Rewards can be worth having, but only if the card’s costs don’t cancel them out. The numbers are easier to check than they look.
The essentials
- Rewards cards pay back a share of your spending as cash, points or travel miles.
- Interest on a carried balance usually costs far more than the rewards earned.
- An annual fee only makes sense if your rewards clearly exceed it.
- Simple flat-rate cash back suits most people; points and miles reward extra effort.
Rewards cards return part of what you spend. Whether that’s worth anything depends on how you use the card and what it costs to hold.
The three main types
| Type | How it works | Best for |
|---|---|---|
| Cash back | A percentage of spending returned as a statement credit or deposit | People who want simple, flexible rewards |
| Points | Points redeemable for travel, gift cards or cash, often at varying values | People willing to compare redemption options |
| Travel miles | Miles tied to an airline or hotel program | Frequent travelers loyal to one brand |
Some cards pay a flat rate on everything. Others pay more in categories such as groceries or gas, sometimes with quarterly limits you have to activate.
The cost side
- Interest: if you carry a balance, interest at a typical card APR quickly wipes out a 1% to 2% reward. Rewards work best when you pay in full each month and keep your grace period.
- Annual fees: a $95 fee needs at least $95 in rewards you’d actually use, before the card comes out ahead of a no-fee card.
- Foreign transaction fees: often about 3% on purchases abroad, unless the card waives them.
Smart move
Estimate a year of spending in each category and multiply by the card’s rates. Compare the result, minus any annual fee, with a simple no-fee cash back card.
Sign-up bonuses
Many cards offer a bonus for spending a set amount in the first few months. Count it as a one-off, and don’t spend more than you planned just to reach it.
Watch for this
Never carry a balance to earn rewards. Paying interest to earn points or cash back almost always leaves you worse off.
Choosing a card
- Decide what you’d use: cash, travel or flexibility.
- Check the annual fee, APR and foreign transaction fee.
- Match the bonus categories to where you already spend.
- Make sure you can pay the statement balance in full every month.
If you’re carrying card debt, a balance transfer or a plan to pay it down usually comes before chasing rewards.
Questions and answers
Are credit card rewards taxable?
Rewards earned on spending are generally treated as a rebate rather than income. Bonuses paid without spending, such as for opening an account, may be treated differently.
Do points expire?
It depends on the program. Some points never expire while the account is open, while others expire after a period of inactivity.
Should I open several rewards cards?
Each application adds a hard inquiry and another account to manage. More cards can earn more, but only if you can keep track of every bill.
This article is general information and isn’t financial or legal advice. Card terms, fees and rules change, so check the issuer’s current terms and official sources such as the Consumer Financial Protection Bureau and the Federal Trade Commission before you decide.