Cashback and reward points are the two most popular benefits a card issuer offers to their customer. They are mainly popular because they can help you save a substantial amount of money on your daily spending. In fact, many people now choose credit cards that specifically offer extra cashback or rewards. Those enticing offers can make it hard to choose one.
Knowing their functions individually can help you with the selection process. Both options have their benefits. The right choice depends on your spending habits.
Understanding Rewards Credit Cards
As the name suggests, rewards credit cards help you earn reward points on purchases. These cards give a flat reward rate on all purchases. Some even offer higher rewards on specific categories like travel, dining, or groceries.
The issuer can set rewards category basis with fixed or rotating bonus categories. They change rotating categories every month or quarter. They can also set spending limits. After you reach the limit, they can lower the reward rate.
These credit cards usually give a welcome bonus when you spend a certain amount within a set time. Banks also offer extra rewards through limited-time deals or referral bonuses.
Understanding Cashback Credit Cards
Credit cards come with many benefits, and cashback rewards are one of the biggest attractions. Cashback means getting back a percentage of the money you spend on purchases. This percentage can go up to 5% of the total amount spent. However, not all purchases qualify for cashback. So, to get cash back on most of your purchases, you can get specific cashback credit cards.
When you use a cashback credit card, a part of the money you spend is added back to your account. You can use this cashback to reduce your credit card bill. Some cards even let you transfer it to your bank account.
Benefits of Rewards and Cashback Credit Cards
Now that you understand these two types of credit cards, let’s look at their benefits before applying for a credit card online:
Benefits of Rewards Credit Cards
- Many credit cards offer great sign-up bonuses
- You can also enjoy additional perks like travel and lifestyle benefits
- The card provider may increase the value of reward points in the future
- Higher reward value can help you get bigger discounts
Benefits of Cashback Credit Cards
- A cashback credit card is a good option for first-time users as it is easy to understand
- You can earn cashback on your purchases without any complicated rules
- Some of the best cashback credit cards offer a fixed value for rewards, unlike reward point cards
Drawbacks of Rewards and Cashback Credit Cards
Both cards have some disadvantages, which can affect cardholders with specific spending habits, such as:
Drawbacks of Rewards Credit Card
- Redemption rules and point values can be difficult to understand
- Some reward points expire if not redeemed on time
- Higher points are usually limited to specific spending categories
Drawbacks of Cashback Credit Card
- Cashback rates may be lower than reward points in specialised categories
- Cashback cards usually do not offer premium perks like travel benefits
How to Choose the Right Credit Card
Cashback credit cards are a good choice for those who want benefits on all types of spending. These cards are easier to understand, making them ideal for first-time credit card users. Reward points cards are better for those who want benefits in specific categories like travel or lifestyle. Frequent travellers can benefit from credit cards that offer high reward points on travel spending.
Here’s what you can do to make the choosing process easier:
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Check Out the Fees
Cashback cards usually have low or no annual fees, making them a budget-friendly choice for people who spend moderately. On the other hand, reward cards often have higher fees but provide premium benefits that can be worth it for frequent users.
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Study Your Spending Habit
If you spend mostly on groceries, fuel, and shopping, a cashback card can be a good choice. On the other hand, if you travel frequently and spend on flights or hotels, a reward card with travel benefits may be more valuable.
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Check the Ease of Reward Redemption
Many cards offer huge reward points, but they have expiry dates, which will force you to spend to take advantage of the rewards. It will be better to have a card, the reward points of which do not expire. The card should have an easy-to-use app and reward redemption feature.
Conclusion
Reward credit cards are ideal for exclusive savings, and cashback cards are ideal for direct savings. In the end, choosing the best cashback credit cards or rewards credit cards depends on how you spend and your financial goals.
When applying for a credit card online, look at interest rates, yearly fees, and how easy it is to use the rewards. Picking the right card can help you save more and get the most benefits.
