The best credit card rewards

card rewards

Revealed: the best credit card rewards, how they work and how to make the most of them.

Purchases mean prizes with reward credit cards.

The value of those prizes can be somewhat difficult to assess, and lots of once generous cards have disappeared or slashed their rates of return - but that shouldn't put us off.

This guide aims to make the whole process much clearer - from how the cards work, however much they offer, to how really savvy users can play the system.

The best type of rewards

Let's start off by looking at the best kinds of deals.

Rule #1: reward credit cards are only rewarding when the balance is ALWAYS paid back in full.

Air miles credit cards tend to offer the most valuable points expressed in terms of their monetary value when redeemed. Depending on the card and the air miles scheme, cardholder will have various options for spending those points - they're not just about free flights.

After that, cash back deals are among the most popular offers, perhaps because their rewards are the easiest to quantify - barring disasters, with pounds and pence we know what we're getting. Even after many providers slashed their cash back rates, these cards still offer some of the best returns for every pound we spend.

But the most rewarding deals aren't the best deals for everyone - in fact, the most rewarding deals are generally best only for those who can afford to spend serious amounts on them.

The ideal is to find a card that suits the individual way we spend: how much, most importantly, but also where and on what. Use the sliders on our main comparison table here to see how many points can be earned based on average monthly spend.

Rule #2: do as much regular spending as possible on the reward card to get as many points as possible.

What are credit card rewards worth?

Credit card providers go to a lot of effort to disguise the "real" worth of rewards to make it look as if we're getting more, just as supermarkets have been found guilty of advertising "was" prices that only existed for a matter of days, or in another store.

Methods vary for working out the "real" value, but one popular way is working out the number of points we need to be able to get £1 worth of the end reward.

So, for example, if it takes 8,000 points to get a £40 gift voucher, then we need 200 points for each £1 of real rewards.

With a card that earns us two points for every £1 we spend, each £1 of spending is worth just 0.01p in reward terms.

Examples like this are interesting but can often be of little practical use, since reward credit cards rarely offer returns this simple.

Most rewards credit card schemes allow points to be redeemed against a variety of rewards, with some giving greater value per pound spent than others - and in the case of air miles, varying prices and the matter of taxes and fees can make the value of the end reward somewhat unclear.

Keeping rewards useful

People who don't use reward credit cards usually dismiss them by saying something like "there's no such thing as a free lunch".

They've got a good case. Reward credit cards are the archetypal "free lunch", attempting to change people's behaviour for their own gain and not always responsibly.

However, their gain isn't necessarily our loss.

How reward credit card providers make money

Reward credit card providers make money in three ways.

First, and least disruptively for cardholders, they simply take money from the retailers where we spend.

Credit card providers charge merchants up to 0.3% per transaction, so it's worth their while to encourage us to use their card, rather than a competitor's or cash, for as much spending as possible.

Second, reward credit card providers bank on some of their cardholders paying interest - either by not paying off the purchases balance in full, or by using the card to make a cash advance transaction. There's more on this in the next section.

Finally, many reward credit cards also function as loyalty cards.

Reward credit cards
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It's cost effective for, say, British Airways, to offer rewards because they're getting loyal customers in return.

Even MasterCard have done something similar with their World Mastercard brand, now only available in the UK in the form of the Santander All In One World Mastercard - the replacement for the famous 123 card.

So it is a "free lunch", with strings attached. But we think they're strings we can live with.

Sticking to the rules

For those who regularly use their credit card but always clear the balance in full each month, a reward credit card could give them something back in return for that good behaviour.

Let just say that again:

Rule #1: reward credit cards are only rewarding when the balance is ALWAYS paid back in full.

This is the most important rule of reward credit cards, and is best stuck to not only by keeping a close eye on credit card statements but by setting up a direct debit to make sure the payment is made each month.

It sits alongside the second rule.

Rule #2: do as much regular spending as possible on the reward card to get as many points as possible.

Now a note on misreading: rule two doesn't mean "spend as much as possible". Rather, it means moving our normal spending, or as much of our normal spending as we can repay in full at the end of the month, to the rewards credit card.

Any other tip for maximising reward earnings is secondary to these two: follow them strictly and we won't go too far wrong with these credit cards.

Main types of rewards

Now that we've talked a bit about how reward credit cards work, it's time to think about some of the specific rewards available.

In most people's minds these rewards come down to two things: rewards and cash back.

Cash back is an attractive, fuss free reward: we know exactly what we're getting.

But the truth is that reward cards are likely to earn more in real terms than cash back ever will, because their deals are built on loyalty to retailers or service providers as well as loyalty to the credit card provider.

See our full guide to cash back credit cards for more information, and to take a look at the deals available.

We like rewards over cash back because we actively need to choose to redeem them. Because they come in the form of a voucher or ticket, we can't "accidentally" spend them, as is all too easy with cash back credited straight to our account.

Rewards feel more valuable and are, therefore, likely to be used more wisely.

Air miles

Generally, the best of the credit cards rewards, in terms of the value per spend, are air mile reward schemes.

They're one of the easiest ways to turn spending into real rewards for three reasons:

Those who always fly with a particular airline will pick up more miles on their flights, get VIP treatment and pick up extra travel offers.

It is fairly common for the cards that offer the most air miles and additional benefits to charge annual fees.

That means they offer the best credit card rewards only to seriously high spenders, so it's worth checking for a minimum suggested monthly card spend, or attempt to work out how much we'd need to spend to qualify for the minimum reward - including the annual fee - to see if they're worth it before making an application.

To see more information on this type of reward, click through to our full guide to air miles credit cards.

Note, though, that while air miles are some of the best credit card rewards available, the same can't be said of 90% of the travel rewards on offer.

Many credit card providers promise "travel discounts" on package deals but, in most cases, even with the discount the deals are pricey.

Others promise travel accident insurance on trips, an extra that hardly ever pays out and is no replacement for full travel insurance - there's more on this here.

There are some exceptions - see this article for some of the best deals out there - but, largely, they're credit cards made for the seriously well heeled: the other rewards they offer - in return for very high spending - are far more valuable and useful to their holders.

One premium credit card like this, for example, used to offer enough bonus points in the first three months for a three night stay in a standard room at the Sheraton Sharm El Sheikh Hotel.

Retail rewards

As we mentioned previously, retail or shopping rewards credit cards can also be one of the most valuable forms of card rewards.

As with air miles, that's partially because there's a loyalty aspect in terms of the companies involved.

This is even true of very general retail reward credit cards, which offer more points in certain types of shops such as supermarkets and pay bonuses in shopping vouchers, because it's in the interests of the voucher companies.

Note, too, that retail doesn't have to mean the temptation to splash out more in the supermarket or the shoe shop. Some cards can help save on, or at least reward us for paying bills, or on fuel, for example.

Other providers offer general online discounts for their credit cardholders.

Charity credit cards

Finally, a word, or rather a warning, on charity credit cards.

These reward credit cards have an immediate appeal: they're an affordable way to give - and a smug one too, since it's the card provider that's doing the donating.

That's the problem, though: the providers aren't willing to donate much.

There's more about this in our cash back versus charity guide but in brief, the rates of return are much lower.

Collecting from the credit card provider with a normal cash back credit card, then siphoning the money off to our charity of choice would raise a lot more money - especially considering that we can add Gift Aid this way, which we're not sure is the case with charity credit cards.

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