Monday, 9 July 2018

Over the years, credit card issuers have come up with a multitude of programs designed to retain customers by rewarding them for their loyalty.

While many of these programs have come and gone, travel rewards and cash-back rewards programs remain wildly popular today.  But which one is the right fit for you? Let's explore. 

Cash-back cards

Essentially, cash-back programs rebate a percentage of the amount of the purchases you make with the card. The most straightforward programs rebate a flat percentage rate on all purchases, say 1 or 2 percent. Other cards have more complicated structures, such as tiered percentage rates, category bonus rates, and increased rebates for certain types of spending.

How you redeem your cash varies by card as well. Some issuers credit your card account each month you earn rewards, while others allow you to deposit your cash back into your bank account. Some let you use your cash to purchase gift cards, while others also give you the option of donating your rewards to a charity of your choice.

Frequency also is a variable, with some cards paying rebates monthly, while others do so quarterly or annually.

One of the most obvious benefits of cash-back programs — particularly when compared to travel reward programs — is the flexibility. In most cases, you have many options when it comes to how you receive your cash-back rewards and how you spend them.

As with just about anything related to credit cards, the devil is in the details. If you opt for a cash-back card, it's important for you to fully understand the parameters of the program so you choose a card that suits your spending patterns and makes it easy to earn rewards.

Travel rewards programs

Travel rewards programs work on the same premise as cash-back programs except you receive airline miles or other travel-related rewards as your rebate for purchases. A fairly common structure is one "mile" for each dollar spent, and depending on the card, you can often redeem miles at airlines, hotel chains, and a variety of other travel-related businesses.

Travel rewards programs typically restrict the use of rebates to travel-related products and services. And while this isn't ideal for everyone, if you're a traveler, these types of programs can be quite valuable.

Like cash-back programs, travel rewards programs have many variables such as which airlines you can use, what hotel chains are included, when you can redeem rewards, when miles expire, and more. Again, it's important to fully understand how the program works so you can determine if you will be able to maximize the benefits.

Fees and rates

Regardless of how generous either a cash-back or travel rewards program might seem, if you're paying a hefty annual fee, you might not be realizing much benefit. There also are other fees to consider, such as a foreign transaction fee. Let's say you cashed in your miles for an inexpensive plane ticket to Paris only to find you have to pay a high currency-exchange fee every time you used your card. A couple of those fees could quickly erase the savings on your ticket.

And, if you carry a balance from month to month, there's a good possibility the interest you're paying makes the rewards pointless. Think about it: you're paying double-digit interest and earning 1-2 percent cash back. The math is not in your favor.

Do your homework

Cash back and travel rewards programs aren't gimmicks. If you figure out how to maximize the program, you can earn some significant rewards. In order to do so, you'll need to do some research and gain a thorough understanding of how the program works. Armed with information, you'll be able to choose a card with a rewards program that best suits you.

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