Cashback vs Reward Points

5paisa Research Team Date: 13 Feb, 2024 11:51 AM IST


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For salaried millennials, using credit cards has become a financially effective decision. From paying utility bills to taking care of personal requirements, credit cards have various benefits. However, not every credit card has the same features and benefits. Some offer rebates, whereas others collect reward points. 
Here's a million-dollar question – which is better cashback vs reward points? This all-encompassing guide walks you through the differences. Let's first understand both reward points and cashback individually.

What is a Cashback?

Cashback is an offer that a credit card can have. When a person earns a cashback, it means they get a part of the amount transacted for the purchase. The percentage might differ from one card to another. It also depends on the type of spending. 

A few cashbacks are co-branded and are transacted to the wallet. Other cards offer cashback rewards offered to the credit card account. It's a great method to earn money on purchases. Cashbacks don't have any expiry date. Note that credit card companies offer the amount as a fixed proportion of the amount transacted.

What is a Reward Point?

Unlike cashback, reward points are the offers that cardholders earn on their credit card purchases. Some credit cards have a facility to redeem reward points at a greater value on certain categories. The credit card holder can use these points for future purchases or against the statement balance.

Generally, cardholders love to redeem the points to buy discount coupons or items offered by the card company through reward catalogues. A cardholder can get substantial bonus rewards as spending milestone benefits besides rewards on their regular spending. One can get discount offers, deals, and brand vouchers by redeeming the earned points. 

How does Cashback work in Credit Cards ?

Cashback rewards are added over time with various purchases. When a cardholder is ready, they can redeem the points. They can opt for direct deposit or paper checks via the savings account or email. However, one should have an account with the issuer to opt for direct deposit. A cardholder can also apply the points to the credit card account directly to reduce the debt.

Some cardholders may also redeem the cashback by purchasing gift cards at restaurants or branded stores. Alternatively, one can use the amount for online shopping. A travel enthusiast can save this cashback to buy flight tickets or book hotel rooms. These are some ways how you can use cashback rewards.

How to Earn Reward Points?

Earning reward points is a great strategy as it maximizes your credit card benefits. You can accumulate valuable points by understanding the type of rewards first. Note that different cards provide points for different transactions like:
    • Travelling
    • Online shopping
    • Dining
    • Other specific categories

You must focus on spending in the appropriate category where you can receive the maximum rewards. A few credit cards offer bonus points for certain purchases. You must align your expenses with the category to get maximum rewards. Another important thing you should forget is to use signup bonuses. 

Keep yourself informed about promotional offers that the card issuer offers. A few of those promotions can offer additional points for activities like travelling or shopping (to mention a few).

Last thing, you must always use your card with responsibility considering your daily expenses. Never cross your budget only for the sake of using the reward points. Ensure whatever you do and however you use these reward points – it doesn't affect your financial stability. Understand cash back vs rewards credit cards from below.

Differences Between Cashback and Reward Point Credit Cards

Are you here to understand the difference between cashback and reward points? You can consider the following parameters:

When Can You Get them?

Considering its applicability, one can earn reward points on most credit card transactions. On the other hand, cashbacks are available only for selected transactions based on the outlets.

Minimum Amount
Maximum banks allow cardholders to spend ₹100 to earn rewards. That's the minimum amount on which you can get reward points. However, a few cashback offers do not come with any minimum transaction amount. 

Types of Usage
The reward points might be reduced or increased depending on your expenditure. However, the cashback percentage is always a fixed amount. You might expect fluctuations in case you reach the maximum limit for cashback.

Reward points are for buying products on the website of the credit card provider. However, a cardholder can buy anything (anytime) and use the cashback in accordance with their preferences. 

Time Limit
Another difference between credit card points vs cash back is the time limit. Reward points come with a validity period of 1-3 years usually. It entirely depends on a credit card provider. On the other hand, cashback offers do not have any validity. You can use it anytime as soon as the amount gets credited to the account. 

Welcome Bonuses
Some credit cards offer welcome bonuses in the form of gift vouchers worth ₹500 to ₹1000 on certain purchases. A new credit cardholder needs to use the welcome bonus within 45 days after the credit card gets activated. But there are no cashback offers.

Other Aspects to Consider
You can get additional bonus on some credit cards. Some credit card companies offer additional bonuses for reaching the maximum limit or a milestone. However, one should note that there are no bonus offered for cashback rewards on credit card purchases. 

The calculation of reward points may different from one credit card company to another. Since it can offer travel or dining rewards, the amount may vary, too. Thus, the credit cardholder must understand the type of reward points. On the contrary, one can easily calculate the cashback as it's a fixed amount on a specific purchase.


So, this post has outlined the difference between points vs cash back. Now, you can choose the right credit card by assessing the above points. 

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Frequently Asked Questions

Cashback and reward points aren't at all the same. While both of them seem similar – their differences make them unique. Cashbacks are the instant financial benefits that you get in the form of cash. However, reward points don't come as cash. They might have higher value because they come in various forms, such as travel miles and coupons.

Rewards and cashback are more or less the same. However, they have their share of differences. Cashback is one such reward where you receive the amount as cash. However, rewards can be anything from miles to points.

How good is your cashback? That entirely depends on individual requirements and preferences. Your spending habit also determines the benefits of using a cashback. Another thing that plays a huge role in assessing the cashback is your credit card term. The fact is that your cashback percentage might range from 1 to 5%. 

The higher the amount, the better it is for you. However, you shouldn't forget other parameters to assess the greatness of the cashback. The redemption option and annual charges are prime aspects to consider. Altogether, the credit card's value (including its signup bonuses and other benefits) also determines the cashback's benefits.