When it comes to choosing a credit card, the biggest dilemma for most people is deciding between a cashback card and a reward points card. Both offer significant benefits, but determining which one is “better” for you depends entirely on your lifestyle, spending habits, and financial goals.
Let’s clear up the confusion and dive deep into what separates these two types of cards, so you can decide which one will deliver the most value for your wallet.
Cashback Credit Cards: Simple, Direct Savings
A cashback credit card works on a straightforward and transparent principle: for every purchase you make, the bank gives you a certain percentage (%) back as real cash. This amount is typically credited directly to your credit card statement, reducing your outstanding balance.
How Do They Work?
Cashback cards generally come in three main varieties:
- Flat-Rate Cashback: This is the simplest form. You earn a single, consistent rate on all your purchases, for example, 1.5% back on everything.
- Category-Specific Cashback: These cards offer a higher cashback rate (e.g., 5%) on specific categories like groceries, dining, or online shopping, and a lower base rate (e.g., 1%) on all other spends.
- Rotating Categories: Some cards feature bonus categories that change every quarter. You might earn 5% on travel for the first three months, then 5% on electronics for the next three, and so on.
Example Calculation: Imagine you have a card that offers 5% on online shopping and 1% on all other spends. In one month, you spend:
- ₹10,000 on online shopping
- ₹20,000 on other retail purchases
Your total cashback would be:
- (5% of ₹10,000) = ₹500
- (1% of ₹20,000) = ₹200
- Total Cashback = ₹700 (This amount will be deducted from your next bill)
Pros of Cashback Cards:
- Extremely Simple: It’s very easy to understand. There’s no hassle of calculating point values.
- Instant Benefit: The cashback is directly applied to your statement, making you feel the savings immediately.
- Best for Everyday Expenses: If most of your spending is on groceries, bill payments, and fuel, this card is made for you.
- Zero Hassle: You don’t have to worry about points expiring or figuring out how to use them.
Cons of Cashback Cards:
- Limited Earnings: Your benefits are capped at a fixed percentage. The reward remains limited even on large expenses.
- Lack of Premium Perks: These cards usually don’t come with luxury benefits like airport lounge access or complimentary golf games.
- Capping Issues: Many cards impose a monthly limit (capping) on the maximum cashback you can earn.
Reward Points Credit Cards: A Treasure of High-Value Benefits
A reward point credit card gives you points for every transaction. You can later redeem these points for flight tickets, hotel bookings, shopping vouchers, or other merchandise from the bank’s reward catalogue.
How Do They Work?
The real power of reward points lies in their valuation, which depends on how you redeem them.
- Product Catalogue: You can buy electronics, bags, etc., with your points.
- Vouchers: You can get vouchers for brands like Amazon and Myntra.
- Travel Bookings: You can book flights and hotels with your points.
- Transfer Partners (Highest Value): Premium cards allow you to transfer your bank points to the loyalty programs of airlines (like Vistara) or hotels (like Marriott). This is where you often get the maximum value for your points.
Example Scenario: Let’s say you have 100,000 reward points.
- Option 1 (Voucher): Redeeming for an Amazon voucher might value 1 point at ₹0.25 (Total Value = ₹25,000).
- Option 2 (Flight Booking): Booking a flight on the bank’s portal might value 1 point at ₹0.50 (Total Value = ₹50,000).
- Option 3 (Airline Transfer): By transferring these points to an airline, you could book a business class ticket worth ₹1,00,000 (Here, 1 point’s value becomes ₹1.00).
Pros of Reward Points Cards:
- Potential for Huge Value: With strategic redemption, you can get benefits worth much more than cashback, especially on travel.
- Luxury and Premium Perks: These cards often come with excellent benefits like complimentary airport lounge access, travel insurance, and dining offers.
- Fulfill Big Dreams: The dream of flying business class for free or staying in a 5-star hotel can be realized with these cards.
- Flexibility: You can use your points for various things according to your needs.
Cons of Reward Points Cards:
- Difficult to Understand: The rules for point valuation, transfer ratios, and redemption can be a bit complex.
- Risk of Expiry: Most reward points expire in 2-3 years. If not used, they are wasted.
- Redemption Hurdles: Sometimes it’s difficult to find seat/room availability for your preferred flight or hotel when booking with points.
- Devaluation Risk: Banks can change the value of their points or their rules at any time.
Head-to-Head: Cashback vs. Reward Points
Final Verdict: Which Card is Better for You?
Now for the most important question – which card should you get?
Choose a Cashback Credit Card if:
- You prefer a simple and straightforward deal and don’t want any hassle.
- You want to reduce your credit card bill every month automatically.
- Most of your expenses are on groceries, bills, fuel, and general shopping.
- You are new to the world of credit cards.
Choose a Reward Point Credit Card if:
- You travel a lot or stay in hotels frequently.
- You can do a little planning to maximize the value of your spending.
- You value luxury experiences (like free flights) more than direct cash.
- You have a high monthly spend and can accumulate points quickly.
Read Also
- 15 Smart Ways to Use Your Credit Card
- 10+ Ways to Get a Credit Card in India | Easy Approval Tips
- Credit Card vs. Debit Card: Which is Better for You?
- Tips for Managing Credit Card Debt Effectively
Pro-Tip (The Hybrid Strategy): The smartest users often keep both types of cards. They use a cashback card for daily essentials (groceries, bills) and a reward point card for big purchases, travel, and dining to get the maximum benefit from both worlds.
