Most of us have at least one credit card, but navigating rewards programs can get complicated - fast. Read on to find out how to get the most out of your credit card rewards in 2021.
Rewards credit cards are more popular than ever – according to a report from the Consumer Financial Protection Bureau, over 60% of all new credit card accounts opened in 2019 were with a rewards card. And it’s not hard to see why: rewards can be a great way to make your money work harder for you, help you earn miles for travel or even just enjoy one of the dozens of other perks credit card companies are offering this year.
But not all credit cards are created equal, and your unique financial situation might make finding the perfect card seem like an impossible task. But don’t worry – read on to learn what to look out for when it comes to a rewards program and why it can be a powerful tool for your finances and beyond.
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Flat Rate vs. Rotating Categories
Most rewards credit cards usually work by giving some amount of cash back or points when you make purchases on the card. Straightforward, right? Well, it’s not always that simple. Most rewards programs are structured in one of three ways:
1. Flat Rate – These are the simplest credit cards rewards programs, offering a flat percentage of points or cash back on every purchase, regardless of what you’re buying or where you’re buying it. These cards are easy to use and more consistent but may have smaller earning potential than cards with more robust offerings.
2. Rotating Categories – Instead of having a fixed rewards rate, some cards offer high rates of cash back (as much as 5-10%) on specific categories that rotate, usually monthly. Generally, the upcoming categories are available ahead of time so you can plan your shopping to maximize your rewards, though this is a much more feast-or-famine approach than with a flat rate card.
3. Category Specific – Other cards may also have strong rewards programs but lock them into specific categories rather than applying them to all purchases. This is common with some travel cards that might generously reward purchases on travel but ignore other categories.
Which of these categories is right for you really comes down to how you use your credit card. If you spread your shopping around, a broad flat-rate program might be perfect for you. If you’re instead looking for a card that really rewards a lot of activity in just one category, think about a rotating category or more precisely targeted card.
It’s also important to note that these card types are not all mutually exclusive – many cards may have stronger rewards programs in one particular category, but also have a smaller rewards rate for other categories. Do your research on the best cards on the market right now to discover which rewards program fits your spending habits and savings goals.
To Fee or Not To Fee
Rewards credit cards can be a great way to get cash back on your everyday purchases, but they’re also sometimes notorious for having high annual fees. Having to pay just to use a card can be a deal-breaker for some, but as with all things credit card, it’s not always as simple as it seems at first glance.
A general rule of thumb is that the better the rewards program, the higher annual fee. While there are many cards with no annual fee in your first year (or ever), some cards have fees as high as $500 or more. But credit card companies do a pretty good job of making sure their users get what they pay for, offering top-shelf rewards rates, extra perks and other benefits to go along with those fees.
Another thing to keep in mind is the welcome offer of any card you’re considering. A card may have a $95 annual fee but offer $200 cash back if you spend over a certain threshold within the first few months of your account being open. In that example, your welcome bonus could cover 2+ years of card ownership before even considering the card’s ongoing rewards program.
That isn’t to say there’s anything wrong with a no annual fee card – not having to pay to own a credit card is a great perk, and there are some no annual fee cards that are competitive with the high-fee heavy hitters in the category. As ever, do your research to see if an annual fee works with your budget.
Bottom Line
Rewards cards are popular for a reason – they can be incredibly powerful tools to ensure that whenever you use your card, you get something in return. From heaps of miles to cash going right back in your pocket, rewards credit cards can be one of the main reasons to think about choosing a credit card over a debit card or cash when you have to open up your purse or wallet.
Credit card offers are always changing (especially in the rewards space!), so if you’re on the hunt for a new card be sure to stay up-to-date with the latest offers. The right card for you is out there – all you have to do is compare and find it.
This content was provided by CompareCards. Kiplinger is not affiliated with and does not endorse the company or products mentioned above.