Credit card: Cash back or reward point – which one is better

Now a days it is very difficult to ignore the convenience of a credit card in Indian and abroad. Rewards on credit cards boil down to two basic categories: cash back and rewards points. You could choose a credit card based on its offerings.

Cash back and reward points provide an opportunity to earn while spending on credit card.

Now a day’s carrying credit card is much safer than carrying some extra bunch of notes in your pocket. You can choose different types of credit card that different agencies are providing. But, the concept of reward point and cash back will be the same for all of them with the only difference is with higher reward points and cash back.

Reward point scheme

Cash back or reward point on credit card - which one is better

Banks and financial institutions are offering different types of credit card like gold, platinum or privileged depending on your income.

Depending on the credit card you choose, reward points are rewarded to you for each spend. Your reward points will vary from 1 point per Rs. 100 to 1 point per Rs. 125/150.

Reward points are offered by credit card companies to persuade you to spend more by which you will end up with some unnecessary expenditures which could have been avoided.

Many credit card companies are rewarding more points on particular types of spending. For example some credit card agencies are offering frequent flyer reward programme where you can get more reward point for your each air travel. Citibank has lunched Vodafone Citibank credit card through which you can redeem you reward points for free talk time with Vodafone. Based on your spending you need to choose the card that will earn you more reward point.

Cash Back Scheme

Cash back cards are the most popular among rewards credit cards. In cash back scheme, you are rewarded for your purchases with actual cash that, for the most part, can be used however you like.

Some companies like Citibank gives 5% cash credit on purchase of movie tickets and other expenses like payment of telephone bills etc.

Cash back schemes are better than the reward point scheme as it’s not based on where and how you spend your money on credit card.

If you do not spend much on your credit card then we suggest you to choose for a cash back scheme than reward point scheme. Another best part of cash back scheme is that you get it credited to your credit card account where as, if you have not redeemed your reward point before the expiry period then such points will lapse and you can not use it anymore.

Another most important thing while applying for a credit card is that you have to remember the annual fee, which will be charged every year depending of the type of credit card you are carrying.

However you can negotiate for waiver of such amount. If such annual fees are charged then you need to make sure that you get that much cash back from the credit card agencies to be profitable.

If you want to know which one is beneficial then you need to compare between credit cards by taking an average spend per month and start comparing the benefits that you get. We suggest you to do a proper cost benefit analysis before applying for a credit card.

Editorial Staff at Yourfinancebook is a team of finance professionals. The team has more than a decade experience in taxation and personal finance.