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A rewards credit card is a great way to get more value from purchases you would have made anyway. Some credit card transactions won't earn rewards, however. Let's go over which types of purchases won't net you cash back, rewards points or miles.
1. Cash Advances
If you need cash, you can take a cash advance by borrowing against your credit limit and withdrawing money at the ATM or using a convenience check sent by your credit card issuer. You'll be charged a cash advance fee, and the cash advance is subject to a higher interest rate. There's no grace period with cash advances, so you could be charged interest even if you pay off your balance before the end of the month.
Not only are cash advances expensive transactions, but they don't earn rewards. This also includes cash equivalent transactions such as wire transfers and peer-to-peer money transfers.
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2. Balance Transfers
Balance transfers don't earn rewards, but you could still get a lot of value from moving a balance from one credit card to another to save money on interest. Taking advantage of a 0% promotional intro offer could give you 12 to 21 months to pay off your balance without being charged any interest. You will pay a balance transfer fee—typically 3% or 5% of the transfer amount—so keep this in mind to make sure you'll ultimately save on interest before moving a balance.
3. Fees
Credit card fees charged for transactions like cash advances or balance transfers, or as penalties for late payments, do not earn rewards. Not only do fees fail to earn rewards, but they can also erode the value of the rewards you do earn. Recurring fees like an annual fee should be weighed against the potential rewards you can earn. It's important to consider whether the rewards benefits outweigh the costs of any fees you pay.
4. Interest Charges
Credit card interest accrues when you carry a balance from month to month. Unlike purchases charged to your account, interest charges don't earn rewards. Like fees, interest charged can lower the value of the rewards you earn.
If your goal is to earn rewards on your credit card, paying your balance in full each month is important. Otherwise, you may have to spend more to earn enough rewards to offset the cost of interest you've paid.
5. Insurance Premiums
Insurance premiums are a pretty significant expense for many families. Unfortunately, you may not be able to earn rewards on your premium payment. Before you pay your next insurance premium with your credit card, check the list of exclusions to see whether your purchase qualifies for rewards.
6. Taxes and Government Fees
You may be charged a convenience fee if you use your credit card for taxes or fees paid to the government. Additionally, some credit cards do not offer rewards on these transactions, which makes it an expensive payment option. Using another payment method—one that doesn't charge fees—is usually better for these transactions.
7. Gift Cards and Prepaid Cards
Gift cards and prepaid cards can make convenient gifts or budgeting tools. If you're thinking about using your credit card to buy one of these, note that some credit card issuers consider gift cards and prepaid cards as a cash equivalent transaction. As such, these purchases won't earn rewards.
8. Purchases Above the Earning Cap
Some credit cards offer a higher amount of rewards on certain purchases, but only up to a certain amount. For instance, you may earn 5% back on travel purchases capped at $5,000 annually. Once you hit the earning cap, further purchases in the same category may either not accrue rewards or only earn at the base rate, often just 1%. Your rewards program terms will outline whether you earn rewards after hitting the earning cap (if you have one).
9. Purchases Outside the Bonus Categories
While bonus category purchases earn rewards at a higher rate, purchases outside the bonus categories may not earn rewards at all or may only earn at the base rate, which might be just 1%.
Unfortunately, some purchases may not be categorized as rewards-earning depending on how the merchant handles the transaction. For instance, you may miss out on bonus rewards if the merchant uses a third party to process or submit your transaction. If you run into this situation, make a mental note to avoid this specific merchant for future bonus rewards purchases.
10. Purchases Made With Points
Once you've accumulated enough rewards, you have the flexibility to redeem them for cash back, travel, gift cards, merchandise and more. However, when you use points to pay for a purchase, in part or in full, you may not earn additional rewards, even if the purchase would typically qualify for rewards. You'll need to weigh whether it makes more sense to use your rewards or to make the purchase using your credit card as usual and save your points for a future redemption.
11. Returned Purchases
While your initial purchase may have already earned rewards, returning the purchase for a refund to your credit card may result in those rewards being deducted from your rewards balance. If you've already redeemed rewards earned from the purchase you're returning, it could lead to a negative rewards balance. To keep your rewards, consider opting for a store card or gift card instead of a refund to your credit card.
The Bottom Line
While most credit card issuers don't offer rewards on cash advances, balance transfers, fees and interest, other exclusions vary by card issuer. You can review your credit card's rewards guide to learn which transactions may not qualify for rewards or may not earn at the bonus rate.
If you're shopping for a new rewards credit card, keep in mind you typically need good to excellent credit to qualify for the best rewards credit cards. Check your credit score before you start shopping around to see where you stand. That way, you can narrow your search to the credit cards that fit your credit profile—or take time to improve your credit—and apply for your best match.