How to Compare Credit Card Reward Programs

Credit card reward programs come in all shapes and sizes, and when you’re choosing a new credit card, figuring out which one really benefits you the most can be a challenge.

First, let’s be clear that healthy credit card use is essential before getting a new rewards credit card. A good rewards program will never provide more value to you than the expense of carrying a balance on a credit card. If you’re not already usually paying off your statement balance in full each month, jumping to a new rewards card will continue to cost you money. Make this your habit before anything else.

If you want to find a good rewards card that supports your healthy credit card habits, here are eight strategies to consider when comparing the various offers out there.

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    How to compare credit card rewards programs

    Focus on cards with rewards in categories you already spend in

    This is the golden rule when it comes to credit card rewards programs. Your focus should be on finding a good rewards percentage for the spending you already do that provides rewards in a form you can actually use with the spending you already do. 

    Remember, credit card rewards should never entice you to spend more money in different ways than you’re used to. Rather, they should transparently support the ways you already spend with nice bonuses that also line up with how you already spend.

    Consider the Visa or MasterCard offered by the retailer you use the most

    One great place to start your search is with a Visa or MasterCard that’s offered by your primary retailer. For example, if you do most of your grocery and household shopping at Target, you should definitely include the Target RedCard in your comparisons. If you do most of your shopping at Amazon, you should strongly consider the Amazon Visa

    Again, you should not be altering your spending habits to get marginally better rewards on a credit card. Consider a store-linked card only if it’s a store you already use very frequently because the rewards for using the card at that retailer are usually excellent, both in terms of percentage and in terms of the usability of the reward.

    Remember that cash back is better than points or miles

    Cash in hand is always better than points and miles if everything else is equal. If you are comparing a card that gives you 2% cash back versus a card that gives you 2% of your purchases in points or miles, the cash back program is always better simply because cash is more flexible than points or miles.

    [ Read: Americans Are Putting Less Into Their Savings Because of COVID-19 ]

    Some people do use points or miles as a savings account of sorts, where they accumulate lots of points or miles to make a single expensive purchase down the line. While that can be a good idea, it does rely on you having a very specific plan that, if altered, may render those accumulated points and miles worthless or at least much less valuable. You’re better off having a savings plan of your own with a cash back card, even if it requires some willpower. Consider automating that savings instead, so that you automatically put aside a small amount of money each week for your big plans.

    Points and miles only matter if they’re immediately useful

    Points and miles often seem very tempting. You look at the points programs and the places you can spend those miles and you get visions of luxury travel in your head. The problem is that those points and miles are locked into programs that may never bear any fruit. 

    [ More: Are Your Miles and Points About to Expire? Here’s How to Keep Them ]

    Those programs might change before you ever have a chance to use the points or miles. The offers that enticed you might go away. The program itself might fold before you’ve accumulated enough to do anything. 

    In general, points and miles programs aren’t really worth it unless you have specific concrete plans in the relatively near future to use those points. Even then, there’s still a risk that those plans could fall through. Point programs usually do have a bit of flexibility in terms of finding other uses for the points if the program is winding down or your plans change, but it’s still far less flexible than cash.

    Don’t overvalue welcome bonuses

    Many credit card rewards programs offer some form of welcome bonus. If you spend a certain amount within a certain period after signing up, you get a big allotment of points or miles in their program, or even a cash back bonus. 

    [ Read more: How to Apply for a Credit Card ]

    That can seem great, but those cards tend to have mediocre ongoing rewards and are often paired with annual fees. To really get the value out of welcome bonuses, you need to get into a cycle of card hopping, in which you sign up for and cancel cards regularly, and that can have consequences for your credit if you’re not very on top of things. 

    If you simply want a card you can consistently use to generate useful rewards over a longer period of time without swapping cards frequently, don’t worry about the value of the welcome bonus and instead focus on the long-term rewards that the card gives you.

    A high rewards percentage doesn’t matter if you don’t spend in that category

    Many rewards cards offer a higher percentage for certain types of spending and a lower percentage for others. For example, the Capital One SavorOne Cash Rewards card offers 3% cash back on dining and entertainment purchases, 2% back at grocery stores and 1% back on all other purchases. That’s a good deal if you eat out a lot and do a lot of entertainment spending, but if you mostly use your card for gas and household supplies, there are better choices.

    [ More: We Answer Your 6 Important Questions About Credit Cards ]

    Look for cards that have a high percentage on the types of spending that you actually do. That way, you’ll naturally earn a good return without having to alter any of your spending habits.

    Cards with annual fees are generally not worth it

    Some rewards cards charge an annual fee for using the card. These cards typically have very nice rewards programs, but the annual fee ends up eating a lot of the benefit of that program.

    For example, if you have a card that gives you 3% cash back and charges a $100 annual fee, and there’s another card that gives you 2% cash back without an annual fee, you have to put $10,000 on that 3% credit card over the course of a year to make up for that annual fee.

    Without diving too deep into the math, if you’re not regularly putting thousands of dollars in purchases on your credit card each month — meaning that you’re running most of your regular expenses through it — a credit card with an annual fee probably isn’t worth it compared to the cards available without an annual fee. However, if you put most of your expenses each month on your credit card and pay it off in full at the end of the month, a reward program that generates an extra percentage point in rewards will pay off for you eventually.

    Additional perks are rarely worth it 

    Some rewards cards offer additional perks beyond the rewards program and beyond basic credit card features like purchase protection. For example, the Chase Sapphire Reserve card gives you a free year of Lyft Pink membership as an additional perk, which offers small savings to each Lyft ride you take.

    Those types of extra rewards are really only worth considering if they stack with things you already do. For someone that uses Lyft very frequently, this is a perk worth noting because it will save you quite a lot of money if you use Lyft, say, weekly. If you rarely use it, however, this perk isn’t worth much at all and will be trumped by other benefits.

    Unless a perk lines up with what you already do, don’t give it much thought.

    We welcome your feedback on this article. Contact us at inquiries@thesimpledollar.com with comments or questions.

    Trent Hamm

    Founder of The Simple Dollar

    Trent Hamm founded The Simple Dollar in 2006 after developing innovative financial strategies to get out of debt. Since then, he’s written three books (published by Simon & Schuster and Financial Times Press), contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.

    Reviewed by

    • Courtney Mihocik
      Courtney Mihocik
      Editor

      Courtney Mihocik is an editor at The Simple Dollar who specializes in insurance, personal finance, and loans. Previously, she wrote and edited for Interest.com, PersonalLoans.org, Ballantyne Magazine, Thread Magazine, The Post, ACRN, The New Political, Columbus Alive and the Institute for International Journalism.