How do travel credit cards work? 5 reasons to get one

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Are you a frequent flier or hotel guest? If so, a travel credit card may be a smart addition to your wallet.

These popular cards can help save you money on flights, hotels, rental cars, and other travel-related expenses.

But how do they actually work, and how do you find the right one for you? We’ll cover the ins and outs of these popular rewards cards, including why you may want to get one.

What are travel credit cards and how do they work?

Travel credit cards work like most other rewards credit cards. The main difference is that these cards’ rewards center on travel in the form of free (or discounted) flights or hotel stays.

When you use a travel rewards card to make a purchase, you’ll earn rewards either in the form of airline miles or points. There are three types of travel credit cards: airline cards, hotel cards, and flexible travel cards.

Airline travel cards often earn free miles with every purchase you make. These cards are co-branded between a card issuer — like Discover, Chase, or Capital One — and a specific airline’s frequent flyer program.

Hotel credit cards are also co-branded cards offered by hotel chains and card issuers. These cards offer rewards in the form of points. Every time you make a purchase, you’ll earn a certain number of points. You can then use these points to buy flights, book hotel rooms, or reserve a rental car.

Flexible travel cards aren’t co-branded and are offered by a single issuer. These cards offer a wider range of reward points or miles to use for travel-related purchases. You might earn five miles or points for every dollar you spend when booking a flight or hotel stay on your card. But that same card may earn only 1-3 points for every dollar you charge at a supermarket or gas station.

Some travel cards charge an annual fee, while others don’t. Certain cards with high annual fees also come with benefits that offset the cost. For example, the Chase Sapphire Reserve® charges a $550 annual fee and the Platinum Card® from American Express charges a $695 annual fee, but both cards come with perks such as an annual travel credit to make up for it.

The Bank of America® Travel Rewards credit card doesn’t have an annual fee but doesn’t offer as many perks or generous rewards as many of its competitors.

Five reasons why travel rewards cards are worth it

There are several reasons why a travel rewards card can be worth it.

1. Travel rewards

Travel rewards cards give you the most bang for your buck when you’re flying or staying at hotels. You’ll also earn bonus miles or points for travel-related spending, especially if you book through your credit card’s online travel portal.

Here are some examples of cards that offer robust rewards for travel booking:

• Capital One Venture Rewards Credit Card: Earn five miles for every dollar spent on hotel and rental cars booked through the Capital One online portal. For all other purchases? You’ll earn just two miles for every dollar you charge.
• The Platinum Card® from American Express: Earn 5X points on flights and hotel stays booked directly with airlines or via the American Express Travel online portal. Other purchases earn 1X points.
• Chase Sapphire Reserve: Earn a whopping 10X points on hotels and car rentals bought through the Chase Ultimate Rewards online portal. You’ll also earn 5X points when you purchase flights through the same portal. Other non-travel-related purchases earn between 1-3X points.

Some travel cards also make it cheaper or more convenient to travel. The United℠ Explorer Card reimburses you for TSA PreCheck or Global Entry programs. Both make it easier for you to breeze through security lines at participating airports.

The Capital One Venture X Rewards Credit Card offers statement credits for bookings made through the Capital One Travel online portal. Delta SkyMiles® Gold American Express Card gives you credits when you use your card for eligible in-flight purchases of food, beverages, or audio headsets.

2. Upgrades

Looking for a larger hotel room? Want to fly first class on that flight? A travel credit card can help.

With the right card, you can get complimentary room upgrades at hotels, priority boarding on flights, and even access to exclusive airport lounges.

Many hotel credit cards boost your status in their loyalty program. For example, American Express Hilton Honors Surpass® Card users get complimentary Gold elite status, which comes with bonus amenities and room upgrades.

Other travel rewards cards make upgrading to business or first class less expensive. The Delta SkyMiles Gold Credit Card offers a 15% discount on all flights, including business or first-class flights, booked through Delta.com.

3. Bonuses

Many travel credit cards come with added bonuses that can add even more value to cardholders.

Some cards will give you bonus points or miles after you spend a certain amount within the first few months of having the card. You can use these points for flights, hotel stays, or other travel-related expenses.

Other cards offer higher rewards for certain categories like groceries, gas, or entertainment. You can earn more rewards on your everyday spending by aligning your expenses with these bonus categories.

4. No foreign transaction fees

An essential money-saving perk that comes with many travel cards? You won't have to pay foreign transaction fees when you use them in other countries.

Foreign transaction fees range from 2%-3% of the total transaction amount. They can quickly add up if you’re traveling abroad frequently or for extended periods of time.

By eliminating foreign transaction fees, travel credit cards save you money and offer convenience. You can use your card while abroad without needing to carry excessive cash or worry about currency exchange rates.

Many top travel cards don't charge these fees, but you should always review the fine print to make sure before applying.

5. Insurance protection

Travel credit cards offer an often-overlooked perk that offers peace of mind: travel insurance.

Travel insurance can financially protect you if something unexpected happens during your travels. Specific coverage can vary depending on the card issuer and the type of card you have, but common types of travel insurance include:

• Lost luggage insurance: Reimburses you if your bags are lost or damaged by your airline
• Trip delay insurance: Covers the costs of meals, hotel stays, transportation, and other purchases if your trip is delayed.
• Trip cancellation insurance: Provides compensation if you must cancel a nonrefundable trip.
• Trip interruption insurance: Provides a payout if you miss part of your trip because of illness, accident, or other covered reasons.

Most credit card travel insurance policies will come with maximum compensation limits. For example, Chase Sapphire Reserve and Amex’s Platinum card come with trip cancellation insurance coverage for up to $10,000 per person and $20,000 per trip.

Make sure to read your card’s terms. Most of this insurance only kicks in if your airline or other provider doesn’t compensate you first. For example, if Delta loses your luggage and compensates you for it, you won’t receive additional coverage from your credit card provider.

Should you get a travel rewards credit card?

Take a look at your spending and travel habits to determine if getting a travel rewards credit card makes sense for you.

A travel rewards credit card can be beneficial if you regularly travel. If not, you may want to consider a different rewards card.

Travel cards won't earn enough rewards and may be too expensive for cardholders who don't travel at least two to three times a year, says Cary Carbonaro, a certified financial planner at Advisors Capital Management.

"These cards aren't just for people who love to travel. They are for people who actually travel," Carbonaro says. “There's a difference between people who aspire to travel and those who actually take trips.”

The key is earning enough rewards to cover your card’s annual fee. If you travel two to three times a year and frequently take long flights? You should earn more than enough rewards to cover these fees, says Carbonaro. Perks like TSA PreCheck, discounted in-flight purchases, and travel credits, can also offset the cost.

Credit cards in general can make it easy to overspend since you're not limited by the amount of cash in your wallet. Travel rewards cards especially come with high interest rates. If you don’t pay off your full balance each statement period, you’ll get charged interest, which can quickly accumulate.

Plus, these cards come with an added risk. The lure of free flights and hotel upgrades may tempt you to spend more to reach certain rewards status, says Gates Little, CEO of The Southern Bank Company.

"It is important to weigh whether the rewards can be redeemed based on your current lifestyle instead of trying to adjust your lifestyle drastically to qualify for travel rewards,” Little says.

If you don’t spend much on travel, choosing a card with higher rewards for essentials like groceries or gas may make more sense. If you prefer the flexibility of cash rewards over points, consider using a cash back credit card.

The bottom line

Travel rewards allow you to earn points or miles through specific credit cards or loyalty programs on eligible purchases. These points or miles can then be redeemed for various travel-related benefits, such as flights, hotel stays, car rentals, or upgrades.

Travel credit cards can prove valuable to cardholders who are on the go. But if you’re more of a homebody? You may find more value in cards that cater to your everyday spending habits.

By considering your spending habits and comparing different cards, you can maximize your rewards and enjoy perks that align better with your lifestyle.

Editorial disclaimer: Opinions expressed are author's alone, not those of any bank, credit card issuer, or other entity. This content has not been reviewed, approved, or otherwise endorsed by any of the entities included in the post.