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Credit card rewards are awesome. It’s the number one (or only) reason to pay for purchases instead of using a debit card or cash. Because of this, the credit card business is very competitive and every year it seems that a new credit card is introduced that takes credit card rewards to a whole new level. As credit card companies consistently try to outmaneuver each other, what are the rewards that cause people to hit the “Apply Now” button the most?
Credit Card Rewards
According to a J.D. Power U.S. Credit Card Satisfaction Survey, rewards and benefits are the two primary criteria when people go “credit card shopping.” In fact, 52% of the survey respondents said they switched credit cards because of better reward programs and 24% switched for improved benefits. As established credit card programs have reduced reward rates in recent years & new credit cards have introduced with more valuable rewards, this statistic really shouldn’t come as a surprise as everybody wants to get the best “bang for the buck.”
The same J.D. Power study also states that active reward users spend, on average, an additional $486 each month than non-reward users. Credit card rewards are big business for the consumer and credit card companies.
Since the fact has been established that credit card rewards are very important, here the most valuable credit card rewards (Drumroll please…):
- Cash back rewards (55%)
- Gift Cards (26%)
- Travel Rewards (9%)
- Merchandise (8%)
- Dining (2%)
These numbers are based on how credit card users redeemed their rewards. Cash back rewards dominated the competition, followed by gift cards (a plastic version of cash), followed by travel rewards. JohnnyJet readers might be somewhat surprised by the results as several credit card programs specifically cater to travelers, but, that is a discussion for later.
Why is cash back the most popular?
The survey results that might be most surprising how cash rewards won by a landslide. One simple theory is that straight cash back is immediate, convenient, and everybody uses it. Cash rewards make every purchase seem like it is on sale for an additional 1 to 6% depending on the card and purchase category. For example, a gas rewards credit card, such as the Costco Anywhere, give you 4% cash back on gas purchases, 3% on restaurant & travel, 2% at Costco, and 1% on everything else. For the occasional traveler, you get the 3% travel reward rate (a rate similar to many travel rewards credit cards) and earn cash back rewards instead of banking up points that can be used for purchase a plane ticket in the future.
Flat rewards cash back credit cards are hassle-free. The fee-free Capital One Quicksilver earns 1.5% cash back on all purchases & also includes a $100 sign-up bonus. You do not earn tiered rewards on purchases like you do with travel rewards credit cards, but, the redemption rate is pretty good. As the normal redemption rate for rewards is 1%, the flat 1.5% statement credit is easy to keep up with and you receive it each month. If you are really diligent, you can stash away the reward money and pay for a reward in the future.
It might not be too surprising that gift cards are the 2nd most popular option. Reward point credit card programs, generic and brand specific, normally offer the best redemption rates for gift cards. It’s not uncommon to see a redemption rate of 1% for gift cards and a worse rate when points are exchanged for other rewards such as cash statement credits or merchandise. With a 1% redemption rate, you can receive a $10 gift card to your favorite store or restaurant for 10,000 points. If you want the $10 cash instead, it might cost you 20,000 points.
With the correct rewards program, travel rewards are awesome. And sign-up bonuses definitely sweeten the pot. For example, new users to the Chase Sapphire Preferred® Card can earn a sign-up bonus of 50,000 Ultimate Reward points that are worth $625 in travel credits. Also, when Sapphire points are redeemed for travel rewards, they are worth 1.25% instead of 1%. If you fall into the category of redeeming your points for travel rewards, it can be real easy to beat the 1% reward rate offered by most cash back credit cards and reward point programs.
Whether the travel reward is hotel loyalty points, frequent flier miles, or credit card points that can be redeemed or transferred to other programs, these rewards are still more valuable when redeemed properly. One of the reasons travel rewards lags behind cash back is that there are more cash back credit cards on the market than travel rewards credit cards that specifically target travelers.
Credit Card Benefits
Let’s focus on the second portion of the survey. The 24% that swapped credit cards for better benefits.
Credit card benefits come in many forms. It might be a complimentary anniversary night hotel stay, Collision Damage Waiver (CDW) protection that makes rental cars cheaper, travel credits, or complimentary Uber taxi rides. Additional credit card benefits normally offset or tip the scales to justify choosing a card that carries an annual fee. Credit card benefits reward specific spending behaviors and brand loyalty beyond points earned from purchase rewards.
In the premium travel rewards card sector, one of the most lucrative benefits is an annual travel credit. The Chase Sapphire Reserve has a $300 travel credit that effectively reduces the annual fee from $450 to $150 once redeemed. Although the purchase rewards are great (3% bonus on dining and 3X points on travel immediately after earning your $300 travel credit), Reserve cardholders can further reduce the annual fee as the Global Entry application fee is reimbursed and cardholders have free access to Priority Pass Select airport lounges.
Credit card benefits are a little trickier to use than rewards. You earn rewards on every purchase, but benefits are normally capped on an annual basis. Despite the finite usability of rewards, they alone can be more valuable than the annual fee when used.
The Three Best Credit Card Companies
One final portion of the survey was rating the best companies. There were six criteria categories that factored into the final results, but, keep in mind that rewards value is very important.
The top three rated credit card companies are as follows:
- American Express
What do all three of these credit cards have in common? They have highly rated rewards programs. The Discover It and Discover It Miles are one of the best-rated cash back credit cards currently available. Regarding the two runner-ups, Amex & Chase, their reward point programs offer the best reward redemption ratios in the industry with travel rewards (& gift cards) worth at least 1%.
These rankings also reflect recent credit card changes. While other companies have pared back their rewards and benefits, the top three companies have introduced new cards or benefits that make their brands more valuable.
Chase is no doubt the leader in the travel rewards space since they have so many great offers and products. And don’t forget that you must use your credit cards wisely to gain the full advantage of their rewards. Paying interest will negate any rewards you earn on a long term basis.
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Editorial Note: The editorial content on this page is not provided by any bank, credit card issuer, airlines or hotel chain, and has not been reviewed, approved or otherwise endorsed by any of these entities.