How To Get The Most Out Of Rewards Credit Cards | personal finance

(Alka Mehta)

If you’re going to use a credit card, shouldn’t you get paid for it? Rewards cards help you benefit from your everyday spending. Here’s what you need to know to get the highest returns possible from rewards cards.

What is a rewards credit card?

Rewards cards pay you back every time you use them. Many of these cards give you a percentage of each purchase back in cash. Others reimburse you with points or miles for a specific airline, hotel chain, or general travel expenses.

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Points and miles rewards are a bit more complicated compared to cash rewards. The value of a mile or a point does not always equal an exact cash equivalent. Cards like Chase Sapphire Preferred offer Ultimate Rewards points, where each point is worth 25% more compared to its cash equivalent when redeemed for travel through the Chase Ultimate Rewards portal.

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Whether in the form of cash or points, these rewards may seem small, but they can add up quickly. Rewards accumulate in the account over time until you redeem them.

The three types of cash back cards

fixed rate cards

Fixed rate cards earn a fixed percentage on all transactions, usually 1% to 2%, depending on the card. These are perfect for people who love a slim credit card wallet without a problem. the fargo wells Active Cash Card earns an unlimited 2% cash reward and a hefty $200 cash reward sign-up bonus after spending $1,000 on purchases within three months. Under this simple spending strategy, charge everything to the card, including less obvious items like automatic payments on home security or Internet and phone bills.

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Bonus Category Cards

Bonus category cards earn high cash back rewards, typically 5% on specific categories like gas, restaurant, or grocery purchases during a particular time period. These bonus categories generally change every three months. A card may offer 5% cash back on Amazon Y Goal shopping from October to December. The cardholder must register to activate the bonus category either online, in the app or by calling customer service.

All other general non-bonus purchases continue to earn 1% or 2% cash back without any activation, depending on the card. the Discover The “it” card may be perfect for people who love the thrill of different bonus categories each quarter. To maximize rewards, use this card for bonus categories only.

staggered cards

Tiered cards offer a hybrid between flat rate and bonus category cards. They offer some select categories of elevated rewards up to 3% to 4% cash back and typically 1% on all other general purchases. The Blue Cash Everyday card from American Express offers benefits like 3% on grocery, gas, and online retail purchases, each capped at $6,000 per calendar year. All other purchases earn 1%. Plus, it gives you a $200 credit on your card balance after you spend $2,000 on purchases with your new card within your first six months of membership.

Rewards can be redeemed online, in the app, or by calling customer service. Cardholders can redeem what they’ve earned to pay down their balance, donate to charity, book travel, receive gift cards, or simply get a cash check.

How to maximize credit card rewards

To get the most out of your rewards, consider having three credit cards – one from each category above.

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Before the start of each quarter:

  1. Plan the use of your credit card.
  2. Check and sign up for the bonus category of the quarter.
  3. Write down the bonus categories on a sticky note and keep it in your wallet.
  4. Maximize your cash back by following your spending plan.

card type

Three month spending plan

bonus category

5% restaurants


3% in supermarkets
3% at gas stations
3% on online retail purchases

Fixed interest rate

2% on everything else

Are Rewards Credit Cards Right for You?

Rewards credit cards are ideal for consumers who plan to pay their credit card bills in full each month. It is not rewarding to pay more than 20% interest to receive a 3% refund. Also, spending more than you can afford to maximize sign-up bonuses and rewards is tempting but dangerous. Also, some of the best rewards cards may charge an annual fee. The idea is to save money by racking up credit card rewards, not lose money by racking up credit card debt.

Whatever your spending style or financial goals, a solid strategy is the ultimate goal during these challenging times. If your needs match what they offer, rewards credit cards could help you reach that goal.

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Fool Contributor Alka Mehta has no financial position in any of the mentioned companies. Discover Financial Services, American Express and Wells Fargo are advertising partners of The Ascent, a Motley Fool company. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool has positions and recommends Amazon and Target. The Motley Fool recommends Discover Financial Services. The Motley Fool has a disclosure policy.