Key Takeaway: Rewards credit cards are worth it when the value you get is greater than the annual fee, interest charges or any other cost needed to maintain the account.
Rewards credit cards are worth it when the value you get from the card — through cash back, points, welcome bonuses, spending credits, travel and other perks — outweighs the annual fee and any interest you pay.
The fastest way to tell: If you pay your statement balance in full each month and the card’s reward categories match your everyday spending, a rewards card is almost certainly worth it. If you regularly carry a balance, interest charges will reliably cancel out the rewards. To understand if a rewards card is worth it for you, you’ll need to calculate your personal card value.
- How do I know if credit card rewards and benefits are worth it?
- What are the different types of rewards credit cards?
- Pros of rewards credit cards
- Cons of rewards credit cards
- How do I know if the annual fee is worth it?
- Frequently asked questions about rewards cards
How do I know if credit card rewards and benefits are worth it?
Credit card rewards and benefits are worth it when their total value for you — rewards earned on your everyday spending, perks you’ll use and any welcome bonus — outweighs what it costs to keep the card, including the annual fee, any interest charges, and any extra spending you do to earn credits or bonuses.
To decide if the rewards and benefits are worth it at a glance, ask yourself these questions first:
- Do you pay your statement balance in full each month? If not, a rewards card probably isn’t worth it for you — interest charges will outweigh the card’s value in most cases.
- Do the card’s rewards categories line up with your existing spending? If not, the rewards rate won’t be as valuable to you.
- Does the card offer new, instead of duplicate, rewards and benefits compared to the other credit cards in your wallet? The same rewards and perks on multiple cards will decrease the value of one of them because you won’t be maximizing your spending on one.
- Does the card’s estimated annual value — the overall value you expect to get from all the relevant rewards and benefits — exceed the annual fee? If not, look for a card with a better fee-to-value ratio for your needs.
If you answered yes to all four, a rewards card is likely worth it for you. To help calculate your specific estimated annual value, work through these steps.
Determine whether you’ll carry a balance
In many cases, carrying a balance and paying interest charges will outweigh the value you get from the rewards and benefits on a credit card. For that reason, a card’s rewards and benefits usually aren’t worth it if you think you might pay interest.
For instance, let’s say you spend $1,000 in a month on a rewards card that earns 2% cash back on all purchases and carries a 25.99% variable purchase APR with a $40 late payment fee. You’d earn $20 in cash back for that billing period. But if you paid your bill even one day late, you’d owe the $40 fee and more than $20 in interest charges, for a total three times greater than the rewards you earned.
If you think you might carry a balance, a low-interest card will typically serve you better than a rewards card.
Decide which rewards and benefits you’re likely to use
Figuring out when a card’s rewards and benefits are worth it requires more consideration than just adding up the total value of everything offered. What matters is how the card fits your real spending habits and lifestyle.
To determine which cards and benefits you’ll use, ask yourself the following questions:
- Do the rewards match your spending patterns? High rewards rates only mean something if the categories match your spending patterns. For example, if you spend a lot at grocery stores, then you’ll know a card that offers 6% back on grocery purchases will give you a lot of value. But if you prefer to eat out or order in, a card with a high rewards rate on restaurant purchases will probably suit you better.
- Does the benefit match your habits? A benefit is only worth something if you use it, and some savings are only visible in specific situations. For example, if you always check bags when you fly, a free checked bag benefit can save you $35 or more per flight. On the other hand, if you always carry on your luggage, that benefit won’t be worth much to you.
- Does the benefit cover the full cost? Many cards come with spending credits, but they’re not guaranteed to cover the full cost of the service. A $10 monthly streaming credit sounds useful, but if the service costs $15 every month and you don’t currently subscribe, you’re paying $5 each month to sign up.
- Do you travel often enough to justify a travel card? Travel credit cards typically offer more perks and benefits than cash back credit cards, but they’re also more likely to charge annual fees. When considering the overall value of a travel card, think about whether you’ll use the benefits often enough to justify the card’s costs (which include interest on any balance you’ll carry over). Your rewards only provide value when you redeem, and you might not do that especially often if you’re not a frequent traveler.
Value the rewards and benefits you’re likely to use
Once you’ve determined which rewards and benefits you’ll actually use, calculate the overall value you’ll get from the card. This is a straightforward process.
Determining the value of a card’s rewards
Multiply your monthly spending in each category by the card’s rewards-earning rates for that category. For example, $200 on groceries every month x 3% cash back at grocery stores = $6 every month (or $72 per year). Run this calculation across all your major spending categories and add up the total.
Determining the value of a card’s benefits and perks
Check if the card issuer lists an estimated value for each benefit, then adjust the listed value to your habits. A monthly $10 rideshare credit is worth $120 annually, but only tallies up to $60 if you use it for just six months out of the year.
If the card offers a sign-up bonus, consider whether you’ll meet the requirements to earn it and list out the value. Some bonuses are cash bonuses with a clear dollar value, but others may come in the form of points or miles. If you’re having trouble valuing these points, consult Credit Karma’s points and miles values.
Once you’ve added up all the rewards and benefits, you’ll have a sense of how much you can expect to earn in value from the card every year.
Account for benefits without a clear value
Sometimes, a credit card won’t list an estimated value for all of its benefits — but these perks can still tip the decision. Travel insurance, purchase protection, extended warranty coverage and airport lounge access are meaningful perks that card issuers may not quantify. In these cases, if it’s a perk you think you’ll use, you’ll need to make a decision on how much that perk means to you.
Here’s an example: Let’s say you’re loyal to a particular hotel chain, and you like that the hotel’s co-branded credit card offers complimentary Silver elite status to all cardholders. It might be worth getting the card even if the value of the card’s other rewards and benefits doesn’t wow you. Status can unlock perks (like late checkout, bonus points and special rates) that add real value for you even without a dollar amount attached.
Compare the card with cards you already have
If you already have other rewards credit cards, then you’ll need to assess the rewards and benefits alongside those you already have. If the card you’re interested in offers 4% back on gas, but you already have a card that offers 3% back, then the added value is really the 1% difference in rates, not the full 4%. Factor in any annual fee you’d pay for that small difference before deciding whether getting the new card makes sense.
Factor in the annual fee and other costs
Once you’ve determined the value of a card’s rewards and benefits, you can factor in the costs of maintaining the card and subtract from the value to see if it’s worth it. In most cases, the largest cost will be the annual fee, if the card has one. But you may want to factor in other costs, like any interest, or even an unexpected late payment fee.
And there are other costs to consider, too: foreign transaction fees if you travel internationally, extra purchases you expect to make to earn benefits and even unexpected late payment fees.
What are the different types of rewards credit cards?
There are three primary types of rewards cards: cash back, travel and general rewards. Each has its strengths and weaknesses, so the right one for you will depend on how you spend and what you want out of the card.
- Cash back: Cash back credit cards offer rewards on your purchases — usually as a percentage of the total purchase — at a flat rate on all spending or at higher rates in certain categories. Cash back is easy to understand and to redeem, often showing up as a statement credit or cash payment. Cash back cards are usually best if you want clear short-term value for your spending.
- Travel: Travel rewards cards offer points or miles on your purchases that can be redeemed for travel-related expenses like flights, hotel stays, rental cars and more. They’re also more likely to feature extra perks and benefits than other types of rewards cards. Travel cards are usually best if you want to maximize overall value on your spending, even if it takes more time and effort to get that value. The true value of the points you earn can vary by redemption method — issuer portals typically offer fixed rates, while transfer partners can often unlock higher value.
- General rewards: General rewards credit cards offer points on your purchases just like with travel cards, but with added flexibility and the chance to redeem your points for an equal rate on both cash back and travel redemptions. At the same time, the overall value they offer typically matches that of cash back cards.
Pros of rewards credit cards
- Rewards on everyday spending: You can earn back value for a wide variety of purchases you’re already making at a flat rate on all purchases or at higher rates in specific categories. With cash back cards, you’ll earn a percentage back on all purchases. With travel cards, you’ll earn points or miles that you can then redeem for a variety of travel purchases, like flights and hotel stays.
- Sign-up or welcome bonuses: Manyrewards credit cards offer potentially lucrative sign-up bonuses (also known as welcome bonuses) when you spend a set amount in the first few months of card membership, usually three or six months. Bonuses for cash back cards might sit around $200. The best travel card bonuses can be worth more than $1,000, depending on how you redeem the points.
- Valuable perks and benefits: Rewards credit cards tend to include the most valuable card perks — these benefits can include spending credits for travel or dining (or at certain retailers), complimentary subscriptions with streaming services or food delivery apps, and even airport lounge access and automatic hotel status. Sometimes, these perks can be more valuable than the cards’ rewards on their own.
- Travel rewards programs: Travel rewards credit cards can offer access to flexible travel rewards programs that add to the value of your points and miles. While travel programs frequently offer a fixed redemption rate for your points through their own travel booking portal, they can also partner with airlines and hotels to offer a 1-to-1 transfer rate between programs. If you know where to find the right deals, transferring points can be a great way to add value.
Cons of rewards credit cards
- Temptation to overspend: If you don’t approach a rewards card with a clear sense of your budget, it can be tempting to spend more than normal just to earn back rewards. Similarly, not all spending credits cover the full cost of an associated purchase. It’s often best to approach the rewards and benefits of these cards as bonuses for purchases you already make.
- Interest charges can outweigh rewards: Rewards cards rarely make sense if you think you’ll carry a balance. While the rewards and perks carry real value, credit cards can come with APRs high enough for the interest to cancel out whatever benefit you earn.
- Annual fees: Not all rewards cards come with annual fees, but they’re common enough to be a major consideration when choosing a card. The annual fees on cash back cards don’t typically exceed $95, but the most valuable travel cards can come with annual fees over $500. Not everyone wants to pay that cost, or to put in the effort required to cover it with the card’s benefits.
- Spending category caps: Higher rewards rates in specific categories often come with caps that limit the card’s value after you surpass them. A card may offer 6% cash back on groceries — but only up to $6,000 in grocery purchases per year, after which you may only earn 1% on grocery purchases. If you spend above the cap, your overall annual value on those purchases is lower than it appears.
- Higher credit requirements: Rewards cards usually come with higher credit requirements than other kinds of credit cards. Depending on your situation, you might not be able to qualify for the rewards card you want even with good credit. In most cases, the best rewards cards require excellent credit.
- Effort to maximize value: Some rewards credit cards offer straightforward value for your spending, but others may require you to track spending categories, spending credits and expiration dates to maximize value. Tools like Credit Karma’s Cards Optimizer can help with the process, but not everyone wants to put that level of effort into their credit cards.
How do I know if the annual fee is worth it?
Paying a credit card’s annual fee is worth it when the card’s rewards and benefits outweigh the fee, plus any additional costs of maintaining the card. The math is straightforward: Add up the estimated value you’ll get from the card and subtract the annual fee from that total to see what’s left.
Here’s an example: If you estimate $600 in annual value from a card with a $550 annual fee, you’re coming out on top by $50 — but barely. Compare that to a card with a $95 fee delivering $350 in annual value: The lower-fee card ends up being worth $255. The expensive card isn’t automatically the better deal.
Keep in mind that some cards charge an annual fee without offering rewards. For these cards, it might still be worth paying an annual fee to build credit, but you’ll want to look for the lowest fee for your situation.
When is a credit card annual fee not worth it?
A credit card’s annual fee isn’t worth it when the card’s rewards and benefits are less than the overall cost of maintaining the card, including the annual fee. If you think you’ll get $90 in rewards value from a card over a full year, but the card charges a $95 annual fee, then it’s not worth it if you have better options available.
Frequently asked questions about rewards cards
A credit card with an annual fee is worth it if the rewards, credits and perks you’ll actually use outweigh what you pay. Cards with annual fees, most ranging from $95 to $550 a year, may offset the cost through travel credits, elevated cash back rates, or lounge access — but only if the card is right for your habits and spending patterns.
Add up the value of the rewards and benefits you’re likely to use — statement credits at face value, rewards at your typical monthly spend, and perks like lounge access at their market rate. Compare that total to the annual fee and any other costs — if it’s higher, then the card covers itself. For perks without a clear dollar value, decide if that card feature is worth the cost to you.
Cash back cards can be better if you want simple, predictable rewards, while points cards may be better if you want more redemption options and more potential value. When choosing between cash back and points, the rewards card that’s best for you depends on what best fits your habits and what you want out of a card.
In general, travel rewards cards aren’t worth it if you don’t travel often because their rewards and benefits are built for more-frequent travelers. A cash back card that matches your spending habits — like a card with 2% back on all purchases or a high rewards rate in your biggest spending category — may be the better choice.
The credit card perks that save the most money are those that best fit your existing spending habits, such as statement credits, cash back in your spending categories, or free checked bags. For example, a smaller credit you’d use regularly, like a general $50 statement credit, saves you more than a larger, qualified credit that doesn’t fit your plans, like a $250 credit for a hotel you’re not likely to visit.