Rewards Rate
What the rewards rate on a credit card means, how earning rates work across base and bonus categories, caps and limits, and how to evaluate a card's total earning potential.
What Is a Rewards Rate?
The rewards rate is how much a credit card pays back in cashback, points, or miles per dollar spent. It is typically expressed as a percentage (1%, 2%, 5%) for cashback cards or as a multiplier (1x, 2x, 3x) for points and miles cards.
A 2% cashback rate means you earn 2 cents in cashback for every dollar spent. A 3x points rate means you earn 3 points per dollar spent, with the actual value depending on how those points are redeemed.
Base Rate vs. Bonus Categories
Most cards have two tiers of earning:
Base rate: What the card earns on all spending that does not qualify for a bonus category. Common base rates are 1% and 1.5%.
Bonus categories: Specific spending categories where the card earns at a higher rate. Common bonus categories and their typical rates:
| Category | Common Rate | |----------|------------| | Gas stations | 2% to 5% | | Grocery stores | 2% to 4% | | Dining | 2% to 4% | | Travel | 2% to 5% | | Office supplies (business) | 3% to 5% |
Rotating vs. Fixed Categories
Fixed bonus categories earn the bonus rate year-round with no action required. The Chase Sapphire Preferred earns 3x on dining every month, automatically.
Rotating bonus categories change quarterly and require activation to earn the higher rate. The Chase Freedom Flex earns 5% on rotating categories (gas, groceries, Amazon, restaurants in different quarters), but you must log in and activate the bonus each quarter. If you forget to activate, you earn the base rate of 1%.
Annual Earning Caps
Some cards cap how much you can earn at the bonus rate:
- Amex Gold earns 4x at US supermarkets up to $25,000 per year; 1x after
- Chase Freedom Flex earns 5% on rotating categories up to $1,500 per quarter; 1% after
- Bank of America Customized Cash earns 3% on a chosen category up to $2,500 per quarter combined with 2% grocery
Evaluate whether a cap affects you based on your actual spending. At $400 per month in groceries, you spend $4,800 per year, well below the Amex Gold's $25,000 cap. At $400 per month in a Freedom Flex category, you hit $1,600 per quarter, slightly above the $1,500 cap.
Effective Rewards Rate Calculation
To compare cards on equal terms, calculate the effective rewards rate on your actual spending mix:
Effective rate = (Earnings in each category) / (Total spending) x 100
Example for Chase Sapphire Preferred on $2,000/month:
- $600 dining x 3x at 1.25 cpp = $22.50
- $300 groceries x 3x at 1.25 cpp = $11.25
- $200 travel x 5x at 1.25 cpp = $12.50
- $900 other x 1x at 1.25 cpp = $11.25
Total: $57.50 / $2,000 = 2.875% effective rate
Compare that to Citi Double Cash at 2% flat = $40 per month. The Sapphire Preferred wins by $17.50 per month before the annual fee.
See also: redemption rate, annual fee.