How exactly do rewards credit cards work? Points and cash back and airline miles and reward tiers and exclusions and limitations and OH MY! If you really want to understand how reward cards work then check out the below handy dandy graphical illustration:
Many merchants and credit card companies have reward programs to act as incentives for customers to increase their shopping frequency, or to choose that retailer over other retailers offering the same or similar services. Similarly, many credit card companies offer reward programs in hopes that their credit cards are chosen over others. These programs have many similarities, but can take a variety of forms. Let’s take a look at the different kinds of rewards cards there are out there:
Types of Reward Credit Cards
Supermarket Cards: These are some of the most common. Almost every supermarket has a customer loyalty card. This is often the only way to get the best value on various advertised products and promotions. These can be used to keep customers coming back instead of patronizing other local supermarkets. Lately supermarkets have teamed up with gas stations to offer consumers discounts on gas depending on how much money they have spent at the supermarket.
Hardware Store Cards: While national chains like Lowes and Home Depot have credit card programs, smaller independent stores like Ace and TrueValue have also begun offering customer loyalty cards that give customers access to special deals and help the companies collect consumer data.
Airline Cards: All major airlines offer cards that allow customers to accrue frequent flyer miles to be cashed in later for free trips, discounts, and upgrades. These airlines usually work with Visa or Mastercard to create these rewards cards, so it’s best to find the rewards cards by searching for credit cards from major carriers.
Hotel Cards: Similar to airlines, hotel cards reward frequent stays with points that can be exchanged for later visits and can be used to trade up to a better room.
Retail Store Cards: Somewhat rarer in the United States, due mainly to the fact that almost every major retailer (Kohls, etc.) already have their own credit cards with special rewards for consumers (annual coupons, cardholder appreciation sales, etc.). Still, these cards offer special rewards at retail stores.
Gas Cards: Gas cards can be provided by credit card companies or the petroleum companies themselves. Users can get direct discounts on the price at the pump, or get cash back discounts monthly or annually, or after a certain amount of money has been spent.
Dining and Entertainment: Many card companies will cobble together discount cards based on local bars, restaurants, and other forms of entertainment. These tend to vary by region.
Cash Back Cards: Some of the most popular rewards cards are ones offering direct cash back. These are the most flexible as they allow users to do whatever they want with the money they get back. If these are of interest to you, checkout cash back cards from Visa or MasterCard.
Reward Card Statistics
Rewards cards can be a powerful tool to motivate consumers to get a certain card or shop at a certain store. Not everyone has a reward card, but it’s an interesting statistic that while only 50% of commercially available cards have rewards programs, 60% of consumers have a card with a rewards program attached to it. 1 in 3 consumers report that they used the rewards program as a deciding factor in their choice of card, and chose the program that would maximize their reward.
Reward Card Costs
Merchant interchange fees are charged by the credit card bank or company to the merchant. When a customer uses a rewards card, these interchange fees can be even more expensive than they might normally be.
- The total dollar amount of these interchange fees is estimated to be around $62 billion.
- The total dollar amount of credit card transactions in the US was $3.7 trillion last year.
- The average credit card debt for an American is $15,788.
- The average increase in monthly spending for consumers with rewards cards in $68.
- In 2008 the fee for rewards card offers increased by 19%.
- In 2009 the fee for rewards card offers increased by 29%.
5 Tips to Get the Most Out of Your Rewards Card
Here are 5 tips for learning how to get the most credit card rewards:
- Figure out which shops you naturally patronize the most and focus on those rewards programs.
- Know which rewards increments get you the biggest payoff.
- Watch out for time limits and earnings caps for rewards card. You don’t want to earn a bunch of points and have them expire, or find out that you’re over your limit because you didn’t cash any in, and your excess points are going to waste.
- Don’t get too many rewards cards. Sticking to one or two rewards cards maximizes the rewards you get on each one.
- Keep an eye on fees and charges. Use e-mail notifications to keep on top of your payment schedule. Paying off your credit card bill in full every month is a great way to keep your fees under control.
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