Here Are the Absolute Worst Ways to Redeem Your Credit Card Rewards

How should you redeem your credit card’s rewards? Here are a few redemption options you might want to avoid.

Credit card, online shopping, retail

Image source: Getty Images

Let’s be real: rewards cards are great, but their reward structures can be notoriously complex. The value of your points or miles depends on how you redeem them, and if you’re not strategic, you could easily devalue your rewards by redeeming them in the wrong way.

That said, there are some redemption options that almost always devalue your points or miles. To help you use your rewards card more strategically, here are three of the worst redemption options out there.

1. Cash back

If your card is built to earn miles or points, redeeming them for cashback is generally a big waste of your hard-earned rewards.

Take the American Express Cobalt Card, for instance. When you redeem your Amex points for travel purchases, you typically get around $10 for every 1,000 points. That’s around $.01 per point, which is standard. If you redeem those same points for cashback, you’ll get around $.007 per point. For 1,000 points, you’d get $7 back, $3 less than if you had used them to buy a flight.

Not every rewards card devalues your points for cash-back redemptions. But you’ll want to double-check your point system before you go through with it.

2. Points at checkout

When you give your credit card information to certain e-commerce merchants, you’ll often see an option at checkout to redeem your points to cover a purchase. Doing so can be extremely tempting. After all, who doesn’t want to see their total balance decrease?

But redeeming points at checkout can be a major waste of rewards. Often, when you redeem points in this way, you don’t get a 1:1 value (meaning every point is worth at least one cent). Instead, you’ll get a fraction of a cent for each point.

Again, it pays to know your credit card’s reward system. If your card is built for cash back, then redeeming cash back at checkout may result in a 1:1 ratio. If your card is a rewards credit card, then you’re probably not going to get the full value for your points.

Instead of redeeming points at checkout, use a cashback card to earn cashback on your shopping. Then, use whatever cash you earn as a statement credit on your account. This ensures you don’t waste your rewards on retail purchases, while also helping you maximize cashback on online shopping.

3. Merchandise

Finally, your credit card issuer may let you exchange points for certain products, such as laptops or smartphones. Again this can be super tempting. You see something pop up in your credit card account. Your card issuer lets you know you have enough points for the product. All you have to do is exchange them.

Unless the ratio is 1:1, you’re better off skipping the catalog items. More often than not, you’ll get far less for your points when you buy products directly through your credit card issuer.

Should you ever redeem your points for cashback, merchandise, or points at checkout?

The only time I’d recommend redeeming your points for less than a 1:1 ratio is if you’re about to lose your points. That could mean your points are going to expire. Or you might be considering closing your credit card account. In these cases, you might as redeem them rather than lose them forever.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Personal Finance

Female hand holding piggy bank. Save money and financial investment
Personal Finance

Here’s Why a Big Emergency Fund Is a Terrible, Terrible Idea

Here's why saving more than six months' worth of expenses can be disadvantageous to your household.

Read more »

cup of cappuccino with a sad face
Personal Finance

5 Super-Simple Ways to Completely Ruin Your Credit Score

Building your credit score takes time, dedication, and smart decisions. Tearing your credit score apart — well, you could do…

Read more »

Young woman sat at laptop by a window
Personal Finance

5 High-Paying Side Hustles That Could Help You Save for Retirement in 2022

If you're struggling to save for retirement, here are five side gigs that could give your retirement fund a boost.

Read more »

Hour glass and calendar concept for time slipping away for important appointment date, schedule and deadline
Personal Finance

The Tax Deadline Is Almost Here! Here Are 5 Things You Need to Know if You Haven’t Filed Yet

The deadline to file your taxes is May 2. If you haven't started yet, here's what you should know.

Read more »

consider the options
Personal Finance

New to Investing? Be Sure You Avoid These 5 Newbie Mistakes

If you're new to investing, here are five big mistakes you should watch out for.

Read more »

Couple relaxing on a beach in front of a sunset
Personal Finance

Lazy Canadians: Here’s How You Can Make $200 Per Week in Passive Income

To earn $200 a week, invest money in high-quality stocks or ETFs.

Read more »

gas station, convenience store, gas pumps
Personal Finance

Costco vs. Canadian Tire: Which Rewards Card Will Save You More on Gas in 2022?

The CIBC Costco Mastercard earns 3% back at Costco Gas, and the Canadian Tire Mastercard earns 10 cents per litre.…

Read more »

young woman celebrating a victory while working with mobile phone in the office
Personal Finance

Finally! Apply for a CIBC Costco Mastercard Now to Get a Welcome Bonus!

From now until December 31, 2022, CIBC will give you a welcome bonus on the new CIBC Costco Mastercard.

Read more »