There are different incentives you can earn when using a rewards credit card. Learn about the different types of rewards credit cards and what to consider before signing up for one.
On this page you’ll find
What are rewards credit cards?
Some credit cards offer rewards that you earn as you use the credit card that you can redeem later. For example, you may receive discounts at certain stores or travel points you can redeem when booking a hotel. There are four main types of rewards that you can earn through using a rewards card:
Discounts – You get discounts on goods and services. For example, gas cards give you discounts on your fuel purchases.5 questions to ask about rewards cards
Cash back – You get cash rewards based on how much you spend using the credit card. For example, you might receive 2% cash back for each dollar you spend on groceries when you use your card. Cash back rewards are appealing because you can use the cash however you choose. Some credit cards will give you a cheque. Others give you a credit on your credit card. If you’re paying an annual fee, make sure you get enough cash back to cover that fee.
Points – You earn points based on how much you spend using the card. You can redeem these points for merchandise, gift certificates and sometimes cash. Some cards allow you to use your points only at certain stores.
Travel – You earn points that you can redeem for flights, hotels and other travel. The number of points or miles you receive varies by card. The number of points you need to cover a trip varies from card to card.
If you decide to sign up for a rewards credit card, you should pick the type that best suits your lifestyle and financial goals. Otherwise, the benefits of the rewards may not be worth the fee you pay for the card. Use the Financial Consumer Agency of Canada’s credit card selector tool to compare cards.
What fees do rewards credit cards have?
Before signing up for any credit card, you should be aware of the fees associated with it. The fees can include:
- Annual fees – Check if the rewards card has an annual fee. Not all rewards cards have an annual fee, but if there is one it can be helpful to weigh the annual fee costs against the value of the rewards you plan to earn.
- Interest rates – There may be a lower or 0% introductory rate, but you should know the regular interest rate of the card and weigh it against any rewards you may earn.
What should you consider before getting a rewards card?
Asking yourself a few questions before signing up for a rewards credit card can help you see if using one is ideal for your financial situation and goals. Consider:
Are there special terms and conditions? Watch for limits on the number of rewards you can receive or the length of time you can use them. Also check for any restricted times of the year when travel rewards can’t be redeemed. Look for a rewards card that lets you to collect an unlimited number of rewards that never expire.
Will you use the reward? If you rarely travel, you may not want a card that rewards you with air miles – unless you can give them as a gift. If the card rewards you with points, you can only use at certain stores, make sure you shop at those stores.
What are the costs? If the credit card has a high interest rate, annual fee, or other related costs, weigh those costs against the rewards you’ll receive. For example, if a rewards card has a $120 annual fee, will you earn back that amount or more in points each year?
How much do you plan to spend? If you don’t plan to spend much, you might not build rewards that you can use. For example, let’s say you have a card that will give you one air mile for every dollar you spend. The card has a $60 yearly fee. If you charge $5,000 a year on that card, it will take you five years to earn a free airline ticket that costs 25,000 miles. In that time, you’ll have paid $300 in fees — which might be enough to buy a discount ticket on your own.
What is the reward worth? This can be a challenge to figure out. For example, most air miles are valued at one or two cents each when you turn them into a ticket. If you earn one mile for each dollar you spend, that’s like getting a 1% to 2% rebate. Cash back cards offer similar rebates, but you have more choices for how you use the money.
Paying off your credit card bill on time will help improve your credit score. You’ll also avoid having to pay any interest or penalty fees. If you’re having trouble paying off your bill at the end of the month, try our Pay off Credit Cards and Debt Calculator.
Summary
A rewards credit card allows you to earn rewards as you use the card which you can then redeem. Here’s what you should know about rewards cards if you’re thinking of getting one:
- One of the main types of rewards you can earn is cash back, which offers money based on how much you spend on your credit card.
- Points rewards are accumulated through spending on your credit card which can be redeemed for merchandise, gift certificates and sometimes cash.
- Points may be only used through certain stores.
- Travel rewards mean you earn points or air miles that you can use for flights, hotels and other travel.
- You can receive discounts on goods and services through rewards credit cards.
- You should know the fees associated with your rewards card such as the annual fees or interest rate.
- Before signing up for a rewards card, you should consider if you’ll use the rewards, the costs, how much you plan to spend, the value of the rewards and any special terms and conditions.
