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Credit Cards: Best Ways to Redeem Rewards

This article is part of a 2-part package on rewards cards. To read the other article, click here: 6 Worst Ways to Use Credit Card Rewards.

If you upended your wallet or purse, how many rewards cards would spill out? Rewards cards are now so ubiquitous that their points have passed the U.S. dollar as the largest currency in the world, with more than a trillion points in circulation, according to Affinion Loyalty Group, a marketing company that manages rewards programs. And the number of airline miles is beyond sky-high: 14.2 trillion.

Sure, a reward point isn’t exactly worth a dollar — its cash value is more like a couple of pennies or less. But we still can’t seem to resist the promise of freebies: “Having a way to make your everyday purchases reward you in real dollars, gift cards, merchandise, or travel is incredibly compelling,” says Marti Beller, president of Affinion.

Card issuers, however, are making rewards harder to collect. can help; the site analyzes your spending habits and recommends the most appropriate rewards cards. And to ensure you’re getting the most bang for your bucks when you redeem points, follow these five rewards card rules (and see our related story on the worst ways to redeem rewards).

1. Get Your Rewards in Cash

Transferring points into spending money is the way 61 percent of the card owners get their rewards, because they know exactly what they’re receiving. But some cash rewards have become complicated.

“It used to be you got 5 percent cash back across the board,” says Beverly Blair Harzog, a spokeswoman for “Now card issuers have rotating categories where you might get rewards for gas in the first quarter of the year and groceries in the second.”

To keep things simple, consider these cash-back cards:

2. For Travel Points, Get a Flexible Card

There are three problems with many travel rewards programs: blackout dates that make points hard to redeem, tacked-on fees for cashing in, and an inadequate supply of seats available for reward travel. So unless you’re especially loyal to one airline or hotel chain, opt for a travel card with the flexibility to earn points from multiple airlines and hotels.

A good bet: Capital One’s VentureOne Rewards Visa. This no-annual-fee card lets you accumulate 1.25 miles for every dollar you spend on any purchase, then redeem them on any flight (no blackout dates), hotel, or car rental. That’s a better conversion rate than you’d get with many airline-specific cards.

To avoid losing travel rewards due to the card’s expiration date (often five years) or losing value on them if your issuer gets stingier, redeem your points early and often.

3. Buy a Gift Card

First, the bad news: Redeeming points for gift cards from retailers such as Best Buy, Crate and Barrel, and Bath and Body Works limits your redemption choices and sticks you with all the drawbacks of gift cards. So always take cash instead of a gift card if it’s an option.

But if your only other choice is to swap points for merchandise from a card issuer’s catalog, gift cards are usually a better bet, since you’ll know the price you’re paying, plus you’re less likely to blow the money on something you don’t really need. What’s more, you can redeem small amounts of points — say, 2,500 points for a $25 gift card with the Chase Sapphire card — or a quick payoff. It’s not as if you could fly very far on those 2,500 points.

4. Get Cards from Stores You Frequent

Using a co-branded card bearing the logo of a particular retailer or e-tailer can pay off big time. “Merchant-based rewards are typically much more generous than others,” says Brian Riley, research director at TowerGroup, a financial services research and advisory firm.

With a co-branded card, your points might be worth up to 1.8 cents each, compared to 1.1 cents for a travel card’s points. If you’re redeeming 15,000 points, that’s the difference between a $270 reward and a $165 one.

Chase’s Rewards Visa card, for instance, offers 1 to 2 points for every dollar spent on everyday purchases, but 3 points for purchases at Amazon. You also get a $30 credit for signing up.

5. Use Points to Reach Financial Goals

To boost your rewards-card ROI, get a card that automatically deposits cash back into your savings or investment account or into a 529 college fund.

With a Fidelity Rewards American Express Card, for example, you earn two points for every dollar you spend. Once you hit 5,000 points ($2,500 in purchases), your rewards are converted into dollars at a 1 percent rate (so 5,000 points = a $50 deposit) and deposited into your Fidelity IRA or 529 account. Fidelity manages 529s for Arizona, California, Delaware, Massachusetts and New Hampshire, but you can also choose its UNIQUE college investing plan for residents of any state.

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