Using credit to book travel can unlock cheaper, even free ways to explore the world if you play your cards right. Travel credit cards also may offer airport lounge access or rewards you can redeem for travel-related perks like hotel or flight upgrades. There's a reason why a 2023 survey showed that 41% of Americans use a travel rewards credit card.1 But choosing one can be daunting. Here's how travel rewards work and how to navigate the options.
How do travel rewards work?
Travel reward programs function on a simple premise: You earn points or miles by spending on a designated credit card. Depending on the specific card, transactions such as booking flights or hotel stays through partner companies can earn you these points. Some cards even offer points on everyday purchases, like groceries or gas, or for every dollar spent. You could even earn bonus incentives by signing up (these are called introductory offers) or by passing a spending threshold on certain types of purchases.
Once you've accumulated enough points, you can then spend them on benefits within your travel rewards programs, such as flights, hotel stays, upgrades, and more, depending on the program. These points could add up to some serious savings. Although it's tricky to assign a specific dollar value to points (more on that later), that 2023 survey also found that the average travel card holder had a balance of over 50,000 points.2
It's worth noting that credit card points can lose value over time. A flight that costs 25,000 points today could be 30,000 points next year, and potentially more each year after that due to inflation. If you're inclined to save up your rewards for a big vacation down the road, you could expect that same trip to cost more than if you could book it today.
Bottom line: If rewards points would act as a coupon for your current spending habits, a travel rewards credit card could prove to be a smart financial decision—especially if you can pay off your balance each month and you're not spending more than you would without it.
Travel rewards and credit card features to consider
Every travel rewards program is unique, but here are some common features to consider when trying to score travel rewards with a credit card.
Annual fees
An annual fee is the cost of owning a travel rewards credit card and reaping the benefits that come with it. Not all travel rewards credit cards have annual fees, but those that do can vary in amount, from $95 to $895.3 While these fees may sound like a drawback, they often correlate with enhanced benefits and rewards that could potentially include lucrative sign-up bonuses, complimentary travel insurance, and airport lounge access, to name a few.
Before committing to a card with an annual fee, it's important to do a cost-benefit analysis first. Weigh the value of the benefits against the annual fee and decide whether the card would save you money, based on your spending habits and travel aspirations. Also, keep an eye out for waived annual fees in the intro period enabling you to test-drive the card's features without an immediate financial commitment. An introductory bonus offer may cover a card's annual fee for one year, for example, which could be a good trial run to decide if the card's perks are worth it.
Initial spend/sign-up bonuses
Sign-up bonuses are an incentive to join a credit card travel rewards program. These bonuses typically come in the form of points or miles awarded to your account—commonly in bulk, at one time—after meeting a minimum spending requirement in a specific timeframe. It gives you a head start on accumulating rewards and can help justify an annual fee (if there is one). Like many promotions, rewards for new cardholders can change at any time. What's being offered today could be different tomorrow.
And while the allure of a boatload of points may seem irresistible, read the fine print so you know up front whether the required spending aligns with your budget and financial habits. Ultimately, sign-up bonuses (and travel rewards in general) are designed to encourage you to spend more on a given card. This gamification of spending may seem exciting, but it can also foster bad financial habits if you aren't careful. A good guideline to help keep spending in check is to never put more on a credit card than what you can pay off when the bill comes. If the card offers a reward for signing up, consider the long-term value beyond that initial bonus.
Cash-conversion rate for points
Once you've narrowed down your travel rewards program options, get a rough estimate of the cash conversion rate for points or miles. Some programs allow you to directly convert your points to cash and pay down your credit card bill, in which case, the point-to-dollar ratio shouldn't be too hard to figure out. But many don't, only allowing you to spend those points or miles to book travel.
The value of your points or their redemption value aren't always a one-for-one exchange. Online calculators are one way to check whether a specific rewards deal is a good one.
Although it varies from card to card, points may have more lucrative redemption values for some rewards over others. For instance, booking travel through the card issuer's portal might mean 100,000 points gets you a $100 flight—but booking that same flight on another platform might cost 150,000 points. If this sounds confusing that's because it is, and each program has its own incredibly nuanced points exchange program. Online communities for travel rewards points could be another resource for decoding the points value for your specific program and getting info about how other travelers have used their points.
Foreign transaction fees
A foreign transaction fee is an extra charge added to transactions that aren't in US dollars. This includes charges on the ground in another country and purchases online from retailers that work in different currencies. Although these fees vary from card to card, they usually range from 1% to 3% of the transaction.4
If your travel is mostly domestic or in countries that use US dollars, these fees may be less of a concern to you. But if you plan to travel internationally, you might seek out a card that waives foreign transaction fees. This will ensure that you're not charged extra for that croissant in Paris or for those souvenirs in Tokyo.
General travel vs. specific travel company rewards
Some travel rewards programs are tied to a specific airline or hotel, while others reward you for spending no matter who you book with. If you always book with a specific airline, stay at one brand of hotel, or use a specific rental car company, you could get more value for your points—or earn more points—if you use that company's travel rewards credit card.
Transfer point programs
Many general travel rewards credit cards let you transfer their points to loyalty programs at different hotels and airlines, which you can then redeem for hotel stays and flights. These exchange programs often offer higher redemption values than cash back programs and, by many estimates, may be the best way to maximize the benefits of a travel rewards credit card. Keep in mind that credit card companies have different exchange rates for each hotel and airline partner, so you'll have to determine on a case-by-case basis whether an exchange program is worthwhile for your specific card.
Airport perks
Airport lounge access is a popular perk for travel rewards credit card holders, especially those who travel often. Some programs will also cover the cost of programs that make getting through airport security easier. Consider the annual fees associated with each card and whether these perks would cost less if you paid for them with cash—and without paying for the card.
Consider general cash-back cards
Making the most of a travel rewards program can be a lot of work. Not to mention, travel rewards points can't always be easily redeemed unless you plan to travel. If you're looking for a less fussy and more liquid way to earn rewards for your credit card spending, consider a general cash-back card. Typically, these credit cards give you a percentage of your total spending back in cash without having to calculate exchange rates or redemption values.
Given that not all cash-back rewards programs are the same—some set restrictions on which spending categories are eligible and/or caps on how much you can earn—here's one to consider: the Fidelity® Rewards Visa Signature® Credit Card, which can earn you unlimited 2% cash back on everyday spending.5 That cash back can be deposited into any eligible Fidelity account,6 including investment accounts, meaning your rewards can potentially grow in value over time.