Credit Card Rewards: 6 Frequently Asked Questions
Before you apply for a credit card, get answers to common questions about rewards, benefits and perks.
For many consumers, credit card rewards are a valuable perk. Common rewards include cash back, discounts from select vendors or travel miles — all provided simply for making purchases with a credit card.
If you’re just getting started with a rewards credit card, you likely have questions about how to maximize your benefits.
Jessica Silva, manager of Zions Bank’s Linder and Chinden branch in Meridian, Idaho, shares her insights on 6 of the most frequently asked questions about credit card rewards.
Credit Card Rewards FAQ #1: Are credit card rewards worth it?
Because credit card rewards are a popular incentive to spend money, it’s well known that many Americans end up overspending. According to the most recent data from the Federal Reserve Survey of Consumer Finances, the average credit card debt of U.S. families is $6,270.
But if you have financial discipline, the rewards of credit card usage can be highly beneficial.
“If you pay off your credit card in full each month, it might surprise you how quickly your cash back rewards can add up,” explains Silva. “The most recent data from the U.S. Bureau of Labor Statistics reports that the average U.S. consumer spends around $5,000 a month. If you could pay for these expenses with a credit card that provides 1% cash back, you could earn $600 annually.”
However, Silva offered a word of caution about how credit card fees could offset these rewards.
“Because some credit cards require an annual fee, it’s important to make sure your fees won’t offset any potential rewards,” says Silva. “And if you can’t pay off your credit card in full each month, your accrued interest will almost certainly offset your rewards.”
Pro tip: Zions Bank’s suite of personal credit cards* comes with no annual fee.
Credit Card Rewards FAQ #2: Are credit card rewards taxable?
It’s gratifying to earn rewards from your credit card company, but it’s less thrilling to consider the tax implications. According to Silva, your tax implications depends on the type of credit card rewards you receive and how you receive them.
“Generally, redemption of credit card rewards and frequently flyer miles are considered non-taxable,” she explains. “They are treated as discounts on what you purchased.”
In other words, because you had to spend money to receive your cash back rewards or frequently flyer points, you would not have to pay taxes on these rewards.
However, Silva acknowledged that other types of credit card rewards could create taxable income.
“Some credit cards provide a welcome bonus automatically without any required spending,” says Silva. “For example, you might receive a gift card or 50,000 travel miles for opening a credit card. If you didn’t spend anything to receive the reward, its value is considered taxable.”
If you’ve received a taxable credit card reward, you will be required to report it as income. “If you’ve received a taxable credit card reward, you might be sent a Form 1099-INT or a Form 1099-MISC from your credit card company,” she says. “But even if you don’t receive a 1099 form, it’s still important to report all taxable reward bonuses to the IRS.”
Silva recommends consulting a professional about any tax implications related to credit card rewards.
Credit Card Rewards FAQ #3: What credit card is best for me?
Consumers have many options for credit cards and it can feel overwhelming to narrow down your selection. But according to Silva, savvy consumers will benefit from a methodical process of identifying the type of card they need and asking the right questions.
“First of all, it’s important to recognize the different types of credit cards,” explains Silva. “Some cards, such as student credit cards, are intended to help users improve limited credit scores. Other cards are intended to help users save money on interest by providing low APR or a special 0% introductory offer. Finally, the last category of credit cards focuses primarily on rewards, such as cash back or travel miles.”
To help narrow down your needs, it’s helpful to consider your monthly spending patterns.
“If you plan to carry over a monthly balance, you might want to consider a credit card with a competitive interest rate or special introductory offer,” says Silva. “But if you’re confident that you can pay off your balance each month, you might benefit the most from a credit card that prioritizes rewards.”
Credit Card Rewards FAQ #4: Which credit cards are best for travel?
Although almost all credit cards offer rewards, travel credit cards offer specialized bonuses to enhance your travel experience.
“When choosing a travel credit card, some of the most desirable benefits are the credits and earn rate you obtain from special travel categories,” explains Silva. “For example, a travel credit card might reward you with a higher percentage of cash back in categories such as airfare and hotels, or it might give you points that can be redeemed for travel.”
Silva cautioned to be aware of common pitfalls for travel credit cards. “Don’t forget to check the redemption policy of your travel credit cards and confirm that any annual fees won’t outweigh your benefits,” she says. “If it’s difficult to redeem points or the annual fees are high, you might want to consider other options.”
Pro tip: The Zions Bank Premium Visa Credit Card* has no restrictions on redemption and no annual fee for the first year.
Credit Card Rewards FAQ #5: Which credit card is best for students?
Most students have special needs to consider, such as a limited credit history or the need for an adult co-signer on a credit card before they turn 21. A credit card could help your student build credit — but it will depend on how responsibly they use it.
“On average, most college students finish school with more than $3,000 in credit card debt,” says Silva. “To help your student manage their credit card responsibly, it might be helpful to consider a card with a low credit limit.”
Another option to consider is a secured credit card.
“If you want your student to build good credit without the risk of overspending, a secured credit card is tied to a savings balance,” explains Silva. “This means that the student can’t spend more than the amount in the tied saving account — which could reduce the risk of making impulse purchases.”
Credit Card Rewards FAQ #6: Which credit card is best for cash back?
Because cash back is one of the most popular credit card rewards, you’ll have many options to consider. It’s important to recognize, however, that the percentage of cash back isn’t the only factor you need to consider when choosing a credit card.
“When you consider cash back credit cards, don’t forget about the fees,” cautioned Silva. “An annual fee shouldn’t be overlooked or dismissed — you just need to confirm that your overall rewards will be worth it.”
Aside from additional fees, there are other important factors to consider.
“Some credit cards promote bonus categories that seem highly attractive, but they rotate on a quarterly basis,” explains Silva. “Because these categories aren’t provided consistently, you may not obtain as much benefit as you’d anticipate.”
The bottom line: Crunch the numbers to estimate the benefits a specific credit card will provide over your first year of use. This will give you a clear baseline to compare offers and encourage you to weigh the relevance of specific perks.
As you research different credit cards, you can find out which Zions Bank credit card fits your needs by using our credit card comparison tool, or by visiting your local Zions Bank branch for more information.
*Credit cards are subject to credit approval. Terms, conditions and restrictions apply. See a banker for details.
Malcolm Hong is Public Relations Officer for Zions Bank in Idaho.