At Experian, one of our priorities is consumer credit and finance education. This post may contain links and references to one or more of our partners, but we provide an objective view to help you make the best decisions. For more information, see our Editorial Policy.
In this article:
The COVID-19 pandemic has changed the way people spend money and use their credit cards. Many folks are spending less on things like travel and dining out, and focusing more on groceries and home improvement purchases. Others may have used credit cards to pay for recent holiday purchases, or are using them to cover day-to-day costs they might not be able to pay for right away.
Depending on your financial outlook, now might be the ideal time to use your credit card rewards for cash back to help offset expenses. Some banks are even letting cardholders use their rewards points in new ways to meet various needs. If you have a credit card that earns cash back or other rewards, now may be the best time to use them. Here's how redeeming cash back works, and how to make sure you're maximizing your rewards.
Best Ways to Redeem Cash Back
Part of what makes cash back so useful is that you can redeem it in a number of ways. Thanks to this versatility, cash back credit cards and rewards might be especially helpful at the moment if you want to save money on your expenses or simply pay off some holiday purchases. Here are some of the best (and easiest) ways to redeem your cash back, and why you might want to.
- Statement credits: When you redeem your cash back directly toward purchases on your monthly statement, that's called a statement credit. This is usually the simplest way to redeem cash back rewards since you just have to log in to your account and select the amount you'd like to apply toward your bill. Instead of the money being distributed in cash, it's simply subtracted from the debt you owe.
- Transfer to a bank account: Some credit card issuers allow you to link your card to a bank account and transfer your cash back rewards to it electronically to use as you like.
- Check: Of course, you might just prefer getting a good, old-fashioned check in the mail, which some cash back rewards cards also make available.
- Direct checkout: It's become more popular lately for credit card issuers to allow their members to redeem cash back and rewards points directly at the time of purchase through vendors like PayPal and Amazon, rather than simply paying for the purchase and redeeming cash back later. Just beware that using your rewards this way may give you less value for them that they would otherwise.
- Gift cards: Finally, you might be able to redeem your cash back rewards for gift cards with various retailers that your issuer partners with, though this might not be the best idea, either, as we'll discuss below.
Keep in mind that you might have to redeem a minimum number of points or cash back at a time, depending on which method you choose and which specific cards you have.
Maximizing Cash Back Rewards
Redeeming cash back can be an excellent way to save money at the end of every month by shaving a few dollars (or more) off your credit card statement. You can also save your rewards up over time to help defray a larger purchase at a time of your choosing. Before you burn through your rewards, though, keep a few important things in mind.
Cash Back Cards Are Key
Focus your strategy on cash back credit cards since they tend to be the easiest to optimize for savings. Most cash back cards earn a set rate of return on spending and make it simple to cash in on your rewards. For example, the Citi® Double Cash Card - 18 month BT offer from our partner earns 1% cash back when you make a purchase and an additional 1% when you pay for your purchases. It doesn't get much easier than that.
Look for Limited-Time Offers
Given the extraordinary circumstances of the moment, some credit card issuers are letting their cardholders redeem points in new and interesting ways and at better rates than normal. Here are two great examples.
- Capital One: Now through April 30, 2021, folks with the Capital One Venture Rewards Credit Card and the Capital One VentureOne Rewards Credit Card can redeem the miles they earn for 1 cent apiece toward eligible takeout and food delivery services as well as qualifying streaming subscriptions and wireless telephone services. Normally, only travel purchases would qualify for that rate, while miles used for other expenses would only get a half cent in value.
- Chase: Likewise, Chase recently introduced a "Pay Yourself Back" feature available with several of its cards.
Typically, points earned with the Chase Sapphire Preferred® Card are worth 1.25 cents in value when you redeem them for travel purchases, and less for other cash back redemptions. Points earned with the Chase Sapphire Reserve® get a slightly better 1.5 cents apiece in value for travel.
Now through April 30, 2021, however, cardholders with either product can redeem their points at the higher rates usually reserved for travel for things in select rotating categories, such as grocery store purchases, dining bills (including takeout and some delivery services), home improvement store purchases, and charitable donations made to a dozen partner organizations. Check your card for point redemption rates and other details.
Some cash back cards earn bonus rewards on certain spending categories during limited time frames (often quarterly) that you should try to maximize when you can.
Avoid Cash Back Pitfalls
While it's hard to go wrong with simple cash back cards, if your card earns points that you can redeem for a variety of rewards that include cash back, it pays to be careful how you use them.
Compare Redemption Rates
Before you redeem your points, figure out what the highest-value redemption possible is with your type of rewards points and then base any decisions off that number.
For example, if you can get 1.25 cents per Ultimate Rewards point you earn with the Chase Sapphire Preferred® Card when redeeming for travel (and other limited-time categories), then you might not want to cash them in for just 1 cent each for other things if you can help it.
To stick with the same example, Chase Ultimate Rewards points are worth around 0.8 cents each when you link your card to your Amazon account and redeem them directly for purchases at checkout. It's less convenient, but you'd be much better off just buying something on Amazon and redeeming your points for the purchase as a statement credit later since you'd be getting 1 cent per point instead of just 0.8 cents. Do the math on all your options and make sure your redemption options are worth it for your present needs.
Skip the Gift Cards
Speaking of which … while redeeming your credit card rewards for gift cards isn't always a bad idea, there are a few reasons why you might want to avoid doing so.
- More flexibility: You often have more room to maneuver when redeeming for cash back rather than a gift card. That's because gift cards usually only come in certain denominations with a minimum number of points to redeem for each, versus being able to cash in whatever points you have at hand for statement credits.
- More options: You will also be limited to the retailers available through your particular rewards program, so if you want to get a gift card at a different store, you might not have the option.
- More cash back: Finally, and perhaps most important, you should purchase a gift card with your credit card and then redeem rewards for it after. That way, you'll earn even more cash back on the purchase itself, which you can then put toward paying it off.
Money for the Moment
Even if you tend to focus on earning travel rewards with your credit cards, now might be an opportune moment to switch your strategy to cash back. Cash back cards provide a surefire way to earn a set rate of return on your everyday spending that you can count on and that is easy to maximize. Although promising COVID-19 vaccines are on the horizon, travel is likely to remain limited for months to come, meaning you might not have many chances to use your travel rewards for the time being.
Some credit card issuers have also expanded the ways their customers can use their travel rewards to include cash back redemptions for other types of purchases, including groceries and dining. What with ongoing financial pressures and a glut of holiday spending to pay off, now could be the exact right time to use your rewards for cash back and save on your statement for the next month or two. To find credit card offers, you can pull up some options through Experian CreditMatchTM.