Reward Credit Cards vs. Rebate Credit Cards

One of the key choices in deciding on a rewards card is to determine if you want to aim for cash back or rebate on the one hand, or other types of rewards on the other hand. This article will you help you focus on some of the key points that differentiate the cards in order to assist you in making a good choice for yourself.

Rewards, Rewards

A rewards card is a credit card that is something other than a way of either getting a temporary loan and delaying paying out on transactions on the one hand, or getting credit on the other. A rewards card gives back a percentage of your purchases to you in some way, shape or form. So, if you want to get technical, a cash back card is simply one form of rewards card, in among other that may reward you with points, miles, merchandise, gas, hotel stays, gift certificates, and other items. The article “Types of Reward Credit Cards” goes into more detail about the variety of types of card that fly under this name.

Comparing Fees

Most rebate and other reward cards carry no annual fee, a card feature that you should be seeking in all cases because an annual card fee would take away from the rebate or reward you earned, so much so that it might render the card fairly useless. Note that this cannot be said for charge cards, like some of the American Express offerings, which do have a yearly fee. There are some few rewards credit cards that charge fees, and these are usually airline cards.

Making a List; Checking It Twice

Because points and miles often expire, it can require a great deal more effort to make sure that rewards cards work smoothly, while cash cards on the whole, just role the money your way without your having to do anything extra (besides use your card). In order to avoid forfeiting valuable rewards, keeping track may only be the beginning: past due payments and account inactivity may also trigger forfeiture of accumulated points or miles. In addition, a request may have to be submitted in order begin the redemption process.

Limit Your Cap

A cap that limits your earnings on either a rewards or a rebate credit card can diminish the card’s value for you. If the type of card you want is very specialized so that there is no competition, you may not have much choice in this area. But if you have the opportunity, opt for a card with no cap or one high enough that it doesn’t cramp your style.

Those Pesky Minimums

Some rebate cards are tiered, and the desire to reach a higher tier to earn higher percentages can cause pressure to make purchases you wouldn’t otherwise make or to push up your schedule for purchasing items. Vexing financial decisions can result. Similarly, rewards cards can have implements established so that you have to reach a certain number of points or miles to be able to redeem the ones you already have, and this situation, too, can lead to spending outside of your budget and/or plans.

This or That

Have you ever surveyed a rewards level and found nothing that interests you, even remotely? This can be another problem with a rewards program. Without a viable choice, the rewards lose their value, or may push you to go for the next higher level despite your plans. Cash doesn’t present you with this problem, because you can use cash for anything you like: a flamingo lawn ornament, a ticket to see the Chicago Symphony Orchestra, a dinner at one of Emeril’s restaurants, an oil change for your pick-up truck, or—as those who aren’t fond of rewards programs are quick to point out—the same item that you were earning a reward for without all the record keeping and waiting.

Excluded Charges

Reward and rebate cards both are likely to exclude certain charges from rewards qualification. Besides purchases at certain locations, i.e., certain stores or types of stores—often warehouse purchases are excluded—you will most likely find that balance transfers, cash advances, and ATM use will not be credited towards your rebate or reward.

Extra Fees

Cash is cash. But with other types of rewards, you may find that the merchant may have their own restrictions and, yes, fees. This is best known for happening with travel rewards in the from of miles, which you may have to pay to be able to redeem. You may also incur large penalties if you don’t turn in miles far enough in advance of your travel dates, if you purchase a ticket and then find yourself unable to use it, and/or if you need to speak with a representative of the airline for any reason.

But What’s the Bottom Line?

The thing is, when all is said and done, most calculations show that the value of the rewards in miles and merchandise is greater than the rewards in cash. Given the extra time required for record-keeping and the possibility of fees, this may not be enough to make you jump at them, but if you’re in a situation to take advantage of the benefits, a reward program for merchandise or miles may be well worth your while, if you can find one that is a good match for you (for more on finding your match, see the article, “How to Find the Best Reward Credit Card”).

What If You Can’t Decide?

Then again, you might want to keep your options open, and there’s a way to do that, too. The Citi Card Thank You Rewards Network includes American Express as well as VISA and MasterCard, and allows you to convert your points as rebate, miles, or merchandise reward. If you like the idea of keeping the decision in your hands until you can really see the situation, rather than throwing your weight one way or another from the outset, then this may be the choice you’d prefer.