Cashback vs Reward Points in Credit Cards: Difference & Benefits
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21 DECEMBER, 2021

If you are a credit card user, you may find it difficult to ignore a credit card’s convenience. It is safer than cash-based transactions and offers benefits to the user in the form of cashback and reward points.

However, choosing a card randomly cannot benefit you if your purpose is not aligned with it. Therefore, knowing the payback options is necessary and picking a card to receive the full benefits.

What are Cashback Points, and How do They Work?

There are many variants for cashback schemes, such as flat-rate cashback, tiered cashback, and bonus category cashback. Also, there are cards providing concessions based on the cashback schemes.

Cashback is a part of the fund that comes back to you when you initiate a purchase with cashback card programs.

How does Cashback in Credit Cards Work?

For instance, flat-rate cash back cards provide the same percentage of cash irrespective of the product and categories you shop from. But with tiered cashback and bonus cash back cards, you can earn more cashback that depends on your spending on different products.

Card issuers can provide cashback as they have tie-ups with the merchants, who pay interchange fees on each transaction on their products.

Benefits of Cashback Cards

    1. Cash rewards have no expiration date and are directly credited to your account, which you can use whenever you want.
    2. No annual fee. Most of the top cashback credit cards do not charge you a nominal fee to operate. It means that you need not sacrifice your rewards to a remittance fee annually.

3. Many banks offer sign-up bonuses if you meet the minimum spending requirements in the first few months.

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What are Reward Points, and How do They Differ from Cashback?

Reward points are perks offered by banks to credit cardholders in the form of gift hampers, irresistible deals and discounts. These credit card reward points encourage users to make their payments via credit cards to bolster their reward points. When you have earned enough reward points, you can redeem them to get valuable goodies from gift vouchers to travel coupons to your favourite destination.

Even though these reward points are much lesser in value than your spending, they snowball into a better value in the long run.

How to Earn Reward Points?

Each bank provides different methods of earning reward points through different cards, based on if it is a primary card or a high priority one.

Credit card companies usually provide the following concessions.

1. Welcome rewards - Most companies offer you reward points on becoming a successful credit card customer as a token of appreciation.

2. International rewards - Some credit card companies provide extra reward points when making a transaction from foreign countries.

3. Loyalty points - Every time you renew your credit card, you are provided with a set of reward points to encourage your loyalty towards the card.

4. Supplementary cards - Cash spent on availing supplementary cards for your family members, i.e., availing of their new credit cards, can help you get supplement reward points.

5. Accelerated rewards - These credit cards, have reward points which can be availed when you avail transactions on special categories like purchasing at partner stores, dining at partner restaurants, and so on. If your credit card company is travel-oriented, you will get reward points that may ultimately offer you significant discounts on flight trips to your favourite destinations.

Redeeming Reward Points

To redeem credit card reward points, you should look for the following points:

1. The minimum requirement to redeem - Some credit card companies usually set a minimum threshold value after which you can redeem your reward points.

2. All redeem points have an expiration date. So, you should keep an eye on that as it can differ from one company to another.

3. There is also a remittance fee associated with redeeming reward points. A small fee is to be paid to process and handle the reward transaction.

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Benefits of Reward Points

1. Although the value of reward points earned through the first transaction may seem small, it ramps up in subsequent transactions, leading to the best deals.

2. Reward point cards that are inclined towards the travel sector are handy and cost-efficient for travellers. For example, they can avail discounted flight trips and low dining prices in restaurants.

Cashback and reward point cards are advantageous depending on the individual’s lifestyle. However, random choosing can lead them to receive little to no benefit. For travellers and people constantly on the run, reward point card programs are advantageous. On the other hand, cashbacks are also preferable as cash comes back to your account. But the bottom line is everyone loves it if they get a reward. So, subscribe to a cashback credit card or reward point card program to minimize the overhead costs and simplify your shopping.

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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.