How credit card reward points work - and which are the best cards

Cash back, travel miles, rewards points – have you ever wondered what the difference is between three, and which might be the best card for you?

It can be confusing. Cash back rewards are straightforward. But travel rewards and reward points need to be converted into cash to determine their real worth.

In this guide, we’re going to zero in on the value of credit card rewards points. They vary somewhat from one card to another, but by the time we are done, you should have a clearer understanding of exactly what reward points are worth.

What are credit card reward points

Credit card reward points are a one of the variations of credit card rewards in general.

Some pay direct cash back, and some offer travel miles. Reward points can frequently be redeemed for either cash or travel benefits, depending on the terms of the credit card issuer.

Points are earned in a few different ways

Similar to other rewards offers, points are generally earned through one of two primary methods – sign-up bonuses and purchase rewards.

For sign-up bonuses, you’ll typically earn a large number of points after making a specific dollar amount of purchases within the first three months of opening the card.

After that, ongoing rewards may offer enhancements for certain spending categories. For example, a typical offer might be 3x or 2x rewards points for every $1 spent on travel or entertainment. Most cards will then offer 1x points for every $1 spent on all other purchases.

Reward point redemption

Reward points redemption will also vary by credit card issuer. There are about a half-dozen ways points can be redeemed, and each issuer will often offer several.

Credit card reward points vs. cash back

The actual dollar value of reward points is much like credit cards with cash back rewards. The difference is that rewards are calculated in points, rather than dollar amounts. However, points redemptions are converted to dollar values.

In some cases, reward points credit cards do pay actual cash back. In limited instances, this can be in the form of an actual cash transfer into a bank account. But in most cases, it will be issued as a cash equivalent, such as a credit card statement credit.

Otherwise, reward points can be used to make direct purchases, similar to cash. For example, you can use reward points toward travel purchases. While that may not be exactly the same as cash, it has the same end result.

Credit card reward points vs. credit card miles

Credit card reward points and credit card miles are quite possibly the very same thing, but each with a different name. Where a certain amount of spending will generate points on a reward points card, spending a similar amount will be rewarded in the form of credit card miles. The dollar value of both reward points and reward miles is generally about the same.

The main difference between the two is the orientation of credit card miles toward travel. In most cases, credit card miles will be converted to future travel purchases. That can include:

• airfare
• hotel accommodations
• car rentals
• ground transportation
• travel package deals
• other travel related activities

Credit card reward points frequently do involve redemption for travel. And many even give enhanced point rewards for travel activity, say 3x points for travel, versus 1x points for other purchases.

But the more fundamental difference is in rewards redemptions. While credit card miles are typically redeemable for travel purchases, reward points have more flexible redemption options.

For example, rewards points can usually be redeemed for statement credits, cash, gift cards and non-travel related purchases, in addition to travel purchases.

How much is a credit card reward point worth?

In most cases, a single credit card reward point is worth $.01 per dollar. For example, if a credit card offers a sign-up bonus of 50,000 points for spending a certain amount of money within the first three months of opening the account, the cash conversion value of the points is typically $500.

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Some credit card issuers will offer enhanced redemption value if the points are redeemed in a very specific way. For example, the Chase Sapphire Preferred® Card (described below) pays 80,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening. That's $1,000 when you redeem through Chase Ultimate Rewards®.

One significant difference between credit card reward points and cash back is that the conversion can be a bit more complicated. It’s important to read the fine print on any reward points based cards to learn exactly what your points are worth, and what they can be redeemed for.

When do credit card reward points make sense?

The advantage of credit card reward points isn’t always obvious. Cash back credit cards can actually put cash in your pocket, either directly or through the issuance of statement credits. Travel miles cards are designed specifically for travelers. They accumulate the largest number of rewards for travel related purchases, and the most generous redemption for travel related activities.

Reward points credit cards are really a hybrid of the two. Many do offer higher rewards accumulations for travel, as well as more generous redemption options on travel related purchases. But they may also offer cash equivalent redemptions, as well as purchases through certain common merchants.

A reward points credit card makes the most sense when the rewards it offers are more generous than a cash back card, after the reward points are converted to a dollar value. They can also make sense when they offer a larger number of redemption options, particularly in those spending categories you’re most likely to use.

The best card reward points credit cards

We performed an evaluation of six popular reward points credit cards. In doing that analysis, we considered the following criteria:

• The size of the sign-up bonus
• The rewards points offered, particularly in specific common spending categories
• Rewards points enhancements
• Flexibility of redemption options
• Interest rates and fees
• Other benefits, like a 0% introductory offer

Our ranking is based on an assessment of how each card might benefit the largest number of people. You’ll need to closely consider each card in regard to your own spending habits and redemption preferences.

With that information in mind, below is our list of the best card reward points credit cards

The Chase Sapphire Preferred® Card tops the list on it sign-up bonus. You can earn 80,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening. That's $1,000 when you redeem through Chase Ultimate Rewards®.

The card also comes with 5X points on travel purchased through Chase Ultimate Rewards, 3X points on dining, 2X points on all other travel purchases. You’ll then earn one point for each dollar spent on all their purchases. The card also comes with no foreign transaction fees. Though it’s a reward points credit card, it’s also the perfect card for travel.

Why Chase Sapphire Preferred® Card is a great points card

Not only does this card come with a gold-plated sign-up bonus, but it also allows you to redeem your points just about any way you want.

You can redeem them for cash, gift cards, travel, and products and services made available through the program or directly from third-party merchants.

In addition, there is no foreign transaction fee and reward points never expire.

Read our full Chase Sapphire Preferred® Card Review. 

The Bank of America® Premium Rewards® credit card comes with a very generous 50,000-point sign-up bonus after spending $3,000 in the first 90 days of opening the account.

The bonus is worth $500 in statement credits. You can also earn 2 points per dollar spent for spending on travel and dining, and 1.5 points per dollar spent for every dollar spent on all other purchases.

If you’re a Bank of America Preferred Rewards client, you can also get an additional 25 to 75 percent rewards bonus on every purchase.

Why the Bank of America® Premium Rewards® credit card is a great points card

The card has an attractive combination of a large sign-up bonus, enhanced points for travel and dining, and 1.5  points per dollar spent for all other purchases.

The downside of this card is that there’s no introductory APR for either purchases or balance transfers. However, points are unlimited and don’t expire, and can be redeemed for a statement credit, an electronic deposit into your Bank of America checking or savings account or Merrill investment account, as well as for gift cards or travel at the Bank of America Travel Center.

There is no foreign transaction fee with this card.

Read our full Bank of America® Premium Rewards® credit card review.

What makes the Bank of America® Travel Rewards credit card especially attractive is its simplicity. It has an easy-to-qualify-for sign-up bonus, where you can earn 25,000 bonus points – good for a $250 statement credit – for making just $1,000 in purchases in the first 90 days of opening your account.

And if you’re a Preferred Rewards member, you can increase the bonus by between 25 and 75 percent.

The reward points arrangement is similarly uncomplicated. You get 1.5 points for each dollar spent on all purchases. You’re not limited to select spending categories.

In addition, you’ll have a 0% Intro APR for 15 billing cycles for purchases.

Why Bank of America® Travel Rewards Credit Card is a great rewards card

The Bank of America® Travel Rewards Credit Card doesn’t offer a mega sign-up bonus, or high earning spending categories. But what it lacks in rewards volume, it more than makes up for in how simple it works.

You can easily qualify for sign-up bonus, and earn above average rewards points on all purchase types. Reward points can be redeemed for travel credit, gift cards or cash. Points never expire, and there is no foreign transaction fee.

Read our full Bank of America® Travel Rewards credit card review.

Citi Premier® Card

The Citi Premier® Card starts with a very generous sign-up bonus: Earn 60,000 bonus ThankYou(R) Points after you spend $4,000 in purchases within the first 3 months of account opening. Plus, for a limited time, earn a total of 10 ThankYou(R) Points per $1 spent on hotel, car rentals, and attractions (excluding air travel) booked on the Citi Travel(SM) portal through June 30, 2024.

The points are redeemable for $600 in gift cards when redeemed at thankyou.com. The card has three rewards points levels:

• 3x points for travel and gas stations
• 2x points for restaurants and entertainment
• 1x points for all other purchases

Rewards points can be used to shop at Amazon.com or BestBuy.com, to purchase show tickets through Live Nation, or gift cards.

Why Citi Premier® Card is a great rewards card

The Citi Premier® Card starts with a very generous sign-up bonus, as well as enhanced rewards points for travel, gas stations, restaurants and entertainment.

But its redemption options are fairly limited. For example, there’s no cash option, such as a statement credit. The card has a balance transfer fee of the greater of $5 or three percent of the amount transferred, but there is no foreign transaction fee.

Citi Rewards+® Card

The Citi Rewards+® Card does not offer a sign-up bonus. But it has two unique arrangements that come close.

First, you can earn up to 10% in additional points – called ThankYou Points – for the first 100,000 points redeemed each year. 50,000 points would be worth an additional 5,000 points.

Second, points are rounded up to the nearest 10 points. A purchase of slightly more than $10 will get you 20 points. The card comes with 2x points for purchases at supermarkets and gas stations (up to $6,000 per year), and 1x points for all other purchases.

Points can be redeemed for travel, to shop at Amazon.com or BestBuy.com, statement credits or even toward payment of your student loans or mortgage.

Why Citi Rewards+® Card is a great points card

The major disadvantage of the Citi Rewards+® Card is the absence of a sign-up bonus. But this is at least partially offset by the 10 percent additional bonus point accumulation, as well as the 10-point bonus roundup. That will also make the additional bonus point calculation fairly difficult.

And though the card pays 2x points on groceries and gas station purchases, it’s limited to $6,000 per year ($120). There’s a balance transfer fee of the greater of $5 or three percent of the amount transferred. There’s also a three percent foreign purchase transaction fee.

Finding the best card for you

Obviously each of the reward points credit cards on this list are for consumers with good or excellent credit.

If you’re not sure what your credit score is, or whether or not you’ll qualify for any of these cards, we can help you find others that will work for you. If you don’t already know your credit score, start the process by using our quick and free credit score estimator tool.

Then check out the credit cards available in your credit score range in the following guides:

• Best credit cards for a credit score over 750
• Best credit cards for a credit score between 700 – 749
• Best credit cards for a credit score between 650 – 699
• Best credit cards for a credit score between 600 – 649
• Best credit cards for a credit score under 599

Summary

If your primary interest in rewards cards is getting cash back, either to have the cash or use it to reduce your credit card balance, look for the best cash back credit cards.

If you’re using a card primarily for travel, look for the best travel rewards credit cards.

But if you’re looking for a card that offers several attractive redemption options, a reward points credit card may be your best choice.

Read more:

• The Best Credit Cards Of 2019
• Does It Really Matter Which Rewards Card You Get?