If you spend Rs 50,000 through your credit card every month, the type of rewards you choose can make a difference to how much you save.
A card offering 2% cashback would give you Rs 1,000 on a Rs 50,000 spend. But another card may give you 5,000 or even more reward points for the same amount.
Unlike cashback, reward points do not always have a fixed value. The same 5,000 points could be worth Rs 1,000 for one type of redemption and much more if used for travel or other offers.
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Cashback vs Reward Points
For example, you have two credit cards. The first card gives 2% cashback. On Rs 50,000 of spending, you get Rs 1,000. On the other hand, the second card gives 10 reward points for every Rs 100 spent. On the same Rs 50,000 spending, you earn 5,000 points.
Now, the value of those 5,000 points depends on how you redeem them. If one point is worth 20 paise, the points are worth Rs 1,000 and if one point is worth 25 paise, they are worth Rs 1,250.
When it comes to cashback, you get a fixed percentage of your eligible spending back. The amount may be adjusted against your credit card bill or credited in another form, depending on the card. For example, 1.5% cashback on Rs 50,000 would give you Rs 750.
There is no need to wait for points to accumulate or check different redemption options.
However, cashback cards can also have conditions. The cashback rate may apply only to certain categories, and there can be a monthly limit on how much cashback you can earn. So, a card advertising 5% cashback does not necessarily mean you will get 5% back on your entire monthly spending.
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Reward points can be useful if you know how to redeem them. They may be exchanged for gift vouchers, products, travel bookings or airline and hotel programmes, depending on the card. But their value can change from one redemption option to another.
With cashback, Rs 1,000 cashback means Rs 1,000. With reward points, the value depends on how you use them. Some cards also have expiry rules. Banks can change redemption rates, introduce limits or reduce the value of certain rewards.
Which One to Choose?
Cashback may be a better choice if you want a straightforward benefit and do not want to spend time managing reward points. Reward points may make more sense for frequent travellers or people who spend larger amounts and know how to get a higher value from their points.
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