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Credit card rewards explained

On a credit card that offers reward points, you can earn points for your everyday spending. These points can be redeemed for a range of goods and services, such as shopping vouchers and flights. They can also be used for discounts on fuel, family days out, restaurants and hotel rooms.

While reward points can be a smart way to benefit from your normal spending, it’s important to always spend within your means and understand exactly how the reward program works.

How do reward credit cards work?

Banks will offer different rates for earning points for spending and also different things you can use your points for. If you’re considering a reward credit card, consider how you’ll spend and what you’d like to earn. This will impact which type of reward credit card may suit you best. Here are some examples of how this can work.

Shopping points

You may receive points for every purchase you make on your credit card, for instance 1 point for every £1 you spend. The points earned can be accumulated and exchanged for vouchers that you can spend in supermarkets and certain stores.

Cashback

Some credit cards give you a percentage of what you spend as cashback. For example, if you spend £100 and your card pays 2% cashback, you’ll earn £2. These credit cards generally pay cashback into your account monthly or annually. Some credit cards allow you to convert the cashback into vouchers that you can spend in shops.

Air miles

If you’re a frequent flyer, it may be worth considering a credit card that earns you air miles on every purchase you make. These earned miles can then be exchanged for flights.

What to consider before taking a reward credit card

As they offer such rewards, these kinds of credit cards may have higher fees and potentially a higher interest rate. So before taking a reward credit card you want to be confident you’ll be able to repay your balance in full each month and also can afford to pay the annual fee. If not, you may end up paying more in interest and fees than you earn in rewards.

Explore more: What is APR?

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