Posted on: January 18, 2016

How to Choose between Cash Back and Rewards Points on Credit Cards

cashback and rewards

Credit Cards popularly termed as plastic money have emerged as a popular alternative to cash transactions due to the convenience as well as the safety that they provide. Moreover, just by using the card for day to day purchases you can avail a range of benefits such as rewards, cash-back options, discounts at partner stores and more. Because of the wide range of options, one of the most common questions that crop up when choosing a credit card is, “Which one should I choose a rewards card or a cash back card?” The following sections would help you get a better idea regarding, which would be best for you.   


Overview of a Rewards Program


As part of a rewards program, you can earn points on every purchase. The total points earned on a transaction may vary on the basis of its monetary value as well as the expenditure category such as shopping, dining, fuel etc. Depending on the card issuer, you can earn between 1-5 reward points for every Rs. 100-Rs. 150 spent on your card. Some credit cards also provide options to earn bonus reward points as part of festive season campaigns, if the card is used to make a purchase at a specific store or during your birthday month.


The next obvious question is, “What can you do with the reward points that you have collected?” Each card issuer has its own point redemption system. There are often extensive online catalogs that list the rewards you can qualify for as well as the amount of points required to avail a specific reward. Such rewards can range from a Rs. 1000 discount e-voucher for Amazon India or Flipkart that can be yours for fewer points to items such as a Titan Raga Watch or a 12 Megapixel Nikon Camera that require considerably more. Most credit card issuers allow you to make the redemption request online and often there are no additional processing fees. The specifics of each rewards program are included in the credit card agreement and reading through it would definitely help you make an informed choice.


Table 1: Examples of some popular rewards cards:
 

Card Name

Joining/Annual Fees

Benefits and Conditions

Additional Info

Rupee Value per Reward Point

Savings on Annual Spend of Rs. 2 lakhs

First Citizen Citibank Titanium Credit Card

No Joining fee, No Annual fee if  annual spend >Rs. 30,000 

  • 7 points on every Rs 100 spent at Shopper’s Stop
  • 300 free points for using your card within 30 days of activation
  • Periodic exclusive orders at leading spas, outlets etc.
  • Save up to 20% when dining at partner restaurants

Rs. 0.70

Rs. 4200

Standard Chartered Platinum Rewards Credit Card

Joining fee Rs.399. Annual Fee Rs. 750 from second year onwards

  • Up to 5 points for every Rs. 150 spent at hotels and restaurants
  • Get 2 points for Rs 150 spent anywhere else
  • Minimum 500 reward points required at the time of redemption
  • Rs 99 payable as handling and  courier charges per redemption request

Rs. 0.30

Rs. 6100

 

Overview of a Cash-back Plan


A cash back plan provides you with a fixed percentage discount on your purchases every time you swipe your card. The preset fixed percentage varies based on the card issuer as well as the category in which the expenditure occurs. For example one credit card might give you 1.25% cash back on utility bills and movie tickets, while 5% cash back may be available on dining and supermarket expenditures on the same card. While another one might feature a 1% cash back on all your purchases. Additionally, in case of most cash back cards, there is an annual or monthly cash back limit per category or on overall expenditure using the card.  


As in the case of rewards, the cash back redemption system can also vary from one card to another. In some cases, the cash back amount is automatically adjusted with the monthly due amount, while in other cases you might have to request the cash reward by calling up the customer care number. In rare cases, the cash back offer features a validity period and failure to redeem within the prescribed period results in loss of the cash benefit. Due to the wide variety of cash back offers, you would definitely be in a better position to judge the actual benefits of the card’s cash back system by carefully reading through and understanding the fine print.


Table2:  Examples of some popular Cash Back Cards:
 

Card Name

Joining/Annual Fees

Benefits and Conditions

Additional Info

Monthly/Annual Expenditure Limit on Maximum cash back categories 

Savings on Annual Spend of Rs. 2 lakhs

Citibank Cashback card

Rs. 500 Joining Fee, Rs. 500 Annual fee 2nd year onwards (no waiver)

  • 5% Cash back on movies tickets and utility bills
  • 0.5% Cash back on all other categories  
  • Limit of Rs.100 Cash back per month on the 5% categories
  • Cash back adjusted automatically as statement credit

 

Rs. 2000 (month ly)

Rs. 2080 (Annually if 5% on Rs.24,000+ 0.5% cash back on rest amount)

Standard Chartered Manhattan Platinum Credit Card

Rs. 499 Joining fee and Rs. 999 from 2nd Year onwards

  • 5% Cash Back at select stores
  • 5x Rewards on hotels, dining, fuel and air tickets
  • At least Rs. 1000 needs to be spent on a transaction to earn cash back.  
  • Convenient payment options such as NEFT, Visa Money Transfer and BillDesk

 

Cap of Rs. 500 cash back per month and Cap of Rs. 150 on every transaction.

Maximum cash back of Rs. 6000 (On Annual spend of 1.2 Lakhs at partner stores) + Reward points (on the rest Rs.80,000).

 

Deciding What’s Best for You
 

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, cash back 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 getting 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 you final decision.

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