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How Credit Card Rewards Rates Stack Up

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How Credit Card Reward Rates Stack Up

You’ve seen the commercials: Celebrities hold a shiny credit card and talk about the ample rewards you can earn on purchases. What they may not talk about is how much those points or miles are actually worth when you redeem them.

Valuing the ongoing rewards for credit cards is more complex than you might think. You have to consider two factors: the card’s earning rate and its redemption rate. NerdWallet’s rewards program reviews calculate and rank redemption values for your credit card rewards, but they don’t include the earning part of the equation.

So the Nerds created a methodology that takes earn rates and redemption rates into consideration to determine which cards provide the most value for average American household spending.

Earn and burn rates: The basics

The earn rate is the amount of cash back, points or miles you receive on every dollar you spend with your credit card. Some cards have the same earn rate for every purchase; others provide extra rewards for certain types of purchases, like groceries or airfare. Our earn rates also factor in any applicable annual fees or quantifiable annual benefits.

A burn rate, or redemption rate, is the value of the cash back, or points and miles that you redeem for rewards. The industry standard is 1 cent per point or mile. But as you’ll see from our list, some cards offer more value, some less.

Using the most recent spending data from the Bureau of Labor Statistics, we calculated the rewards based on the average American household. We also determined each card’s redemption rate. Multiplying these two factors gives us an earn-burn rate, which is the average value of the rewards you’ll receive on every dollar you spend.

Nerd notes: (1) This ranking is based on average spending data for U.S. consumers, and may not be representative of your personal spending and credit card habits. Always do your own research before choosing a card; check out our in-depth credit card reviews to get started. (2) Ranking doesn’t include the value of applicable sign-up bonuses or waived annual fees. (3) Ranking doesn’t reflect how easy it is to redeem rewards or how useful redemption options may be.

NerdWallet’s most valuable credit cards

(rates as of October 2015)

Rank Card Card type Effective earn rate Effective burn rate  Credit card point value
1 Blue Cash Preferred® Card from American Express Cash back 2.21 1 2.21 cents
2 Citi® Double Cash Card – 18 month BT offer Cash back 2 1 2 cents
3 Chase Freedom® Cash back  1.75 1 1.75 cents
4 Blue Cash Everyday® Card from American Express Cash back 1.71 1 1.71 cents
5 Discover it® Miles Travel 1.67 1 1.67 cents
6 Discover it® - Cashback Match™ Cash back  1.67 1 1.67 cents
7 Capital One® Venture® Rewards Credit Card Travel  1.66 1 1.66 cents
8 Barclaycard Arrival Plus® World Elite Mastercard® Travel  1.49 1.05 1.56 cents
9 Capital One® Quicksilver® Cash Rewards Credit Card Cash back 1.5 1 1.5 cents
10 Bank of America® Travel Rewards Credit Card Travel 1.5 1 1.5 cents
11 Bank of America® Cash Rewards Credit Card Cash back 1.48 1 1.48 cents
13 Citi® / AAdvantage® Platinum Select® World Elite™ Mastercard® Airline 1.05 1.2 1.26 cents
14 Hilton HHonorsTM Card from American Express Hotel 2.45 0.5 1.22 cents
15 Starwood Preferred Guest® Credit Card from American Express Hotel 0.47 2.3 1.08 cents
16 IHG® Rewards Club Select Credit Card Hotel 1.32 0.7 0.93 cents
17 Gold Delta SkyMiles® Credit Card from American Express Airline 0.47 1.8 0.85 cents
18 Chase Sapphire Preferred® Card Travel 0.66 1.25 0.82 cents
19 Southwest Rapid Rewards® Premier Credit Card Airline 0.82 1 0.82 cents
20 Premier Rewards Gold Card from American Express Points 0.79 1 0.79 cents
21 British Airways Visa Signature® Card Airline 0.49 1.6 0.78 cents
22 Marriott Rewards® Premier Credit Card Hotel 0.77 1 0.77 cents
23 Citi Prestige® Card Points 0.24 1.6 0.38 cents
24 The Platinum Card® from American Express Points -0.45 1 -0.45 cents

Key findings

Cash back is king. 

Cash back cards provide the best value for consumers, according to our findings. In fact, six of our top 10 cards offer cash back, including the first four: Blue Cash Preferred® Card from American Express, Citi® Double Cash Card – 18 month BT offer, Chase Freedom® and Blue Cash Everyday® Card from American Express. The value of these cards is in the earn part of the equation, since the burn rates of the cash back cards on our list are 1 cent per dollar.

Regular travelers may benefit more from a travel rewards card.

Although travel rewards credit cards didn’t rank high on our list, regular travelers may get more value with a travel card than a cash back card. While many U.S. consumers don’t travel — or travel sparingly — consumers who do travel spend an average of over $3,000 more on trips than the national average.

Travel cards often have substantial sign-up bonuses and waive their annual fees the first year — increasing their value for the right spender. If you take sign-up bonus and waived annual fee into consideration, the earn-burn rate of the Chase Sapphire Preferred® Card goes up to 2.01 cents and the Barclaycard Arrival Plus® World Elite Mastercard® hits 2.55 cents — assuming you keep the card for at least three years and hit the minimum spending requirement to qualify for the sign-up bonus.

Lots of points don’t necessarily mean lots of value.

Credit cards with high earning rates may seem to offer the best value, but they don’t necessarily come with the best redemption rates. Sometimes modest rewards cards can deliver a higher value.

A couple such high-value cards are the Starwood Preferred Guest® Credit Card from American Express and Gold Delta SkyMiles® Credit Card from American Express, which both have significantly higher burn rates than earn rates.

It may be worth it to pay an annual fee.

Annual fees aren’t typically worth it for light spenders, according to NerdWallet’s annual consumer credit card report. However, three of our top 10 cards — including our No. 1 card — come with annual fees.

Why did they top our list? Because the rewards are valuable enough to offset the annual fee and still provide more value than a no-fee card. So before you rule out cards with annual fees, examine your spending habits to figure out if you can benefit from the card.

Methodology

The calculated value of these points is based on estimated average earn rates and redemption rates, based on the Bureau of Labor Statistics’ data on average household spending.

These calculations include annual fees and easily quantifiable annual benefits, but not sign-up bonuses. Therefore, you may notice that these numbers don’t match the rewards rates on our credit card finder tool. Check out our full methodology to learn how we estimated point values.

Updated Aug. 2, 2017.