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Credit Card Rewards vs. Cashback: Which one is better for you?

Reward points and cashback are the two most common ways in which credit cards offer value back to the users. While the simplicity of cashback can be appealing to many individuals, the flexibility offered by reward points can help you fetch free flights or hotel stays, gift vouchers, merchandise from the rewards catalogue and more. When you apply for a credit card, you must consider how you wish to earn value back. But how do you choose between these two? Do both cards benefit you in the same way? Let us take a comparative look at cashback and reward points to help you make an informed decision.

Difference between Rewards & Cashback Credit Cards

Both rewards and cashback credit cards function in the same way- they help you save on your expenses, you can swipe both cards at any PoS terminal and make online transactions. Here’s how both the cards differ from each other:

  1. With cashback credit cards, you get back a fixed percentage of the amount you have spent every time you swipe it, as statement credit unlike reward credit cards where you can accumulate reward points on your card purchases and redeem them later.
  2. Most of the cashback credit cards come with a minimum transaction amount on their cards to qualify for the benefits and have a cap on the cashback you can earn on your spends. Whereas, reward credit cards offer 1-5 reward points for every Rs. 100 to Rs. 200 spend, which you can later redeem against various options.
  3. The process of redeeming cashback is also different as that of rewards. Cashback is credited directly to your credit card account or as a statement credit whereas rewards are offered in the form of points or miles. The redemption value of each reward point value between Re. 0.20 to Rs. 1, depending on your card variant. However, some cashback credit cards may also offer points that are redeemable as cash credit in 1:1 ratio.
  4. Unlike cashback, most reward points come with a validity period, under which you are required to redeem your reward points. Usually, this validity period ranges between 1 to 2 years. However, super premium cards with high annual charges may offer reward points with no expiry date.

How rewards and cashback credit cards benefit you?

Reward credit cards allow you to earn points, miles or other types of rewards for every transaction. If you frequently travel, reward credit cards can help you earn free flights, hotel stays or upgrades, allowing you to save on your travel expenses. For instance, HDFC Regalia Credit Card allows you to redeem your reward points against Airmiles or flight & hotel bookings at a value of 1 RP = Re. 0.5/ 0.5 Airmile.

Another important feature that comes as an extension of the rewards program is the milestone benefit. Under this, cardholders can get earn bonus reward points on reaching certain spending milestones which, on redemption, could give a significant value.

Cashback credit cards provide straightforward benefit by giving a percentage of your spends back. Unlike rewards, cashback is credited directly to your credit card account, and you can use it against your credit card bill. For instance, with Axis ACE Credit Card, you can get a value back of up to 5% as cashback for your online transactions, with a capping of Rs. 500 in a statement cycle.

Cashback Vs. Rewards: Which one to choose?

Since reward points are redeemable across different categories, reward credit cards would be helpful for those who would like to have flexibility when it comes to earning value back via credit cards. It could also be the ideal choice for those who travel frequently as the reward points can be converted into air miles or transferred directly to an airline or hotel loyalty program. Users can also get gift vouchers from their preferred travel portal in exchange of the reward points. These redemption options can help you save on your travel expenses by offering free or discounted flights or hotel stays.

Since cashback credit cards provide a percentage of your spending back as direct cash, they are beneficial for those who want immediate savings or to pay down the credit card balance. Cashback credit cards are also simpler to manage as there is no hassle of earning the points and redeeming them later. However, aHowes some cards require you to redeem the cashback as well, it is important to check for the same before applying.

In addition to cashback or reward points, you should always look for the overall features and benefits offered on the card. Most credit cards come with accelerated earnings on one or more categories, which will help you understand the categories on which you would be able to save the most. Similarly, cashback credit cards may offer higher earning on certain brands; you should opt for such cards only if frequently spends on the associated brand.

Check the complete features and benefits to see whether it matches your lifestyle and then make an informed decision.

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