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Credit card rewards typically come in one of three forms: cash back, points or miles. But while each type of rewards currency has some hallmark features, what you can do with your rewards ultimately depends on the card.
Here's what you should know about how cash back, points and miles differ and how you can maximize the value you get from them.
How Cash Back Works
Cash back is generally the simplest way to earn and redeem credit card rewards. That said, some cash back credit cards technically offer points that may provide more flexibility than traditional cash back options. Here are some of the main features:
- Annual fees: Most cash back credit cards don't charge an annual fee, and those that do typically charge less than $100.
- Welcome bonuses: Bonus offers will depend on which card you choose, and some don't offer a bonus at all. Among top cash back credit cards, bonuses range from $100 to $300.
- Rewards rates: Cash back credit cards may offer a flat rewards rate on all purchases, tiered rewards with certain categories earning higher rates or rotating rewards categories that change throughout the year.
- Redemption options: Most cash back cards allow you to redeem your rewards as a direct deposit or statement credit, but some may also let you buy gift cards, book travel, shop online and more. Some cards only allow statement credits, which helps you pay down your credit card balance, but it limits your flexibility.
- Redemption value: In most cases, what you see is what you get: $100 in cash back rewards is worth $100. But with some cards, you may get more or less value, depending on how you use your rewards.
- Other notable benefits: Many cash back credit cards offer introductory 0% APR promotions on purchases, balance transfers or both. Others may offer statement credits on certain purchases, travel and purchase protections, and discounts with certain merchants.
- Credit requirements: Cash back credit cards are available to borrowers across the credit spectrum, though the best ones are typically reserved for people with good or excellent credit.
How Points Work
Credit card points are a broad category that includes a range of credit card programs. For example, most general travel credit cards and hotel credit cards offer points, but even some frequent-flier programs use the term "points" instead of "miles."
Here are some features of points credit cards:
- Annual fees: Some points credit cards don't charge an annual fee, but high-end options can charge up to $695 each year. More commonly, you can expect an annual fee of around $100.
- Welcome bonuses: Bonus offers will depend on which card you choose, but many are worth $500 or more, and, in some cases, they can exceed $1,000.
- Rewards rates: Points credit cards may offer a flat rewards rate on all of your purchases or tiered rewards with certain categories earning higher rates.
- Redemption options: Your card will determine your redemption options. With general points credit cards, for instance, you may be able to get cash back, buy gift cards, book travel, shop online and more. But with hotel and airline cards, you may be mostly limited to free hotel stays and award flights—typically with the hotel chain or airline the card is through.
- Redemption value: Most points credit cards offer fixed redemption values based on how you use your rewards—for instance, travel may get you 1 cent per point, while shopping online offers just 0.8 cents per point. With hotel and airline rewards programs, however, redemption values may be dynamic and based on several variables.
- Other notable benefits: Depending on which card you choose, you may benefit from several extra features, including 0% intro APR promotions, hotel-specific benefits, other travel perks, discounts with certain merchants and more.
- Credit requirements: Most points credit cards require good or excellent credit.
How Miles Work
In the past, the term "miles" only referred to rewards you could earn with frequent-flier programs. But now, some airlines use the term "points" instead, while some general travel rewards programs use "miles." It can get confusing, but here are the main features:
- Annual fees: A few miles credit cards don't charge an annual fee, but most charge around $100 or more. In some cases, they can go as high as $550.
- Welcome bonuses: Bonus offers will depend on which card you choose, but many are worth $500 or more, and, in some cases, they can exceed $1,000.
- Rewards rates: Miles credit cards may offer a flat rewards rate on all of your purchases or tiered rewards with certain categories earning higher rates.
- Redemption options: Because most miles credit cards are airline cards, your best option is typically award flights. But with general travel cards, you may have more flexibility with other types of travel redemptions.
- Redemption value: General travel cards may offer a flat 1 cent per mile, but with airline programs, redemption values are often dynamic and based on several variables.
- Other notable benefits: Miles credit cards may offer airline-specific perks or general travel benefits.
- Credit requirements: Miles credit cards typically require good or excellent credit.
Frequently Asked Questions
Depending on which card you have and how its rewards program works, there may be certain rules you have to follow to use your cash back, points or miles. Here are some rules you may come across:
- Redemption minimums: Some card issuers require you to have a minimum balance—such as $25 or 2,500 points or miles—in your rewards account before you redeem.
- Account status: You may not be able to redeem your rewards unless your account is in good standing, meaning you're not behind on payments.
- Direct deposit: Some cash back credit cards may require you to have an account with the issuing bank in order to request a direct deposit redemption.
Before you apply for a credit card, be sure to read the fine print to determine which rules apply and whether they fit with your goals.
Ultimately, the best way to redeem your credit card rewards depends on the card you have, your financial situation and your goals:
- Cash back: For ultimate flexibility, redeem your rewards as a direct deposit. But depending on your card, other options may be more appealing.
- Points: With general points programs, focus on redemptions that offer 1 cent per point or more. With hotel and airline programs, consider looking at a variety of travel dates and destinations to determine which redemption will give you the most value.
- Miles: As with points credit cards, try to avoid general miles redemptions that offer less than 1 cent per point in value. With airline programs, compare different itineraries to determine which one offers the most value.
Keep in mind, however, that there may be times when it's better to pick a lower-value redemption option if it meets your current needs or goals, such as cash back if you're short on funds.
With cash back credit cards and general points and miles programs, your rewards typically don't expire as long as your account is open and in good standing.
With airline and hotel rewards programs, however, your points may expire if you cancel the account or don't maintain activity in your account for a certain period. In some cases, rewards expire after a certain time, regardless of your activity.
As you research and compare your options, here are some factors to consider:
- Annual fees: In addition to affordability, consider whether you can get enough value from the card each year to offset the yearly charge.
- Rewards: Look at both the value and minimum spending requirement for each card's welcome bonus, and also determine whether the rewards rates align well with your spending habits.
- Benefits: Consider your situation to determine which features you want in a credit card, then focus on options that align with your needs and preferences.
Check Your Credit Before Applying for a Rewards Card
Most of the top cash back, points and miles credit cards are targeted to people who have good or excellent credit. That generally means having a credit score in the upper 600s or higher.
Before you apply for a new credit card—or any type of credit for that matter—check your credit score to get an idea of where you stand. If it needs some work, take time to improve your credit before you submit an application. Then, Experian can help you find rewards credit cards matched to your credit profile.