A Rewards Card is a type of credit card that provides incentives to cardholders for their spending. These incentives can take various forms such as points, cash back, travel miles, or other perks that encourage card usage.
What Is a Rewards Card?
Rewards Cards incentivize spending by offering rewards that accrue based on the cardholder’s purchasing activity. When a cardholder purchases goods or services using a Rewards Card, they earn a certain amount of rewards which can be redeemed for various benefits.
Types of Rewards Cards
Points-Based Rewards Cards
Points-based Rewards Cards offer a certain number of points per dollar spent. Points can usually be redeemed for a variety of products or services through the credit card issuer’s rewards program.
Cash Back Rewards Cards
Cash back Rewards Cards provide a percentage of the purchase amount back to the cardholder in the form of statement credit, check, or direct deposit. For example, a 2% cash back card will return $2 for every $100 spent.
Travel Rewards Cards
Travel Rewards Cards typically earn points or miles that can be redeemed for travel-related expenses like flights, hotel stays, or car rentals. Some cards may also offer travel-related perks, such as access to airport lounges or travel insurance.
Specialty Rewards Cards
These cards offer rewards tailored to specific spending categories or interests, such as dining, groceries, gas stations, or retail shopping.
Key Features of Rewards Cards
Earning Rates
The rate at which rewards are earned per dollar spent can vary. Some cards offer higher earning rates in specific categories, such as 5% cash back on groceries and 1% on all other purchases.
Sign-Up Bonuses
Many Rewards Cards offer substantial sign-up bonuses if a minimum spending amount is met within a specific period after account opening.
Annual Fees
While some Rewards Cards come with no annual fee, others charge a fee. Cards with higher fees usually offer more lucrative rewards programs or additional perks.
Redemption Options
Rewards can often be redeemed in multiple ways, including statement credits, gift cards, merchandise, travel bookings, or even donations to charities.
Historical Context
The concept of the Rewards Card dates back to the 1980s when credit card companies began to offer miles for flights as incentives to cardholders. The idea quickly evolved, and now nearly every major credit card issuer offers some form of rewards card.
Applicability and Special Considerations
Budgeting and Spending
Rewards Cards can provide significant value if used responsibly and if the cardholder pays off their balance in full each month to avoid interest charges.
Eligibility
Eligibility for Rewards Cards often requires a good to excellent credit score, varying by issuer and the specific card.
Fees and APR
Be aware of annual fees, foreign transaction fees, and interest rates. Rewards earned can be offset by high fees and interest charges if balances are not paid off monthly.
Examples
- Chase Sapphire Preferred® Card: Offers points on travel and dining, a significant sign-up bonus, and various travel-related perks.
- Citi® Double Cash Card: Provides cash back on all purchases, split into 1% on purchase and 1% when payment is made.
Related Terms
- Credit Card: A payment card that allows users to borrow funds up to a certain limit to pay for goods and services.
- Annual Percentage Rate (APR): The interest rate charged on balances carried beyond the due date.
- Sign-Up Bonus: A promotional offer to attract new cardholders, often requiring a minimum spend.
FAQs
Can I have more than one Rewards Card?
How do I choose the best Rewards Card for me?
Do Rewards Cards affect my credit score?
References
- “The History of Rewards Cards,” Credit Card Insider. [link]
- “Maximizing Rewards Cards Benefits,” The Points Guy. [link]
Summary
Rewards Cards serve as an effective tool for consumers to gain additional value from their everyday spending. By understanding the types of rewards, key features, and potential costs, cardholders can make informed decisions to best utilize these financial products.
