How to Analyze Credit Cards Reward Programs

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Credit card companies are always competing for “share of wallet,” that is a piece of your spending pie. They will offer new account bonuses to entice you to sign up. They will give you reward points of cashback to entice you to keep using their card. They’ll throw out low introductory interest rates to make spending your money a little easier.

As consumers, you might think it’s easy to compare offers. If someone offers you 1% and someone offers 2%, the 2% is better right? Not necessarily. In the world of reward programs there are two sides – the earning of points and the spending of points. It’s very easy to only focus on the earning of points and assume that spending it will be easy. As some travel credit card holders have quickly learned, sometimes spending it isn’t as easy as it seems.

Rewards Structure: Cash, Points, Miles

When it comes to actual rewards, you have three options:

  • Cash: You are given a percentage back on all of your purchases in the form of cash. You may receive this in the form of a check, after accumulating a certain dollar amount, or as a statement credit.
  • Points: You are given points based on your spending, usually 1 point per $1 spent. There may be special spending categories where you can earn more than 1 point. You can compare points rewards with cashback by treating each points as being worth one cent.
  • Miles: You are given miles based on your spending, usually 1 mile per $1 spent. It’s just like points cards except rewards are typically used for travel. Again, treat each mile as worth a penny, for comparison purposes.

Reward Accumulation

Reward accumulation refers to how you accumulate cash, points or miles. For the purposes of this discussion, we’ll treat all reward credit cards as if they awarded you points.

Reward Structure: The first thing to look at is how many points you earn per dollar spent. Cards will offer, as incentives, a special schedule of rewards. For example, the Chase Freedom® Visa – $50 Bonus Cash Back earns cash back at 1 cent per $1 spent, 5 cents per $1 spent on special categories that change. Sometimes you’ll earn 5% on gas, sometimes it’s at the supermarket.

Next, a credit card may cap the rewards you can earn in one billing cycle. The Chase Freedom(SM) card has unlimited cash back rewards but other cards may cap it at a point or dollar level each month. This can significantly impact your rewards if you plan on putting all purchases on one card.

New Account Bonuses: Credit card companies are always competing to get into your wallet or purse, so some may offer new account bonuses. This is a common practice for travel credit cards as you can earn 25,000 or 50,000 miles after spending a certain amount within a period of time. With travel cards, be aware that many have annual fees and this new account bonus is, in part, a reward to offset that fee.

Sweeteners: Sweeteners are non-spending related ways you can extra points. For example, the Citi Forward credit card will give you 100 ThankYou points every billing cycle if you stay under your limit and pay your bill on time (Citi Forward Review). That’s a nice sweetener.

Point Expiration: Most programs no longer put a time limit on the points you accumulate, but you need to check to be sure. Some airline credit cards will expire your points if you stop accumulating them or don’t spend them. If you do fall victim to this, it often just takes a phone call to get the points reinstated (though it’s best to avoid this in the first place).

Analyzing Catalogs

Points are great but the key to understanding how “good” a credit card reward program is requires a close look at what you can get with those points. I could give you 1,000 points per dollar spent but if everything cost millions of points, it makes no sense. 25,000 miles sounds awesome, that number is huge, but has no meaning until you find out how much a domestic round-trip ticket costs, what flights you can use it on, and blackout restrictions. The key isn’t in the accumulation of points or miles, it’s in the spending of those rewards.

I’ve taken a look at some of the big catalogs:

In each review is an analysis of the rewards you can get, the effective “value” per point, and how each system works. I tried to make an apples to apples comparison, converting points into gift cards, as most conversion rates for physical products are very low. With a penny per points as a baseline, you can almost always find products for less in a store like

Point Inflation & Reward Expiration

Finally, I want to bring up one important point that many people, myself included, overlook. As you accumulate your points, it’s important to keep in mind that you need to spend them as well. What costs 5,000 points today may cost more tomorrow. An offer that exists today, may not exist tomorrow.

A prime example of where I got caught was with Citi ThankYou reward points. For years I’ve been converting them into student loan payments at 1 penny per point. 5,000 points equals a $50 check to my student loan servicer. When it comes to “cash equivalents,” like a gift card, the typical conversion is 6,000 points to a $50 gift card. Then, a few months ago, the student loan payment was removed, without notice (they are not required to give notice, nor do I expect it), and I had 15,000 in points originally intended to go towards my student loans.

I hope this guide, which turned out to be much longer than I originally intended, helps you analyze credit card reward programs. If there is something I missed or a factor you take into consideration, please share it with us in the comments!

{ 23 comments, please add your thoughts now! }

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23 Responses to “How to Analyze Credit Cards Reward Programs”

  1. I guess I could add in that many offer bonus points in certain categories (which may rotate depending on the card). That could be a deciding factor for picking up an additional card to use for particular purchases.

    For example, I have a Citi Forward card, which earns 5% in points at restaurants, but another card that earns 5% cashback on gas. So, I will vary the card I use based on the type of purchase being made.

    • Sorry, I know you mentioned that there are categories… what I was trying to say is that one card will probably not offer bonuses in all of the categories that you want. So it may be useful to have more than one, and use them for particular types of purchases, which will earn the best return on all of your spending.

  2. billsnider says:

    I carry two credit cards.

    One is a frequent flyer card. The card normally has a $60 annual fee. They wave this if you accept $2/1 point versus $1/1 point. This is helpful in the sense that I can carry it without paying anything. I make a point to charge very small purchases to keep the card active.

    Bill Snider

  3. For me it is all about utility. I gather about 100-200k points per year from business travel, so about $1-2k in value.

    I want to be able to use that value for something I want, not just some stupid toaster or espresso maker.

    So I go with credit cards that have either cash back or a wide selection of gift cards for retailers that I actually frequent on a regular basis (and not only when I have a bunch of gift cards to blow).

  4. cubiclegeoff says:

    It should be mentioned that some cards also have a tiered system, like some AmEx cash back cards. Once you reach certain spending levels, you get more cash back on all, or certain types of spending. But you have to be able to spend enough to make it worth it compared to other cards.

  5. zapeta says:

    I have 3 rewards cards and they all pay their rewards in cash. It just easier for me that way. Each of the cards has different bonus categories so I can get 2-3% back on almost everything I buy.

  6. HuBu says:

    I just carry my PenFed card that gives 5% gas, 2% groceries and 1% off everything else. The cards with a rotating categories is hard to manage especially trying to explain to my wife what card to use for what purchases each month.

    Have the BoA Amex Cash Back (1%) for use @ Costco.

    One thing I would like to know is how PenFed determines what category each purchase goes to. Is there a way to find this information out?

    • cubiclegeoff says:

      I always wonder this. I still have the old rewards program for Chase Freedom (3% cash back for gas, groceries and fast food, 1% everything else, 25% bonus at $200 redemption), and sometimes I use it for “fast food” purchases and they don’t give me credit.

      Luckily, we use two cards. One is the Chase Freedom (so my wife knows to use it for gas, groceries and fast food only), and the others is the 2% cash back schwab that we use for everything else.

      • HuBu says:

        According to PenFed, its determined by VISA USA. Now if someone can dig up the information from VISA USA. I thought Chase Freedom 5% CB is rotating.

        • cubiclegeoff says:

          Chase Freedom’s newer version is 5% with rotating categories. Their old version wasn’t, and I still am within their old program, even though most people I’ve heard have been taken off of it.

  7. James says:

    The thing about credit card companies is they know exactly what they are doing, and they are good at it.

    Don’t be fooled by points, miles, etc. This is merely a ploy to get you to use your card as much as possible because they know 9/10 people are not going to make a full payment anyways. what this does is load up the late fees and finance charges against you and help bury you in debt.

  8. Diasdiem says:

    The Chase Freedom card offers 5% on rotating categories, but what they don’t mention in the banner ads and splash pages is that you only get 5% from the first $800 you spend in a billing period on those categories. After that it reverts back to 1%. Maybe not an issue for some categories, but for home furnishings or home improvement where you can easily spend quite a lot of money you won’t be saving quite as much as you thought. Not bad though.

    My main card is my PenFed Visa. 5% on gas, 2% on groceries, 1% on every thing, no limits, and it’s credited back to me every month, not the end of the year.

    • fairydust says:

      Oh really?! I just spent $1200 (approx) on home furnishings thinking I’d get the 5% on the whole thing. This is interesting! Shouldn’t this be divulged somewhere?

      • Poindexter Fudgwickel says:

        It IS divulged somewhere. It was in the account terms and conditions disclosure that you didn’t bother to read and promptly threw in the trash when you got your card. 🙂

  9. I remember when Chase Freedom used to give the $250 checks for $200 reward, which would essentially increase the amount of rewards received. As many have mentioned, the rotating categories are another incentive that it’s hard to factor into determining the best card to get.

  10. I think Seth made a really great point. For example the Discover More card has rotating categories that change throughout the year. This can be great if it happens to line up with your purchases, but ultimately it can be something that adds complication.

    Because of this I would advocate for having multiple credit cards. Not only does this allow for your to maximize on each card’s reward depending on the category, but it also provides a layer of protection in case one card is lost or stolen.

  11. govenar says:

    Citi ThankYou still has some $100 gift cards for 10,000 points: Chili’s, Macy’s, Lands End (works at Sears & Kmart)

  12. Shirley says:

    I use Discover for everything that I can. I like the $40 cashback deducted from my statement every other month!

  13. Devon says:

    Gosh – lots of great knowledge here! I wonder why these programs have to have such complex rules. The airline miles card has been remarkably durable – why?

  14. eric says:

    Yeah it’s always a pain to keep up with the changes. It’s worth the effort to look into it though.

  15. Ron says:

    I use cash except for gas and internet purchases, this with a penfed cash back card. When you use plastic, you will spend more. It’s that human behavior thing.

  16. Gerry says:

    One thing to consider in evaluating cash versus points (Marriott rewards) is that cash is taxable. We recently acquired a TD Bank card and they gave us $100. However that $100 came with a 1099-INT. If one puts the cash in an account and builds the amount for a trip, as was done with the MR points, then the comparison to points may be more equal. In our case it was spent on who knows what but the points paid for our hotels on our trip.

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