Cashback vs Reward Points on Credit Cards

Cashback vs Reward Points on Credit Cards

Credit cards come with a variety of benefits for their users among which cashback and reward points are two of the most popular types of benefit. While both can offer great spend-based returns, the cardholders may prefer any one over the other depending on their spending patterns, personal preferences and needs. So, before you move on to find the best credit card for yourself, know how both reward points as well as cashback credit cards work and consider their pros and cons as described below:

Rewards Credit Cards

Several credit card providers offer an impressive reward points program under which you earn value back as points every time you use your credit card. These points can be redeemed either against the rewards catalogue, vouchers, or even as statement credit.

Advantages

  • Exclusive Deals: Most rewards credit cards offer multiple deals and vouchers against which you can redeem your earned points. These deals are often provided in association with partner brands on select categories.
  • High Redemption Rate Categories: The credit card providers usually provide the options to redeem your reward points at a higher redemption value on certain spending categories. For instance, you might get to purchase an item or book a ticket with your reward points at a lower cost as compared to their initial cash value.
  • Conversion to Loyalty Points or Air Miles: You may get the option to transfer your reward points to the rewards program of the card’s partner brands. For instance, you may convert your points to Air Miles or Club Vistara points which can be further used for travel bookings at a much lower cost than original, depending on your card type.
  • Bonus Reward Points: Most credit cards offer considerable sign-up and milestone bonuses in the form of extra reward points in addition to the regular points offered on your transactions.

Disadvantages

  • Limited Redemption Options: Credit card reward points can usually be redeemed against the issuer’s rewards catalogue, which limits the possibilities to use your points. Redemption options may be even more limited for entry-level cards. Apart from the catalogue and partner brands, few cards also have the option to redeem the points against cash credit, however the cash value of the reward points is quite low.
  • Difficult to Understand: Every credit card provider has a different rewards programme making it difficult to understand and keep up with the redemption options and process. It also makes it hard to manage as the reward points earned through the same card may also have varied values as per the product you wish to redeem them against.
  • Expiry Date: Most of the credit card reward points come with a validity period after which they expire and are no longer available for use.
  • Redemption Fee: Many providers charge a certain fee on every reward points redemption which adds to the cost of the final purchase.

 

Related Read: 4 Tips for Curbing Your Online Shopping

Cashback Credit Cards

Cashback credit cards offer a certain percentage of the total transaction amount as cashback on your credit card purchases. This cashback may vary depending on the card and the spending category. This cashback is usually credited into your credit card at the end of a billing cycle. Cashback cards that are co-branded with a merchant might offer cashback into the partner’s wallet.

Advantages

    • Easy Management: Cashback is a hassle-free option of earning value-back as the cardholders do not have to keep track of the redemption options and their cash value. The value of the cashback also remains constant and is easy to calculate, unlike reward points which have different rebate values depending on the purchase you make against them.
    • Easy Redemption: The cashback is usually automatically redeemed into the account balance making it convenient for the card users. You are not bound by any rewards catalogue to search for items against which you can redeem your cashback.
  • High Redemption Value: Cashback is usually transferred as a fixed percentage of the transaction amount. Cashback does not have varying cash values during its redemption due to which its value in cash does not fluctuate like the way it does in case of reward points.
  • No Expiry Date: Usually, the cashback earned via credit cards do not expire and have a lifetime validity.

Disadvantages

  • Limited Offers and Deals: Since, the cashback you earn via your card is deposited in your account, you miss out on purchasing vouchers or other items which are offered through rewards catalogues at a discounted price when purchased through reward points.
  • No Bonus Cashback: Generally, cashback credit cards do not offer bonuses in the form of cashbacks on signing-up and on reaching spending milestones. However, you may receive vouchers as bonuses instead.
  • No Special Redemption Privileges: The value of cashback is constant due to which, unlike reward points, it cannot be used to purchase items from partner brands at a lower value. You cannot convert your cashback to travel miles or Air Miles which otherwise come at a high cost. Hence, you miss out on such accelerated rewards while opting for a cashback.

To conclude, both cashback as well as reward points credit cards come with their own pros and cons. It is up to your individual needs, habits and spending patterns to decide which credit card type would be more suitable. Generally, it is advised to opt for cashback credit cards if you are new to credit cards since it is easier to manage cashback than reward points. However, when researched and managed well, credit cards offering reward points can help you earn great value back and benefits.

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