What are the different kinds of credit card rewards programs?

Whether you are looking for cash back, free hotel stays, free flights, gift cards, or merchandise, there’s a credit card rewards program just right for you. You’ll find credit cards geared toward frequent flyers, shoppers, students and business owners – but there are really three main types of cards:

Cash back cards – These cards give a percentage of cash back on each purchase. Typically, they give 1% on all purchases – that is the standard rate. Many of them offer extra cash back in rotating categories that change each quarter. Discover cards, Chase Freedom cards, and the Citi Dividend Preferred card all work this way. Every three months they give 5% cash back in a certain category, such as movies and restaurants, online shopping, gas and fast food, department store purchases, etc.  Most cash back cards also offer the option of shopping through an online mall to earn a higher percentage of cash back on purchases.Travel rewards cards – Offerings include airline co-branded cards geared toward frequent flyers or hotel rewards cards that award points in a hotel loyalty program. Often you can use the miles you earn (they might also be called points) toward either hotel stays or flights. In fact, some cards marketed as travel cards let you redeem rewards for merchandise or cash as well as travel rewards.Points cards – Cards like the Citi ThankYou card give points instead of cash back or miles. One point per dollar is the equivalent of 1% cash back, so keep that in mind when you look at different reward card options. Many points cards let you earn up to five or even 10 points per dollar on certain purchases, and also offer online shopping portals to earn more points. Points can be redeemed for gift certificates (usually the best value), cash, merchandise or even charitable donations.

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How do I know which type of rewards are right for me?

The right card for you all depends on several factors:

How you plan to use the card: If you’ll be using your card to make everyday purchases and not paying special attention to where you pull out the card, a card that awards points might work well for you. Reward points usually don’t expire and have no limit on how many you can earn, unlike cash back cards that offer extra cash back in rotating categories. Those are usually capped at $75 cash back per quarter. Points cards often have no limits on what you can earn. But if you are a traveler and want to earn extra points from airline or hotel purchases, look at travel cards to see which ones would help you rack up the most rewards.What you’d like to get with the card: If you want cash, a card like Discover – the original cash back bonus innovator – would work great for you. If you like using gift cards, or giving them as gifts, the Citi ThankYou network offers gift cards from hundreds of popular retailers. If free flights and hotel rooms are more up your alley, look for a travel rewards credit card.Your credit history and score: Pay attention to the recommended credit level on the card you want to apply for. Many rewards cards are targeted toward people with very good or excellent credit. There are plenty of rewards cards available to people whose credit scores aren’t so great, but they may be more limited in what they offer.

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Which rewards credit cards offer the best value?

Although credit cards that give cash rewards and points rewards can both usually be counted on to give you a 1% return on your spending – one point equals one cent – the best values in credit card rewards are almost always found in travel. Whether they are hotel rewards cards like the Citi Hilton HHonors Reserve card or frequent flyer cards like the Delta SkyMiles from American Express, travel cards give great rewards. Cards that offer the American Express Membership Rewards program and the Chase Utimate Rewards program are especially valuable because they let members transfer reward points to a frequent flyer program of their choice.

Keep in mind that just because a rewards card has an annual fee, that doesn’t mean it isn’t a good value. In fact, many cards that offer the highest value do have annual fees. In general, credit cards that carry annual fees tend to offer very high value rewards – so that if you make good use of the rewards, you will earn back the fee plus more.

Gift cards are another good option for value redemption. Through the Citi ThankYou center, you can trade your points in at a value of 1 cent per point when you buy gift cards from Barnes & Noble, Sephora, Zappos, Amazon, and many more retailers.

Watch out for merchandise redemption. Turning in reward points for merchandise could cut your reward point value nearly in half. Gift cards always offer better value than buying merchandise directly from a credit card rewards site.

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