M_a_y_a / E+ / Getty Images

Types of rewards credit cards and how they work

A guide to the three different types of rewards cards


Want to start earning rewards but don’t know which kind is right for you? Here’s a guide to the different types of rewards credit cards.

The content on this page is accurate as of the posting date; however, some of our partner offers may have expired. Please review our list of best credit cards, or use our CardMatch™ tool to find cards matched to your needs.

Many Americans bank on rewards credit cards. A recent survey by shopping platform Slickdeals found the average credit cardholder reaps $757 in rewards in a year – on everything from cash back to airline flights and hotel stays, concerts and dining.

Yet the cardholder who takes advantage of travel rewards to cover airfare or hotel stays might rely on a different credit card than the cardholder who covets cash back. Here’s how it breaks down.

What are the 3 types of rewards cards?

Rewards credit cards break down into three general groups: cash back, points and miles. While there’s overlap in how each of these work, it’s important to know the difference so you can find the cards – and rewards – that work best for you.

1. Cash back

Cash back credit cards offer an easy-to-navigate path toward rewards. Perhaps that’s why they’re so popular. Travel cards have also remained popular, even during the pandemic, but a recent survey by Bankrate showed 56% of cardholders surveyed redeemed rewards for cash back compared with just 15% who redeemed rewards for travel in 2020.

Essentially, a cash back card supplies a cash rebate based on the purchases you make. The rate for earning cash back rewards typically is shown as a percentage. But the percentage may be fixed or it may change.

How cash back cards work

The Wells Fargo Active Cash® Card, for instance, lets you earn unlimited 2% cash rewards on purchases. This is called a flat-rate rewards card.

On the other hand, the cash back rate for the Chase Freedom Unlimited card varies depending on the spending category:

  • 5% cash back on grocery store purchases (not including Target® or Walmart® purchases) on up to $12,000 spent in the first year.
  • 5% on Chase travel purchased through Ultimate Rewards®.
  • 3% on dining and drugstores.
  • Unlimited 1.5% cash back on all other purchases.

The Freedom Unlimited card and similar cards provide what’s known as tiered rewards.

Another wrinkle: cash back cards with rotating reward categories, such as the Chase Freedom Flex℠ and the Discover it® Cash Back card. Each of these cards enables you to collect 5% cash back in different categories each quarter (on up to $1,500 in total purchases per quarter after activation, then 1%), including grocery stores, restaurants and gas stations. Before each quarter begins, you have to log on to your card account to activate those 5% rewards. Outside the rotating categories, you automatically earn unlimited 1% cash back on all other purchases, and Freedom Flex offers additional fixed-rate reward categories.

Pros of cash back cards

  • Most cash back cards have no annual fee.
  • Flexible redemption options as you can often receive cash back in the form of a statement credit, a check or a direct deposit.
  • Generally less complicated rewards programs to navigate.

Cons of cash back cards

  • Generally thin on travel benefits.
  • Some cards place a cap on annual or even quarterly cash back earnings.

2. Points

Another type of rewards credit card provides reward points rather than cash back. You earn a certain number of points for every dollar spent, such as 2x or 5x.

Point values fluctuate according to the kind of transaction involved. Some credit cards offer a fixed number of points for each purchase. Other credit cards change spending categories each month or quarter, delivering more points per dollar spent in some categories compared with others.

How credit cards with reward points work

The Platinum Card® from American Express, for example, you earn 5x Membership Rewards® points for flights booked directly with airlines or with American Express Travel (up to $500,000 on these purchases per calendar year). Also, you earn 5x Membership Rewards® points on prepaid hotels booked with American Express Travel.

The Amex Platinum lets you redeem points in a variety of ways, such as transferring points to a participating loyalty program, paying with points at checkout, redeeming points for gift cards or using points to cover card charges.

Some cards that offer rewards points are tied to certain hotel chains. For example, the Hilton Honors American Express Card lets you earn 7x points for each dollar spent on eligible purchases charged directly with a property within the Hilton portfolio; 5x points at U.S. supermarkets, U.S. gas stations and U.S. restaurants; and 3x points on all other purchases.

The Hilton Honors Amex welcome offer gives you 80,000 Hilton Honors bonus points after you spend $1,000 in purchases during the first three months of card membership.

Pros of cards that reward points

  • Many cards that supply points provide a welcome offer or sign-up bonus that gives you a batch of points if you spend a minimum amount on the card within several months of opening the account.
  • Typically, points don’t expire. However, you will lose accumulated points if your account is closed.

Cons of cards that reward points

  • Some cards charge high annual fees. For example, the Amex Platinum recently raised its annual fee to $695 after adding new benefits.
  • Some points may need to be redeemed through a card issuer’s portal.
  • If you’re not a frequent traveler, you might not earn as many points. Why? Some cards with a points system may reward you with more points for travel-related expenses than other purchases.

3. Miles

Aside from rewards credit cards that provide cash back and points, you’ll find credit cards that enable you to earn miles for travel. These cards are either affiliated with an airline or more generic cards that enable you to collect travel miles.

How cards that reward miles work

The first travel rewards cards were airline credit cards that awarded frequent flyer miles. Airline cards are designed to reward loyalty to a specific airline. While you can earn those miles via another spending, you can only redeem them for travel on that airline.

For example, the United Explorer Card lets you earn 2x miles per $1 spent on United Airlines purchases, hotel stays and dining, including eligible delivery services; and 1x mile $1 spent on all other purchases. It provides a sign-up bonus of up to 70,000 miles (earn 60,000 miles after you spend $3,000 on purchases in the first three months, plus an additional 10,000 miles after you spend $6,000 total on purchases in the first six months your account is open), as well as a $0 annual fee for the first year (then $95).

Other rewards cards offer “miles” that are really a form of travel points. The Capital One Venture Rewards Credit Card, for example, offers miles earned and redeemed in a straightforward manner. You earn a flat 2X miles on every purchase, redeemable on a variety of travel options. The card comes with a $95 annual fee and a sign-up bonus of 75,000 miles if you spend $4,000 on purchases within three months of opening your account, equivalent to $750 in travel.

Pros of cards that reward miles

  • Miles earned on most travel cards don’t expire.
  • Many cards provide substantial sign-up bonuses.
  • Some cards may allow you to transfer miles to their travel partners.

Cons of cards that reward miles

  • Some cards may charge annual fees of $500 or more.
  • Miles typically must be redeemed through specific online portals.
  • Some cards set expiration periods for miles.

Which type of rewards credit card is right for you?

Generally, cash back rewards are simpler to redeem – whether by statement credit or check, cash is cash – but you can earn them in many ways, depending on the card and your own spending. Points or miles, on the other hand, are designed to maximize travel awards. Use them well and the payoff can be big.

To figure out which type of rewards credit card is the right fit for you, consider your lifestyle and spending patterns. Do you load up your cart at the grocery store every week? If so, a cash back card that offers extra rewards for grocery shopping may be the best bet. If you stay at hotels almost as often as you stay at home, a rewards card that earns free hotel stays may be the answer. If you fly a lot, you may find a card that helps you score seat upgrades and airport lounge access turns out to be the most rewarding of them all.

Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

Credit Card Rate Report
Cash Back

Questions or comments?

Contact us

Editorial corrections policies

Learn more