Cashback vs reward points: Which credit card is better for you?

Mint

6 hours ago

While taking a credit card, one of the criteria that an individual looks at is the reward structure. Some credit cards give reward points. These can be redeemed in multiple ways, and the value per point varies.
On the other hand, some credit cards keep it simple by giving cashback. In this article, we will discuss both the types of credit cards and which credit card an individual should choose.
A cashback credit card gives a certain percentage of the eligible transaction value as cashback. During a statement cycle, the cashback for all eligible transactions accumulates. Once the statement is generated, the consolidated cashback is awarded to the cardholder.
Cashback credit cards are simple, as the percentage of cashback is defined. The cashback is automatically credited to the cardholder's account. The cardholder doesn't need to redeem it like reward points. The cashback amount is usually used in the next billing cycle to settle the next month's outstanding amount. Hence, there is no fear of the cashback expiring as it gets used up in the next month.
While cashback credit cards are simple and easy to use, the flip side is the low reward rate. Most cashback credit cards have a 1-5% reward rate range. However, some cashback cards have a reward rate of 10% in specified categories, which is good.
In most cashback cards, there is a limit on the cashback that you can earn in a billing cycle. Like most credit cards, cashback credit cards also have exclusions. The excluded categories don't earn cashback. Hence, you must make a note of these categories.
While some cashback credit cards are lifetime-free, most have annual fees in the range of Rs. 500 to Rs. 1000. In the case of most cashback credit cards, the renewal fee is waived on spending a specified amount in the previous year.
The cashback category is broad, and there are various types of credit cards within this category. Let us look at some of the cashback credit cards.
Cashback SBI Card: The Cashback SBI Card is one of the most popular credit cards in the cashback category. It gives 5% cashback on all eligible online spends and 1% on all eligible offline spends. The maximum cashback that can be earned in a statement cycle is capped at Rs. 5,000. Thus, a cardholder can save up to Rs. 60,000 annually. The annual fee on the card is Rs. 999 + Taxes. The renewal fee is reversed on annual spends of Rs. 2 lakhs.
Swiggy HDFC Bank Credit Card: The card gives 10% cashback on the Swiggy App (food delivery, Instamart, Dineout, and Genie), capped at Rs. 1,500 per billing cycle. Online spends on specified merchants earn a 5% cashback, capped at Rs. 1,500 per billing cycle. There is 1% cashback on all other eligible categories, capped at Rs. 500 per billing cycle.
The cardholder can save up to Rs. 42,000 annually with this card. The annual fee is Rs. 500 + Taxes. The renewal fee is waived on spending Rs. 2,00,000 in the previous year.
Airtel Axis Bank Credit Card: The card gives a whopping 25% cashback on Airtel services like prepaid and postpaid, broadband, WiFi, and DTH bill payments through the Airtel Thanks App. The cashback is capped at Rs. 250 per billing cycle. Utility bill payments like electricity, gas, etc., made through the Airtel Thanks App get a 10% cashback. The cashback is capped at Rs. 250 per billing cycle.
Transactions on the preferred merchant's app (Swiggy, Zomato, and BigBasket) earn a 10% cashback. There is a capping of Rs. 500 per billing cycle across all three merchants. All other eligible transactions earn a 1% cashback without any capping.
The annual fee is Rs. 500 + Taxes. The annual fee is waived on annual spends of Rs. 2 lakhs.
Apart from these, there are other cashback credit cards like: HSBC Live+ Plus gives 10% cashback on dining, food delivery, and grocery spends. Yes Bank Click Credit Card gives up to 5% cashback for UPI transactions done by Neon members through the Kiwi App. Tata Neu Infinity HDFC Bank Credit Card gives up to 5% cashback on spends on Tata Neu and partner Tata brands. The cashback is in the form of NeuCoins. Amazon Pay ICICI Bank Credit Card gives up to 5% cashback for Amazon Prime members for spending done on Amazon. The cashback is in the form of Amazon Pay.
A reward credit card gives benefits to the cardholder in the form of reward points. The reward rate is usually for every Rs. 100 spent. However, some credit cards (for example, American Express) give rewards for every Rs. 50 spent, and some (for example, HDFC Bank) give rewards for every Rs. 150 spent.
Reward points are versatile. The cardholder can use them for various redemption options. Some of these include the following. Paying for online/offline transactions Booking flights/hotel accommodation Redeeming fora statement credit Purchase of gift vouchers Transfer to airline and hotel partners Donation for charity
Usually, the value per point for redemption options like paying for transactions, statement credit, donation, purchase of gift vouchers, etc., is in the Rs. 0.20 to Rs. 0.30. The value per point for redemption options like booking flights, hotel accommodation, transfer to airline and hotel partners is usually higher. For flight bookings and hotel accommodation, the redemption value per point can be up to Rs. 1.
Banks have tie-ups with various airline and hotel loyalty partners where the reward points can be transferred in a specified ratio. The transfer ratio usually ranges from 0.5 to 2. It means, one credit card reward point can be converted to 0.5 to 2 partner points.
The reward cards can be category-specific or generic. In the last few years, travel-centric cards have become quite popular among cardholders. These credit cards usually offer accelerated reward points for spending in the travel category. Also, at the time of redemption, they offer a higher value per point when they are redeemed for flights, hotels, or transferred to airline/hotel partners. Let us look at some travel-specific credit cards with a decent reward rate.
Axis Bank Atlas Credit Card: The card provides 2 EdgeMiles (EMs) per Rs. 100 spent. Travel-related spends get an accelerated reward rate of 5 EM per Rs. 100 spent. The cardholder gets bonus EMs on achieving spend-based milestones. The EMs can be transferred to 19 transfer partners (14 airlines and 5 hotels). The EM can be transferred to partners in a 1:2 ratio (except for Marriott Bonvoy).
American Express Platinum Travel Credit Card: The card offers a base reward rate of 1 Membership Reward (MR) point per Rs. 50 spent. When the cardholder spends Rs. 1,90,000 in a year, they get a bonus of 15,000 MR points. Similarly, when the cardholder spends Rs. 4,00,000 in a year, they get an additional bonus of 25,000 MR points and a Rs. 10,000 Taj gift voucher.
The MR points can be redeemed against Air Maharaja, The Postcard Hotels, or Taj gift vouchers. The MR points can be transferred to partners like Singapore Krisflyer for flights, Marriott Bonvoy for hotel bookings, etc.
HSBC TravelOne Credit Card: The card offers an accelerated reward rate of 4 reward points for every Rs. 100 spent on flights, travel aggregators, and foreign currency transactions. All other categories get 2 reward points for every Rs. 100 spent, except for excluded categories. The card also offers instant discounts of up to 15% on specific travel aggregators for flights and hotel bookings.
The reward points can be transferred to 19 transfer partners (15 airlines and 5 hotel partners). The transfer ratio for most partners is 1:1, except for a few.
Till a few years back, banks gave credit cardholders benefits through reward points and other ways. Reward points are versatile and can be redeemed in various ways. The value per point depends on the redemption option chosen.
In the last few years, banks have introduced credit cards that reward cardholders with cashback. These are simple to use and give a specified percentage of the transaction value as cashback.
The decision of whether to go for a rewards or cashback credit card will depend on your needs. If you travel frequently, you may consider a rewards credit card focused on the travel category. These cards give you an accelerated reward rate for travel-related spends. Also, you can redeem reward points against booking flights and hotels, or transfer them to airline/hotel partners. Thus, these cards can help you enjoy free family vacations with reward points.
If you don't travel frequently and prefer a credit card with a simple reward structure, you may consider a cashback credit card. These cards give you a percentage of the transaction value as cashback. Also, the consolidated cashback amount will be automatically credited to your card account post statement generation every month.
Gopal Gidwani is a freelance personal finance content writer with 15+ years of experience. He can be reached at LinkedIn.
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