How to Choose Between Three Types of Bonus Credit Cards
Before deciding on credit card rewards, you must decide what type of reward cards to receive, as there are three main categories to choose from: cash back, points or miles. To help you make your choice, we’ll cover each category so you can choose the best option based on your spending habits.
How reward cards work
We’re at a point where almost all credit cards offer some kind of incentive or reward for use, usually in the form of cash back, travel miles, or points that can be redeemed on an online shopping portal operated by the credit card company.
Many cards also offer introductory bonus rewards, which, at least recently, can go up to a redemption amount of up to $ 1,500 – provided you spend a certain amount using the card, usually within the first few months after opening an account. These welcome bonuses are the basis for many of the “reward chases” you see in credit card fans. Some cards may also offer 0% per annum in the first year of the card as a decoy.
Cashback rewards
Refund credit cards will give you a percentage of your purchases back, either in the form of a statement, check or bank deposit. There are two types of refund cards: fixed and tiered. Fixed rate cards usually return 1-2% of all purchases made with the card. On the other hand, tiered cash back cards limit their juiciest rewards to spending across multiple categories, from online shopping to travel and dining, with different interest rates for each, usually in the 2-3% range, with at least one category approaching cashback. 5%.
If you’re a set-and-forget type who doesn’t travel a lot or eat out, then a flat rate is probably your best bet. The only problem with tiered rewards is that you need to actively manage your spending if you want to maximize your rewards, which is why people often have special cards for traveling or shopping online. Personally, I forgot to update the old card’s bonus category and missed out on the easy rewards simply because I wasn’t paying attention. But if you’re committed, you can squeeze more value out of a tiered card as cash back rates tend to be higher.
Air miles
There are two main types of cards that offer mileage rewards: airline co-op cards and, less commonly, non-airline-specific shared cards. When you use these cards to spend on certain categories, such as travel, you earn air miles (the average air mile is 1.3 cents, according to the Value Penguin ), not points or a refund percentage. These miles can then be redeemed for a plane ticket, although many cards also allow miles to be redeemed for cashback or other goods.
Airline-specific cards have more limited options than regular passes in terms of how you can earn and redeem points, but they are less likely to have annual fees, some of which are closer to $ 500 on premium passes (which are also offer other perks (such as free checked baggage, upgrades, priority boarding, or lounge access).
To make the obvious, these cards are perfect for heavy travelers, especially if you’ve been flying a lot for work. If you are not going to travel often, you may want to use points or cashback.
Points
Points-based cards are the bridge between the money-back model and regular travel cards, and they can offer maximum flexibility for redemption, whether it’s travel tickets, cash loans, gift cards, or items purchased through an online shopping portal. Like tiered money back cards, point-based cards often offer bonus points based on different categories of purchases such as gasoline or travel.
It is generally recommended to aim for a 1: 1 ratio, which means that one point is worth a dime. Since many trading partners may offer big discounts on some of their products, you will love this type of card if you enjoy finding a great deal online. Otherwise, if you don’t need the hassle of managing your points, a money back card might be your best bet.