A guide to reward cards –what are they and how do they work?

If you are looking at getting a new credit card right now then you may have already seen a lot of different options to choose from. Although all credit cards may seem to work in much the same way many nowadays will come with special deals or incentives to try and get you on board. In recent years, for example, reward cards have become a lot more popular. So, what do these cards do that other credit cards don’t?

Reward cards, as you might guess from their name, give you ‘rewards’ when you use your card to spend. In some cases they may be known as loyalty cards. The rewards that you are given may, for example, work on a rewards program that allows you to earn points every time you buy something with the credit card. There are various ways that this can work depending on the rewards scheme that you choose. So, for example, you might choose a card that:

• Gives you a cash reward — in this instance your reward might be a percentage cash payment based on how much you spend on your credit card.
• Gives you a general points reward — here you may be awarded ‘points’ as part of the program when you spend. What you earn here may be redeemed via a central company although you may be able to use your points to buy different things from different retailers through it. So, for example, you could go online to the points company to use your points to buy things from different companies via their site.
• Gives you a company specific reward — in this case rewards cards are specifically tied to the company that gives out the card. So, for example, your spending may earn you points towards spending in a supermarket, department store, hotel chain or on travel costs. In some cases these cards may also offer options with other companies/offers that they have set up a link to so you may be able to use these rewards to buy other things.

Reward cards may look like they give you a good deal on paper. After all, if you are spending money on a credit card anyway it seems a good option to get something back as a reward for your spending. In some cases, however, you may find that the interest rates charged on these cards are higher than those given on standard ones.

This may not, of course, be an issue for you. If, for example, you always pay off your balance in full every month then the interest charged on reward cards might not even apply to you in the first place. But, if you sometimes or even always carry a balance over from month to month then the interest you’ll be charged might be more of an issue especially if the rewards you are given work out to be worth less than your interest charges.