For a many consumers deciding between a cashback and a rewards credit card can be confusing. While cashback credit cards are attractive due to their straightforward benefit structure, rewards credit cards can enable you to accumulate points that can be redeemed against free flights, hotel stays, products or vouchers.
Both offer value-back on your spends, but the right choice depends on your spending habits and lifestyle. So, how do you choose between the two?
Let us first understand how cashback and rewards credit cards differ.
With cashback credit cards, you get a fixed percentage of the amount spent as value-back, which is usually credited to your statement or a linked wallet, or as points redeemable in 1:1 ratio.
Upper limit
However, there may be certain terms and conditions. There may be a minimum transaction amount to qualify for the cashback or a cap on the cashback earning. For instance, Cashback SBI Card offers 5% cashback on all online spends and 1% cashback on offline spends, with a combined total cap of ₹5,000 per month.
On the other hand, rewards credit cards offer value-back as reward points, loyalty points, miles, etc., which can be redeemed for travel bookings, vouchers, merchandise, or statement of credit.
For example, HDFC MoneyBack+ Credit Card offers 20 reward points for every ₹150 spent on popular platforms such as Flipkart, Amazon, and Swiggy. These points can be redeemed for cashback, flight and hotel bookings, air miles, and more.
No monetary value
Unlike cashback, reward points do not have an equivalent monetary value. The value of one reward point may vary anywhere between ₹0.10 to ₹1, depending on the card type.
Redemption values may also differ across redemption options of the cards.
For instance, one reward point earned on HDFC Moneyback+ Credit Card equals to ₹0.25, whereas on HDFC Diners Club Black, value of one reward point is ₹1 for travel bookings and ₹0.30 for statement credit.
Validity of reward points is another important feature for consideration when it comes to rewards credit cards.
Cashback vs. Rewards?
The choice between cashback and rewards credit cards depends on your spending habits. Typically, rewards credit cards are ideal for frequent travellers as they offer reward points or miles, which can be redeemed for air miles or hotel bookings, often allowing users to avail free flights or hotel stays.
For instance, Axis Atlas Credit Card offers EDGE Miles as value-back, which can be redeemed for travel booking in 1:1 ratio or transferred to partner air miles or hotel loyalty points in 1:2 ratio.
Direct savings
On the other hand, cashback credit cards provide direct savings by offering a percentage of your spending back as direct cash. This makes cashback cards ideal for those who prefer simplicity over strategic reward earning, tracking and redemption.
Another point to note is that most cashback credit cards belong to the entry-level category and cater to everyday shopping needs. While these cards offer significant savings on select categories, they usually lack additional perks.
On the other hand, rewards credit cards, particularly premium ones, offer additional benefits such as lounge access, complimentary hotel memberships, golf benefits, and more, enhancing the overall value of the card.
For example, Cashback SBI Card, HDFC Millennia, and Amazon Pay ICICI are some of the best cashback credit cards, but their benefits are limited to cashback and online shopping.
In contrast, rewards credit cards like HDFC Regalia Gold, Axis Select and HDFC Diners Club Black offer a wider range of benefits, including lounge access, hotel and dining memberships, vouchers, complimentary golf games, etc.
Though these rewards cards come with comparatively higher annual fees, the added benefits can outweigh the cost for those frequently using the card.
If you want instant value back along with simple and direct benefits, you may choose cashback cards.
However, do note that the right rewards credit card can deliver greater long-term value for the strategic spender. For those with high spends, the smartest approach would be to have both, allowing them to maximise value across different spending categories.
(The writer is chief business officer, credit cards, Paisabazaar)
Published – March 17, 2025 06:47 am IST
