logo

Miles, points or cash back — how credit card rewards work and figuring out which one is best for you

VIDEO3:2203:22
How credit card rewards work and the tricks people use to get the most out...

Credit card rewards can be a great tool to get more out of your purchases — if you know what you're getting into.

When you use your debit card, you get what you pay for and not much else. Credit cards, on the other hand, offer you perks such as cancellation insurance, purchase protection and, of course, ways to be rewarded for your purchases. Every dollar you spend leads to more rewards.

Those rewards come in three different forms: Points, miles and cash back.

You can find cards that offer a mix of miles or points and cash back, but most cards tend to focus on one type of reward. So it is important to know what works best for you.

Cash-back cards offer users a percentage of money back on all of their purchases. Cash-back rewards are low maintenance and often give better returns for everyday purchases, but the rewards average around 1.25% of your total spend. These cards are good for those who prefer a more passive experience.

More from Invest in You:
Josh Brown: Sometimes the best returns come from CEOs you've never heard of
How much you'll need in retirement savings by age 30, 40, 50 and beyond
The power of compounding can help you double your money, again and again

Cards with points and miles allow users the most flexibility in redeeming their rewards but can require more effort to find the best value. They also tend to favor travel spending.

The most important thing to remember is to pay your balance in full every month, because no amount of rewards will be enough to justify the average 17% interest rate for credit cards.

Watch this video to find out more about how credit card rewards are calculated and for more tips on what type of card might be right for you.

Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.