Credit cards offer a range of benefits to users, including the option to earn cashback or reward points on their spending. These credit card benefits are designed to incentivise credit card usage and provide cardholders with value for their spending. However, there is a difference between cashback and reward points, and choosing between the two can be challenging. Here is what you need to know about cashback versus reward points on credit cards.
What is cashback?
Cashback is a cardholder benefit where a percentage of the amount spent on a credit card is returned to the cardholder. The amount of cashback can vary depending on the card issuer, the type of card, and the spending category. Cashback can be credited directly to the cardholder's account or provided as a cheque or reward voucher.
What are reward points?
Reward points, on the other hand, represent a more intricate system of incentives. Credit card users accumulate points based on their spending patterns, with each purchase contributing to the overall points tally. These points can then be redeemed for a variety of rewards, including merchandise, travel vouchers, gift cards, or even cashback.
Difference between cashback and reward points
Here is a quick overview of the key differences between cashback and reward points.
Criteria | Cashback credit card | Reward points credit card |
Nature of incentive | Direct monetary return on a percentage of spend. | Accumulated points for various spending, redeemable for rewards. |
Redemption simplicity | Typically straightforward, with easy redemption. | Requires understanding of the rewards catalogue and redemption process. |
Monetary value | Tangible and easily calculable. | The value may vary based on redemption choice, impacting clarity. |
Flexibility | Highly flexible; cash can be used universally. | Flexibility depends on the variety and appeal of available rewards. |
Transparency | High transparency, as cashback, is a direct return. | Depends on understanding point valuation and redemption options. |
Benefits of cashback and rewards points on credit cards
Know the advantages these two credit card benefits offer.
Benefits of cashback:
Instant gratification: Cashback provides an immediate and tangible benefit, giving cardholders instant gratification for their purchases.
Universal usability: Cashback can be used universally, offering flexibility in how cardholders choose to utilise the returned funds
Clarity in value: The monetary value of cashback is clear-cut, making it easy for cardholders to calculate and understand their rewards.
Benefits of reward points:
Versatility in redemption: Reward points offer a diverse range of redemption options, from travel and merchandise to gift cards, providing flexibility.
Tailored rewards: Cardholders can choose rewards that align with their preferences, allowing for a more personalised and tailored experience.
Potential for higher value: While it requires strategic usage, reward points have the potential for higher value, especially when redeemed for travel or premium merchandise.
Choosing between cashback and reward points on a credit card depends on a cardholder's spending habits and preferences. Cashback offers a direct monetary benefit that is more flexible, while reward points offer a range of redemption options that can provide higher value. It is important to compare credit cards and their benefits to make an informed decision about which option is right for individual needs. Ultimately, the benefits of cashback and reward points on credit cards can provide significant value to cardholders, making them an excellent tool for managing finances and earning rewards.