Comparing Rewards Credit Cards and How to Find the Best
Which is the best rewards credit card for you? We go through what you need to know before you apply.
What is a rewards card?
A rewards card is a type of credit card that earns you points as you spend. The more you spend on it, the more you earn. Points get you access to rewards in the form of discounts or vouchers to spend on anything from groceries to flights, or perks such as cash back, or services such as the use of an airport lounge or early access for booking concert tickets.
What are the types of rewards cards?
There are three main types of rewards cards based on the rewards they offer: cashback, air miles or reward points.
Cashback cards typically pay you back a fixed percentage of the money you've spent. For example, if you spend £100 and the cash back rate is 1%, you’d earn £1. Some cards pay a flat rate, while others pay different rates depending on where you shop and how much you spend. In some cases cards will have an introductory offer that means you’ll earn more cash back on spending made in the first few months of using the card. Your cash back is usually credited to your account once a year, and there’s normally a cap on how much you can earn as cash back.
Air miles cards convert the points you earn to money off flights or holidays from selected airlines.
Rewards points cards earn you vouchers you can typically spend at a variety of retailers, hotels and restaurants. These cards convert the money you spend into redeemable points that can be used for goods and services set by the card provider. The rewards you earn don’t necessarily last forever and can vary greatly between credit card providers, so be aware of any expiry dates.
Why and when to get a rewards card
If you are the sort of person who likes to leave your cash in the bank and put all your spending on your credit card and pay the balance off in full each month, a rewards credit card could be a great option. This is especially true if you regularly spend at the companies and services your card rewards you with.
And if you’re about to purchase a big-ticket item or will soon be making lots of purchases for a significant life event such as moving home, you might consider a rewards card as well.
How do rewards cards work?
Rewards credit cards work like all other credit cards. You get an agreed limit to spend on the card over an indefinite time period and are billed each month for purchases you make.
You will be charged interest at a set rate on any outstanding balance each month. Lots of reward cards offer lengthy interest-free periods to encourage you to get a card in the first place, but fail to clear your balance when that time’s up and you’ll get stuck with your card’s standard rate.
As with most credit cards, the best rewards cards are usually reserved for customers with good credit scores.
» MORE: How to improve your credit score
How to choose a rewards card
If you want to get a rewards credit card, it’s a pretty easy process. There are a few things to consider:
- What's the normal interest rate on purchases made using the card.
- If the card comes with an introductory 0% interest period on purchases, how long does it last?
- What are the card's fees? (For example, a sign-up fee, annual fee or late payment fee.)
- How do you earn points or cash back? (For example, two for every £1 spent, or 1% of all spending.)
» COMPARE: Credit cards with great rewards
How to get a rewards card
You can apply for a rewards card online or directly to the card provider.
» MORE: How to apply for a credit card
If accepted, you will get a bill every month. The minimum you need to pay is usually £5, but with rewards cards that don’t offer 0% interest on purchases, it is best to pay the balance in full every month, otherwise interest charges will erode the value of any cash back or perks.
You can set up a direct debit to pay the bill off in full each month. This may be wise, because failure to make repayments can result in the loss of the interest-free period and can damage your credit score.
Laura Whitcombe is a freelance journalist, campaigns consultant and co-author of Money Made Easy 2015/16 published by Harriman House. Read more