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Finding the best rewards credit card

What types of rewards are available on a credit card?

The rewards available from credit cards range from straightforward cash back to points for various loyalty schemes, including those from supermarkets, the card providers themselves, and in the form of air miles. Points will be awarded on most purchases, and sometimes on balance transfers - although this isn't the best way to use a rewards credit card.

Once we've started earning points how we'll be rewarded depends on the sort of reward we're collecting towards. Cash back cards will pay us back at the end of each collection period, whether that's monthly or less often. Some supermarket loyalty credit cards work in a similar way, with the points we've earned over the collection period converted into vouchers. Other rewards cards that offer points just keep stacking them up until we choose to redeem them, usually for the bigger, more expensive rewards.

Which is the best credit card rewards scheme?

The best rewards credit card for us depends on the kind of rewards we want, and how much we spend - and pay back - each month. Look for a card that matches existing spending patterns, bearing in mind where we shop, or that rewards us with the sort of things we do anyway.

Some schemes are more limited in how they allow us to use our points - air miles cards that only really let us use the miles for travel purchases, for example - while others allow us to swap them for a wide range of things, from simple cash back to vouchers for days out, high street or online shopping, or subscriptions to our favourite magazines and so on.

Cash back rewards cards are universally popular because the rewards are so flexible, but some of them do come with conditions that can make them less attractive. While many credit our accounts on a monthly or quarterly basis, some only pay out annually. These are the cards that often require a minimum yearly spend to trigger the cash back. If we don't spend enough, we lose out on that year's possible reward.

What kind of spending can I earn credit card rewards on?

Rewards credit cards work best when they're used for everyday spending - the kind we can pay back in full every month. Using one to do the weekly supermarket shop, or for paying for basic transport costs, will go a long way. Some cards offer better promotional reward rates for purchases made in the first few months of having the account; others offer a better rate of return for spending above a certain amount per month, or with particular retailers.

Some rewards credit cards also offer promotional points for balance transfers, but this isn't the best way to earn rewards. Balance transfers should be made, then paid down - so although we might be rewarded generously for that one-off transaction, we'll miss out on earning further points or rewards each month.

Also bear in mind that not all transactions are eligible to earn rewards - cash withdrawals and transfers to current or savings accounts, and gambling of any sort are ineligible, for example. The best way to earn rewards is to use the card for standard purchases that we know we can pay off each month.

How quickly do I need to claim a reward?

It's worth checking the small print of any credit card rewards schemes we're interested in to check how long we have from earning rewards to having to use them. Many cards that offer us reward points of some sort will let us keep collecting for some time without necessarily having to redeem them - as long as we keep using the card, keeping the account active.

Air miles schemes tend to work in this way; any points we've earned will remain valid for up to three years after our last air miles transaction - whether that's earning or spending them. So if we stop collecting them for any reason, we have a good few years to use any air miles we've earned - and if we do redeem some of them, we'll extend the life of our remaining miles by another couple of years.

We might need to be more wary of expiry dates when we've actually redeemed some of our rewards points. Many schemes offering vouchers for days out or other treats tend to be valid for only a set length of time after they've been issued - from just a few months to more than a year; others may only be offered for a set period of time in the first place.

Are there any drawbacks of a rewards credit card?

Whatever type of rewards credit card we have, it'll only work in our favour if we can be strict about paying it off in full every month. Rewards are earned at a lower rate than interest on outstanding balances is charged, so the value of any benefit earned will very quickly be wiped out if we can't cover the full cost of our spending each month.

The more generous rewards cards often come with annual fees, which can vary considerably. The higher the annual fee, the more we need to spend on the card to make it pay: we can cover or earn back the equivalent of some of the lower annual fees in a month or two's everyday spending, but it's really only worth getting a card with a high fee if we know we can spend - and pay back - a considerable amount each month.

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