science. Napkin calculations are just fine. Just remember that it’s important to get a roundabout average of your monthly expenses in common categories so you can evaluate which card has the rewards that will benefit you the most.Further reading: Our list of the best personal finance software.
If your spending doesn’t really align with any category, there’s still an option for you: flat-rate rewards cards. These cards earn rewards at a set percentage that never changes, no matter what you purchase.
Note: Travel is a huge earner for many rewards cards, but it isn’t just limited to airfare and hotels. Commuters should pay extra attention to this category too, because some cards earn rewards on alternative forms of travel, like buses, parking garages, and Uber fares.
In sum, each card has its own unique categories that earn rewards, but they generally fall into one of four common buckets:
- Travel (general travel, loyalty programs, airline cards, hotel cards, etc)
- Groceries (supermarkets)
- Retail (online and brick and mortar)
Step 2: Choose your rewards type.
Once you have a good idea how you’re going to earn rewards, it’s time to consider how you want to spend them.
Rewards generally come in two main flavors: travel and cash back. With travel, we’re talking about anything from points that can be redeemed for a wide range of options around the world to miles that can only be redeemed for airfare at a handful of airlines.
Cash back options are also pretty varied. Some cards, like the Discover it® Cashback Match™, earn cash back and gift cards that you can spend at certain online retailers. Others earn statement credits that can be applied toward anything you purchase.
There are even cards for those who want the best of both worlds. The Chase Sapphire Preferred® Card is the frontrunner in the flexible redemption options camp because cardholders can redeem points for cash back or travel, or transfer them to one of several travel partners.
When you’ve decided what type of rewards you prefer, work backwards and focus your research on cards that offer your favorite rewards and align with your spending habits. Then all that’s left is to start earning rewards!
The truth about rewards credit cards
As you read through lines and lines of rewards card information, you’re going to be bombarded with a bunch of features — and that can make choosing one particularly difficult. Here are the six features that you’ll probably run into the most:
- Introductory APR
- Standard APR
- Sign-up bonus
- Rewards rate
- Additional bonus rewards
- Introductory balance transfer rate
- Standard balance transfer rate
Here’s the kicker: If you use your credit card correctly (paying it off in full every month), many of those features will carry less weight, which makes your choice much simpler.
The golden rule: Don’t carry a monthly balance on your credit card.
If you can commit to paying your balance off in full every month, the only two things you have to worry about are the signup bonus and redemption options. Take standard APR, for example. If you don’t carry a monthly balance on your card, what does it matter that your APR is 18%? The introductory balance transfer rate is also less important if you don’t plan on transferring an existing balance from a high-APR card.
If you think you might wind up carrying a monthly balance, a rewards card may not be the best fit. Your interest payments could cancel out your point accumulation and cost you too much money, time, and headaches. If you already have a balance on a card, and you’re paying interest, consider a balance transfer card to get you back on track. These specialized cards offer extra-long 0% intro APR, so you can spread out your payments, interest-free. Check out our shortlist of the best balance transfer cards for 2017.
Annual fees are an investment to earn more rewards
Most people cringe at the thought of paying for the privilege of using a rewards card, but when the card is used correctly, it’s almost always worth it. Even if you don’t earn as many rewards as you could, most of the best rewards cards waive the fee for the first year anyway — not to mention they usually come with massive signup bonuses.
Like most everything in life, you get out what you put in. If you spend $20,000 per year and get 1X points per dollar spent with a no annual fee card, you’ll receive $200 worth of points. If you spend the same amount with a rewards card that earns 2x per dollar but has a $95 annual fee, you’ll get $305 worth of points ($400 minus $95). That’s a 52.5% increase! Your annual fee investment is $95, and your increase is $105. This amounts to a “return on investment” (ROI) of $105/$95, or 110.5%. No investor on Wall Street can match that return year in and year out.
Redeeming points is just as important as earning them.
One of the key benefits of a great rewards card is being able to redeem points the way you want to. Your points don’t do you any good if you can’t use them. This applies across the board for different types of rewards cards. We talk a lot about general rewards, but some of the airline cards and hotel credit cards are able to offer you a higher rewards earning potential for purchases with their brand.
The two premier rewards platforms that give you the most flexibility when redeeming points are Chase Ultimate Rewards® and American Express Membership Points. You can’t go wrong with either of these platforms when redeeming points for travel, entertainment, gift cards, or cash back.
If you carry more than one rewards credit card like I do, it can really pay off to have them on the same rewards platform. That way, you can combine points and take advantage of special point dividends, bonuses, or deals. Always think about how you’ll redeem points before signing up for a rewards card.
How to save more money by maximizing rewards
I’ve talked at length about the benefits of using a rewards credit card. There isn’t a one-size-fits-all card that delivers superior rewards on every conceivable spending category AND has the most flexible point redemption options.
Given the limitations, many people will want to employ some strategies to get the most out of their rewards. My recommendation is to use at least two rewards credit cards. Using more can help, but the added annual fees may eat away at the benefits of carrying an additional card if you don’t spend enough.
Experts recommend that you should keep your credit utilization ratio under 30%. Otherwise, it’s difficult to maintain an above-average credit score. The best way to keep your credit utilization low is to pay your balance in full each month — and save up before making big-ticket purchases.
Let’s assume you want to completely max out your rewards earning potential without owning an excessive amount of cards. Owning two or three cards is the right number to get the most rewards and still keep the cards active (assuming you’re paying off the balances). You’ll be able to take advantage of the bonuses and ongoing rewards without major limitations. There are many strategies to maximizing your rewards cards while keeping the number of credit cards you own down to a minimum. Here are a few examples:
- Overlap categories on the same rewards platform (like Chase Ultimate Rewards®).
- Combine business and personal rewards credit cards.
- Use a consistent rewards card and a cash back card.
- Overlap two types of travel rewards cards
Case study #1: Overlap categories on the same rewards platform
The goal of this strategy is to take two or more rewards cards that earn bonus points in different categories and combine them to earn more than you would by just earning 1% on all other purchases. The ideal situation is to keep both cards on the same rewards platform so you can easily combine the points from each card when you want to redeem them.
My favorite way to do this right now is to use the Chase Ultimate Rewards® platform. If you used the Chase Sapphire Preferred® Card to earn 2x points on travel and dining, you could add the Chase Freedom® to take care of rotating bonus categories like groceries, gas, and department stores.
There are a couple added benefits to using these two cards. First, the Chase Freedom® card does not have an annual fee, so you can employ this strategy for just $95 per year (the annual fee on Chase Sapphire Preferred® Card). Second, the Chase Sapphire Preferred® Card points are worth 20% more when redeemed for travel on the Ultimate Rewards platform. The Chase Freedom® points are not eligible for this benefit as a standalone card.
Here’s the good news: Chase Ultimate Rewards® lets you combine card points, so you can transfer your Chase Freedom® points to your Chase Sapphire Preferred® Card, and those additional points will be worth 20% more when redeemed for travel!
The power of the platform
Let’s say you accumulate 50,000 points on your Chase Sapphire Preferred® Card and 20,000 points on a second card on a different rewards platform. You then decide to take that Caribbean vacation you’ve always wanted and use Chase Ultimate Rewards® to book your trip. You see that two flights cost a combined $750. Your Chase Sapphire Preferred® Card points when redeemed for travel will cover $625 of the cost, but you have to pay out of pocket for the remaining $125 because you can’t combine your points.
Now, let’s say you’re in the same scenario except your “other card” is the Chase Freedom®. You decide to combine your points with your Chase Sapphire Preferred® Card points, so you now have 70,000 points to use. On most other rewards platforms, 70,000 points equal $700. However, with the 20% bump you get with Chase Sapphire Preferred® Card, your combined 70,000 points now are worth $875 — enough to cover your airfare for your vacation!
Case study #2: Combine business and personal rewards cards
If you run a small business or are self-employed in some way, you can use one of the best business credit cards as your secondary card. Business cards often have better rewards in different categories that can be overlapped. My colleague uses the Chase Ink® business cards for his business and combines points with his personal credit cards on the Chase Ultimate Rewards® platform to get maximum value.
For example, he puts all of his gas and hotel stays on his Chase Ink Bold® for 2x points. He also charges his cell phone bill, Internet service, and landline to that card to earn 5x points. Then, he books any travel or dining on his Chase Sapphire Preferred® Card to earn 2x points.
Redeeming is easy because both cards will get you 20% more when redeemed for travel through Chase. All he has to do is combine the points and book his tickets.
Case study #3: Consistent rewards + cash back
When you want a simple strategy for rewards and you’re not as concerned with your cards being on the same platform, you can split up your cards. Your goal here is to earn a straight 2% back on all purchases while giving yourself a boost of 2% in certain spending categories.
One way to do this is to sign up for the Barclaycard Arrival Plus™ World Elite MasterCard® to earn 2x miles on all purchases. From here, you have several options to add a cash back card that earns high rewards in rotating categories.
This selection will largely be situational depending on what you spend your money on. My favorite cash back card is the Chase Freedom®, just for the variety alone. You have more choices here because you can open your options to cards on different rewards platforms.
You most likely will not use your cash back card as much as your Barclaycard, so I would use those cash back points either as statement credits, spending money, or to redeem for gift cards. Then, use all of your Barclaycard points for travel-related or larger purchases. You can’t maximize your rewards by only owning a cash back card. Even the best cash back card must be used in combination with another rewards credit card to ensure you earn greater than 1% back on every purchase you make.
Remember, you won’t be able to combine points in this scenario, so make sure you have options for redeeming each set of points. Since you’ll be using your cash back card in limited situations, it might not make sense to pay an additional annual fee, which is why I recommend the Chase Freedom®.
Case study #4: Overlap two travel rewards cards
If you travel often, you may want a little extra juice in your rewards program. Here, you need to take into consideration frequent flyer programs, preferred airlines or hotels, and point transfer partners so you can use your points in the most efficient way possible.
What I recommend is pairing a solid, general rewards card with an airline or hotel card.
What’s important to remember:
- Most airline and hotel cards don’t earn higher than 1x points away from their own brands.
- The best general rewards cards have frequent flyer transfer partners.
- Your rewards are attached to the airline or hotel rewards program and changes do happen.
- Most rewards cards and airline cards carry annual fees, so don’t sign up for all of them!
Keeping those points in mind, there are many ways to execute this strategy. Below is an example to illustrate how you could maximize your rewards points.
Travel card + airline or hotel card = max travel rewards
Sign up for the Chase Sapphire Preferred® Card to get a great sign-up bonus and solid rewards on travel and dining, plus capitalize on the 20% bonus point redemption. This is your starting point for earning travel rewards.
Next, choose your preferred airline or hotel. This is much more difficult since it depends on your preferences and geography. One way to choose is to look at your Chase Sapphire Preferred® Card point transfer partners. With this program, you can transfer your points to partners such as United, British Airways, Southwest, Hyatt, and Marriott. Points transfer on a 1:1 basis, so you should first consider any of these specialty cards.
If you fly one airline a lot you can double dip on points and miles, then transfer credit card points to airline miles. Adding the United MileagePlus® Explorer card won’t net you any immediate points difference since both cards earn 2x on United purchases. However, you might travel United enough to take advantage of mileage deals by transferring Ultimate Rewards points from your Chase Sapphire Preferred® Card.
Finally, with these two cards, you’ll be paying two annual fees. Consider adding a no annual fee cash back card to boost your points on rotating categories that aren’t covered by Chase Sapphire Preferred® Card. You might need gas or groceries while traveling, and cash back cards can cover you in these categories.
Research the 92 best rewards credit cards for 2017
The rewards credit cards directory shown below is a comprehensive listing of every rewards credit card worth considering. It started as a list of nearly 1,630 cards. I created this directory and used it as a starting point for all of my research so that I could review all cards on the same criteria and reduce the list to a more manageable number. It’s updated weekly and reflects any new changes to the credit cards as well as new card additions and removals.
Using both the information shown in the directory and other features, I took a data-driven approach to select the top rewards credit cards. Multiple factors were taken into account, as I wasn’t looking for just the highest rewards alone. I wanted to find the card that has the best combination of the elements that are most important to the majority of people seeking a rewards card.
Rewards credit cards directory
The directory also includes all the various types of rewards credit cards. You can use the rewards credit card directory to sort and filter by the components that are most important to you. To rank the cards, I rated each rewards credit card feature in order of importance based on my research.
When evaluating rewards credit cards in general, you’ll see that so many categories have an impact on rating each card. I took nearly 14 different components into account. Based on all of the features and data collected, I developed a Rewards Credit Card Rating, which is essentially a summary of how a card performs as a rewards card. The Overall Rating is a measure of the card compared to every single type of card.
Sort, filter, or search for what matters most to find the best rewards credit card for you.
Sign up Bonus Tier Level
Great Signup Bonus
No Annual Fee
No APR for 12+ Months
To better describe the data and overall rating, I’ll explain each valuable component below. These aren’t the only factors that went into rating each card, but these are some of the most valuable and the features that you’ll want to understand before getting any rewards card.
Rewards Rate refers to the actual rate at which you can earn rewards using the rewards credit card. Most of the consistent rewards credit cards will offer 2x points, miles, or cash back on common purchases without any limits. These cards are very versatile and are the best credit cards to own as your primary card.
Cash back credit cards offer higher rewards rates in specific categories, but have limits on the amount you can earn. The rotating category cash back credit cards enable you to earn 5% cash back every quarter on something different, but once you hit the $1,500 limit each quarter your rewards rate drops down to 1%. This is why owning a consistent 2x rewards card is important — to pick up the slack and continue earning double the points.
Then, there are rewards credit cards that are tied to one brand. Again, Rewards Rate as a whole measures the rewards you can earn, plus the places where you can earn those extra rewards. An airline credit card, hotel credit card, or brand loyalty (affinity) credit card will enable you to earn high rewards with that specific brand.
However, if you make purchases away from the brand, it’s likely that you’ll only earn at a 1% or 1x points rate, which means you’re missing out. This is generally why I only recommend these cards in special circumstances or if you’re looking to add a third, fourth, or fifth credit card and you spend a lot of money.
There are many benefits to owning a rewards card beyond what’s advertised. First off, many of the top cards have travel insurance benefits, car rental insurance, and purchase protection insurance. Beyond that, premium cards offer you special VIP services, access to exclusive events, and use of airport lounges.
Airline credit cards are probably near the top when it comes perks for a rewards credit card. Since the cards only offer rewards for purchases made on the airline (in most cases), they compensate by offering priority boarding, free checked bags, companion fares, and other travel benefits on the airline. These can be great perks for people that travel often, especially the companion fare.
The consistent all-around rewards credit cards tend to offer some of the largest sign-up bonuses in the industry. Often, you’ll have to spend a certain amount of money to get these bonuses dropped into your account. Usually, it’s anywhere between $1,000 and $3,000 spent in the 90 days. The top cards offer sign-up bonuses of up to $400, while others go up to $200. The key here is to make sure you capitalize on your sign-up bonus!
Airline credit cards also have large bonuses in the form of air miles. Essentially, it’s the same monetary value as, say, a $400 statement credit bonus. However, in my experience, it’s much less straightforward booking a flight with air miles than it is to get $400 to show up on your statement as a credit.
Cash back credit cards have some of the smallest bonuses in the industry, likely because the rewards rate on purchases is so high (even though there’s a limit to the amount you can earn). Still, the bonuses on these cards are nice and tend to be around $50 to $100, although I’ve seen special offers as high as $200.
Introductory APR isn’t too important as it relates to earning rewards, but it gives you the flexibility and freedom to make purchases without having to worry about carrying a balance as a new cardholder. For example, some of the best introductory offers in the industry can go as high as 0% APR for 18 months. That means you don’t have to make a payment for 18 months. Of course, you still need to pay attention and keep up with your payments so you aren’t left with a massive balance a year and a half after signing up for the card!
An Intro APR can be a dangerous tool or a wise tool depending on how you look at it. If you know you need to make a major purchase in the next few months and you can pay it off without hesitation in the next year, it’s fine to take advantage of these offers. However, if you’re signing up for a card and spending way more than you should because you don’t have to pay interest, you might get into trouble.
I advise you to tread cautiously and carry the least amount of balance possible if you plan on taking advantage of a 0% intro APR deal.
I included ongoing APR because it’s important to think about. You shouldn’t sign up for a rewards credit card if you plan on carrying a balance. Any way you look at it, the amount you’ll earn in rewards won’t be able to offset the high costs of paying off a balance that’s accumulating interest each month.
Sometimes, things happen and you might get into a situation where you have to carry a balance. In that case, cash back cards generally have the lowest ongoing APRs. Again, you really want to avoid this at all costs. A credit card is a great financial tool if used the right way. You can be paid back for making purchases in the form of rewards and build your credit.
If used the wrong way, your credit can be destroyed. You’ll be stuck making high interest payments and you’ll trigger a financial downward spiral. Make sure you pay off your balance each month or cut back on your spending. (Side note: I’ll probably hammer this point home at least one more time as you continue reading.)