Do you love your rewards credit card? Does it make you feel good to know that you’re earning something or essentially getting paid just to spend money you would spend anyway? Do you have a favourite type of rewards programme? Are the rewards you earn really worth it?

Let’s look at some common types of rewards you can earn when using rewards credit cards, and try to figure out which rewards are worth trying to accumulate and which ones might be less so.

Types of Credit Card Rewards

Three of the most common types of credit card rewards are:

1.    Cash back
2.    Merchandise / shopping vouchers (like gift cards)
3.    Frequent flyer points

Some rewards credit cards, like the Citibank Platinum credit card, let you choose the type of rewards you want to redeem your points for. Other cards are more tailored to specific reward types, such as the Citibank BP credit card which is not only tailored to cash back rewards but more specifically towards cash back on BP purchases (with lower rewards for other spending).

Are the Rewards Worth It?

Whether or not a rewards programme is worthwhile will depend on several things — what type of rewards you choose, whether you pay off the balance in full each month or not, and whether you’re only spending what you’d spend anyway or you’re spending money on unnecessary things just to earn more rewards.

If you’re overspending with your credit cards solely to try to earn more rewards points or you end up paying a lot of interest, those points will not likely be worthwhile. Setting the cash that you ultimately spent aside would have been a better deal (you could have put it directly towards the flight or other reward you redeemed the points for and gotten more out of each dollar spent). If, however, you’re only spending what you would spend anyway and you’re avoiding interest by paying off your bill in full every month, then your rewards programme is probably a good deal.

If you want the best deal possible, you need to break it down by rewards type and your typical use. For example, let’s say you could choose the cash back on BP purchases (5%) or using a card that let’s you earn a $25 shopping voucher to your favourite restaurant. The cash back card is probably the better deal. Look at it this way — that voucher might mean spending $1000 or much more to earn enough rewards points. To earn the same $25 in cash back on the BP card, you would only spend $500. Therefore, at $1000 you would have saved $50, making it an obvious better deal.

Look at your rewards programme terms carefully. Break down your rewards options into dollar amounts. Which can you earn faster while spending less? That’s the better deal. Of course it’s no deal at all if you’re earning rewards you won’t actually use, so choose wisely but choose something that’s worthwhile to you.