Reward cards are marketed as free money, and for a specific group of people they genuinely are. For everyone else they are an expensive way to feel clever.
The dividing line is a single behaviour.
Rewards are worth having only if you pay the full balance every month. Reward rates are typically a low single-digit percentage; interest rates are many times that. One month of carried balance can cost more than a year of rewards earns. If you always pay in full, rewards are real money. If you sometimes do not, the card is costing you.
The arithmetic that settles it
Say a card pays 2% cashback and charges 20% annual interest.
Spend 1,000 in a month and you earn 20.
Carry that 1,000 for a single month and you are charged roughly 17.
Carry it for two and the rewards are gone, with the balance still outstanding. The card company is not confused about this — it is the business model.
Rewards are a discount for people who never pay interest, funded partly by people who do.
The three kinds
Cashback — a percentage back as money or statement credit. Value is fixed and obvious. Best for most people, precisely because it needs no thought.
Points — a currency you redeem for goods, travel or credit. Value varies enormously depending on how you redeem, and the poor redemptions are always the easiest ones.
Miles — points tied to an airline or hotel programme. Potentially the highest value per unit, and the most conditional: blackout dates, availability, and programme rules that change without your consent.
The general rule: the more flexible the reward, the lower its headline rate, and the more likely you are to actually use it.
Working out what a card is worth to you
Ignore the advertised rate and use your own spending.
Annual value = (yearly spend in each category × its rate) − annual feeExample. A card offers 3% on groceries, 1% elsewhere, with a 95 annual fee.
You spend 400 a month on groceries (4,800/year) and 800 a month otherwise (9,600/year):
- Groceries: 4,800 × 3% = 144
- Everything else: 9,600 × 1% = 96
- Total earned: 240
- Minus fee: 145 net
Now compare that against a no-fee card paying a flat 2%: 14,400 × 2% = 288.
The plain card wins, despite the worse headline rate. That result is common, and it is why the marketing leads with the 3% and not the arithmetic.
Divide the annual fee by the reward rate to find how much you must spend just to reach zero. A 95 fee on a 2% card needs 4,750 of spending before the card earns you a single unit. If your real spending is below that, the fee-free card is better no matter what the advertising says.
Where the value quietly leaks
Points that expire. Check the rules. Some expire on a fixed schedule, some after inactivity.
Devaluation. Programmes change how many points a reward costs, generally upward. Points are a currency whose issuer can print more at will, so banked points lose value over time — a reason to redeem rather than hoard.
Redemption spreads. The same points are frequently worth twice as much redeemed one way as another. The convenient option is usually the worse one.
Foreign transaction fees. Often around 3%, which quietly cancels the rewards on every purchase abroad.
Category caps. "5% on groceries" often means 5% up to a quarterly limit, then a much lower rate.
Who should not chase rewards
Be honest about which group you are in:
- Anyone who has carried a balance in the last year. Get a low-interest card, not a rewards card.
- Anyone who spends more when it earns points. If chasing a bonus changes what you buy, the reward is costing you more than it pays.
- Anyone juggling several cards for bonuses. It works for organised people and generates fees and missed payments for everyone else.
If you do want one
- Pay in full, automatically. Set a direct debit for the full statement balance. That one setting is what makes the whole thing work.
- Start with one flat-rate cashback card, no annual fee.
- Only add a category card if your own arithmetic — not the advertisement — shows it wins.
- Redeem regularly rather than saving up for something distant.
- Recheck yearly. Terms change, and a card that was worth its fee two years ago may not be now.
This is general information, not financial advice — see our disclaimer.
Frequently asked questions
Are credit card rewards worth it?
Only if you pay the balance in full every month. Typical reward rates are a small percentage while interest rates are many times higher, so carrying a balance wipes out a year of rewards in a couple of months.
Cashback or points?
Cashback for most people, because its value is fixed and obvious. Points and miles can be worth more per unit but only if you redeem them well, and most people do not.
Is an annual fee ever worth paying?
Sometimes, but do the arithmetic rather than the vibe. Divide the fee by your reward rate to find the spending needed just to break even, then check you genuinely spend that much.
Do rewards cards hurt your credit score?
Not by existing. Applying for several in a short period does, and so does carrying a high balance. A single card paid in full each month helps rather than hurts.
Why do card companies give rewards at all?
Because they earn a fee from the merchant on every transaction, and because rewards encourage spending. A meaningful share of customers also pay interest or fees, which funds the rest.
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