How to Choose between Cashback and Rewards Points on Credit Cards

Credit Cards have emerged as a popular alternative to make payments and transactions as they provide the card users with a variety of incentives, among which reward points and cashback options are two of the most common ones. Though some people may prefer any one over the other based on their personal preferences, purchasing habits and individual requirements. Owing to the multiple card options available for the users, people often get confused while deciding on which credit card should they choose. Before taking the final call, you must understand the detailed features and limitations of both cashback as well as reward points credit cards through the details and comparison given below:

Cashback Credit Cards

Cashback credit cards are the cards which offer a portion of the transaction amount of your purchases back to you. The percentage of cash back may differ from card to card and depend on the spending category as well. Some of the cashback cards are co-branded and provide cashback into the partner merchant’s wallet, for example the cashback offered by Amazon Pay ICICI Credit Card is credited as Amazon Pay balance. While in case of some other credit cards, the cashback is added directly to the credit card account. Here are some of the benefits and limitations of cashback credit cards:

Features & Benefits

• Simple Management: Cashback is a convenient way to earn value-back because card users do not have to track and find the best options for the redemption of the cashback they earn. Unlike reward points with varied rebate values based on the redemption method you choose, the cashback value remains the same, which makes it easy to calculate the total card returns and their management.
• No Expiration: Generally, the cashback offered to the cardholders does not have any set expiry date, but rather comes with a lifetime validity. So, you are not time-bound to redeem and use your earned cashback.
• Hassle-Free Redemption: Since cashback is, typically, automatically credited to the account, the cardholders do not have to get into the hassle of its redemption. You do not have to go through any rewards catalogue to look for ways to utilise or claim your cashback.
• High Redemption Value: Ordinarily, credit card providers offer cashback as a fixed proportion of the transaction amount. It does not have fluctuating cash values, as opposed to the reward points, which come with different points-to-cash conversion ratios during redemption. 

Limitations

• No Notable Redemption Benefits: Since the value of the cashback is fixed, the cardholders do not get any special privileges to buy items from partner merchants at a lower cost using the cashback. For example, you can’t convert your cashback to Air Miles or other travel points which are otherwise expensive to acquire. So, cashback limits your redemption options due to which you may not get a chance to get incremental rewards.
• No Bonuses: Cashback credit cards usually do not offer any cashback as sign-up bonuses or as milestone benefits, as opposed to reward points bonuses. In place of a bonus, the users may get discount vouchers as joining gifts and on reaching certain spending milestones. For instance, HDFC Millennia Credit Card offers gift vouchers worth Rs. 1,000 on reaching the spends of Rs. 1 lakh in a calendar quarter. 
• Limited Deals and Offers: As the cashback which you earn is directly deposited in your credit card account, you do not get the option to buy discount vouchers or other products available in the rewards catalogue. These products are often offered at a discounted cost when bought against reward points. 

Check out the Best Cashback Credit Cards in India

Rewards Credit Cards

Rewards Credit Cards are those which come with an  extensive rewards program under which the cardholders can earn substantial reward points on their credit card purchases. Some rewards credit cards also offer accelerated reward points on certain spending categories, like SBI SimplyCLICK Credit Card offers 1 reward point per Rs. 100 spent offline, but offers 5X rewards on all online spends and 10X on spending at shopping partners. These reward points can later be used against statement balance or can be redeemed to buy discount vouchers or other items that the card provider offers via the rewards catalogue. Read below for more features and some limitations of reward points credit cards:

Features & Benefits

• Conversion to Partner Loyalty Points: Users can convert or transfer their reward points to the loyalty points programs of your credit card’s partner brands, like Club Vistara or Air Miles. For example, YES FIRST Preferred Credit Card offers the facility of converting the earned reward points to InterMiles or Club Vistara points. Based on your card type, these points can later be used to make travel-related bookings at a lower cost.
• Bonus Points: Several cards offer substantial bonus reward points as joining or spending milestone benefits apart from the base reward rate applicable on regular spends. 
• Exclusive Offers: You can avail discount offers, brand vouchers and other deals by redeeming your earned reward points. These offers are generally provided in the rewards catalogue, in collaboration with the partner brands or on select spending categories.
• Inflated Redemption Value: Many rewards credit cards come with the facility to redeem your reward points at a greater redemption value on specific categories. For example, you may be able to book a ticket or buy some product at a price lower than the original retail value by using your reward points.

Limitations

• Limited Validity: Most of the credit card reward points that you earn come with an expiry date. You cannot redeem them once their validity period ends.
• Different Rewards Programmes: Each credit card provider comes up with its own rewards program for its credit cards which differs from the others. This often makes it confusing and hard to understand and manage the rewards redemption which, in turn, may prevent the users from maximising their credit card returns. Sometimes, the reward points accrued via the same card may also have different redemption values for different products.
• Redemption Charges: Most credit card providers charge a fee on reward points redemption, thus adding to the total cost of the product you buy using the points.
• Restricted Redemption Options: The rewards catalogue usually limits the product options against which the cardholders can redeem their acquired points. Some cards also allow you to redeem points against statement balance, although the cash worth of the reward points is rather low.

Check out the Best Rewards Credit Cards in India

How to Make the Final Choice?

To decide which type of card suits you better, you need to first figure out what your card would be used for most often. If you are interested in using the card primarily for a particular type of expenditure such as dining, fuel or movie tickets, a cashback card which offers premium rewards in those categories would be perfect for you. On the other hand, if you are planning to use your credit card for expenses across multiple categories, you might benefit more from a rewards program that allows you to gather points based on the total amount spent.

If you already have one or more cards that you use, you should definitely consider those into account. In case you have a rewards card already, it makes more sense to assign specific expenses to that card and get a new cash back credit card that rewards you for expenses made in specific categories that are not assigned to the card you already have. In all cases, it is recommended that you read the fine print and figure out the specifics of a card such as annual fees, interest rates, balance transfer options etc. on an online repository such as Paisabazaar before you make your final decision.