How to Redeem Credit Card Reward Points
Credit card reward programs give you points or cash back when you use your card to make qualifying purchases. These programs are tied to specific bonus categories and limited to specific sums, all of which need to be considered when you’re applying for a credit card. However, as important as these aspects are, it’s also important to look at how those reward points can be redeemed.
Redemption methods change considerably from one card to the next and these methods need to be considered closely when reviewing and comparing credit card offers. With that in mind, let’s look at the multiple ways that credit card rewards can be redeemed, before covering the cards that have the best redemption methods and the highest rewards.
Cash or Statement Credit
Cash back credit cards aren’t that dissimilar to reward point programs. After all, the credit card issuer doesn’t give you actual, physical cash at the end of the month and the retailer won’t give you cash back every time you spend, either.
The term “cash back reward card” is often used to denote a rewards scheme that offers either statement credit or a bank transfer. Where the latter is concerned, you simply move the accumulated cash back to a checking account. This service is offered by providers like Chase and Wells Fargo, but it only works if you have a Chase or Wells Fargo checking account.
As for statement credit, this can be used to clear some or all of your credit card balance. For example, let’s imagine that you find a credit card that promises a $500 cash back boost when you spend $1,500 over the first three months. To qualify, you spend $500 a month, and to make sure you don’t pay any interest, you clear the balance in full at the end of the billing cycle.
When you reach the end of the third month, the $500 cash back will land in your account and instead of using your checking account to clear the balance, you can use the cash back. This is one of the most common redemption offers for cash back credit cards and it’s also one of the best, as it reduces the risk of rolling balances and all the issues that they can cause (late payment fees, credit score reductions, etc.)
Use at the Checkout
The best reward schemes allow you to spend your points at the checkout when purchasing common items at major stores. This is true for nearly all branded reward credit cards, including those offered by the likes of Costco and Disney.
Some providers will even let you use your points at the Amazon checkout, and this also applies to the Amazon and Amazon Prime credit cards, which we have discussed several times here at PocketYourDollars.
Purchase Gift Cards
Statement credit and checkouts will give you the same rate of return you can get from gift cards, so we wouldn’t recommend this option for personal use. However, it can be a great way to save money on gifts, using your accumulated credit card points to purchase Christmas, birthday, and even wedding gifts.
Just make sure the recipient will actually use the card and enjoys shopping at that specific store, as tens of millions worth of gift cards go unused every single year.
If you’re using an American Express premium credit card, this is often one of the best redemption options as you can typically earn a higher rate of return than when you’re converting them to cash rewards.
A travel rewards redemption program may use points or airmiles, but both are the same and airmiles aren’t necessarily restricted to actual airfare. In addition to a host of travel perks like VIP lounge access and GlobalEntry credits, these programs offer a high redemption value when you use the points on:
- Car Rentals: Get cheaper rates on the best car rental services all over the world. What’s more, whether you’re using an AmEx, Visa or Mastercard, you may also be given additional insurance and protection, helping you if you encounter issues with your car or your chosen car rental company.
- Airfare: One of the best ways to use your points is to pay for domestic flights. Your points may or may not be limited to specific carriers, but by comparing flights and dates you can get some great deals and see more of the country. The same is true for international flights, but you’ll be expected to pay higher taxes and other fees when booking these flights and your points won’t cover them.
- Accommodation: Some credit card rewards programs are focused 100% on specific hotel brands, including Hilton and Best Western. We have discussed some of these cards before and a few of them have made it on our list of the best credit cards for rewards. However, they are often trumped by general travel credit cards, as they offer discounts, upgrades, free hotel stays, and the ability to use your points to book meals and accommodation.
- Travel Extras: Your points can also be used for a host of other travel expenses, baggage checks, drinks, meals, transit (tolls, rideshares, trains) and more.
Give to Charity
Some schemes allow you to give your reward points to charity, in which case they will be transferred as a cash sum. If you have a lot of extra points and want to do your bit, then, by all means, give those points away! Just make sure you know where they are going and that you’re getting a good rate of conversion, as you might be offered more if you transfer them to a bank account and then send them to the charity directly.
What to Consider When Choosing Travel and Cash-Back Cards
While you’re stacking those points and looking for the big bucks, you should take all the following into account to make sure you get the best return:
Blackout dates are periods of time when rewards cannot be used. For instance, a hotel chain may prevent you from using your free night stay in a leading city-center hotel during a big festival or carnival; an airline may prevent you from using your free flights during popular holidays.
These dates are used to limit how much value you can get from your rewards, allowing the provider to maximize profits by giving you hotels and flights during off-peak times and ensuring they charge the maximum fees to paying travelers during peak times.
Fortunately, many cards now advertise “no blackout dates”. Unfortunately, this doesn’t always mean what you think. Each provider has its own definition of what blackout dates are and these can change significantly from provider to provider.
For instance, one hotel may allow you to use as many points as you want and at any time. But another may insist on just 1 night in 1 standard room and with limited perks during peak times. Both advertise as being free of blackout dates, but in reality, only one is actually implementing such a policy.
Many of the best reward programs, including Chase Ultimate Rewards, which is offered on cards like the Chase Sapphire Preferred and the Chase Freedom Unlimited, have points that don’t expire. You can collect as many of them as you want and use them at any time you see fit.
Others, however, require you to spend your points within a specific number of months or years and if you haven’t spent them by that time, you’ll lose them.
Some banks and providers allow you to move points from one rewards program to another and this can be very useful if you ever decide to switch to another card and want to take your points with you. This is true for Wells Fargo, but it’s also true for several other providers and card companies, so keep this in mind as you compare.
A cardmember anniversary is an anniversary of the day you signed up for the credit card and it’s something that some card issuers celebrate by offering additional bonus points, perks, and cash back. This isn’t true for all credit card providers, but such perks are provided by nearly all premium reward credit cards and are also offered on many standard reward cards.
Also known as a welcome offer, these bonuses are typically offered at the end of your first three months and require you to have spent a certain amount of money. These bonuses can double the amount of rewards that you earn in the first year, so it’s an important consideration.
However, you don’t want to be drawn in by the biggest offer and end up spending more money just to get a little more cash back. If your average spend is $500 a month, the last thing you need is a credit card that requires you to spend $3,000 over the first three months. You’re doubling your expenses just to get an extra $100 or $200, which is just not worth it.
Choose an amount you will spend without even trying, and then forget about it until the final few days. If you find that you only need to spend a few more dollars to hit the target, go for it. If you’re a lot of money short, write it off.
The size of these sign-up bonuses often tells you what sort of consumer the card is aimed at and all providers have varying levels. For instance, Capital One’s Savor card comes in two forms, the SavorOne and Savor Rewards. Both have similar rates, but the Savor Rewards has a slightly better cash back rate and also has double the sign-up bonus, requiring a spend of $3,000 instead of $1,500 to earn $300 instead of $150.
If your average spends over a quarter just below $2,500, you might be tempted to choose the larger one and spend more. But doing so would mean spending over $500 on unnecessary items just to earn an extra $150, which is a ridiculous prospect and a very reckless thing to do.
Intro Rates and Fixed Rates
Some credit cards will limit your cash back to a specific sum or period. For instance, you may be told that you can earn 5% cash back on all qualifying purchases, but that this only lasts for a month or two or until you spend $1,500.
This is common practice for all schemes that offer a generous number of rewards points, including the Chase Freedom and Discover It. It’s not a bad thing, however, and it will greatly favor most users.
Best Rewards Credit Cards for Fast Redemptions
Now that you know how to redeem your rewards, the only thing left to do is collect as many of them as you can! Often times, the best cards for easy and high value redemptions are store credit cards, as they offer big rates and incentivize you to redeem them at the specific stores.
Kohl’s Credit Card
Regular Kohl’s shoppers can collect a 35% discount on their first purchase with the Kohl’s store card, and there are 12 special offers throughout the year as well. You won’t earn regular points or cash back, and this may put some consumers off, but the end result is very similar as you can save lots of money at your favorite store.
- Annual Fee: No
- Interest Rate: 26.49% Variable APR
- Rewards: Discounts, Offers, Free Shipping
- Sign-up Bonus: 35% off your first purchase at Kohl’s
As with all store cards and most branded cards, you should give the Kohl’s card a wide berth if you’re not a fan of this chain and won’t be spending a lot of time or money here. You can’t use the card anywhere else and all of the benefits are related directly to Kohl’s products.
Walmart Rewards Credit Card
The Walmart Rewards Credit Card offers 5% cash back on Walmart.com purchases, as well as grocery pickup and delivery services. You’ll also get 2% cash back on in-store, travel purchases, and restaurants, and 1% on everything else. These rates are unlimited, which means they’re not tied to specific amounts and no matter how much you spend, you’ll always earn that cash back.
The Walmart Rewards Credit Card is an open-loop credit card, so it can be used wherever Mastercard is accepted. It’s one of the few branded credit cards that can actually compare to general reward credit cards, but you still need to be a regular Walmart shopper to take advantage of it.
- Annual Fee: No
- Interest Rate: 17.99% to 26.99% Variable APR
- Rewards: 5% cash back at Walmart online
- Sign-up Bonus: N/A
- Balance Transfer Fee: 3%
- Cash Advance Fee: 3%
If you’re only spending the odd buck at Walmart then this card will still earn you a little cash back here and there, and you won’t have to pay an annual fee in exchange. But if that’s the case, you’ll be much better off with a general reward card like the Chase Freedom or Discover It, or with a credit card offered by a store that you use regularly.
Costco Anywhere Visa Credit Card
The Costco Anywhere Visa is a very generous store card provided by Visa. Not only is it an open-loop card, which means it can be used everywhere that Visa is accepted, but it has a reward scheme that offers cash back, perks, and benefits for all purchases, not just those made at Costco and Costco.com.
- Annual Fee: No
- Interest Rate: 16.74% Variable APR
- Rewards: Up to 4% cash back
- Sign-up Bonus: N/A
- Foreign Transaction Fee: No
- Balance Transfer Fee: 3%
- Cash Advance Fee: 5%
In fact, the highest cash back rates available on the Costco Anywhere Visa are offered for money spent at gas stations and not Costco. Cardholders can get 4% cash back (up to $7,000 a year) when they use their card at eligible gas stations. In addition, cardholders can collect a 3% cash back rate on select travel and dining purchases.
The rate paid for Costco purchases is just 2%. It’s still a good rate, but it’s surprisingly less than the amount paid for the aforementioned everyday purchases.
The Costco Anywhere Visa doesn’t have a sign-up bonus, but there’s really the only disadvantage here. You’ll get a great cash back rate on Costco, fuel, dining, and travel purchases, and 1% for everything else. And all of this is offered without an annual fee, although you will need a Costco membership.