Credit cards offer a variety of benefits to customers, including cashback and rewards points. Credit card companies differentiate their products by way of rewards, and customers are routinely left scratching their heads about the best options. Value is based upon what appeals to individual customers more. Some customers like to sign up for a rewards program that offers points which can be accumulated and redeemed for gift cards, travel miles, and other options. Cashback is an enticing option since a percentage of all eligible purchases is credited to account holders in the form of cashback rewards. A person’s ability to effectively manage a line of credit is central to the issue, notably which is better: cashback or reward points?
Credit card account holders who carry balances over from one month to the next are in an unenviable situation since interest rates (and repayment amounts) on revolving debt invariably exceed the rewards on purchases. Customers who are able to repay their credit card debt in full every month invariably benefit from the cash back option since money is being generated on expenditure, translating into a ‘discount’ on the purchases. It is important to keep in mind that repayment amounts on credit card bills, especially interest on revolving debt, can easily exceed the rewards you receive, making a strict repayment regimen a top priority for cardholders. Most every credit card associated with a rewards program has a much higher rate of interest associated with it. The no-frills credit cards don’t offer all of these value-added propositions, therefore the APR on those cards is lower. It is always better to repay a debt in full within the first month and benefit from the rewards associated with it.
The differences between cashback and rewards may appear to be clear-cut, but this is certainly not the case. When choosing between credit cards, you will typically have the option of a cash back card and points and miles options. These reward programs are oftentimes specific to certain categories of spending. For the most part, you can expect your points to go towards travel -related expenditures, and your cashback options available on most purchases such as entertainment, dining, groceries, gas, and so forth. There is no clear-cut answer about which option is best for everyone since we all have different needs and requirements. With a cash back card, you can expect to generate a small percentage of cash back on your purchases. This is available as soon as your purchases have posted.
The benefits of cashback rewards programs
There is absolutely no doubt that cashback programs are much easier to use and enjoy than rewards. Cashback options are available year-round, and can be managed with the click of a few buttons. With points, there are so many ‘points’ to consider such as validity, usage limitations, redemption options, spend/reward ratios. A myriad of credit card reward programs and cashback options is available, further complicating the seemingly infinite options available for customers. Reward points certainly require a lot more understanding and reading from customers, making them somewhat of a nuisance option if you don’t do your homework properly. There is also the issue of annual fees to consider with both rewards options. Sometimes, your annual fees are certainly worth the rewards benefits – cashback or points/miles you derive from the card. The no-frills cards typically have no annual fees while the top-end credit card reward programs come with annual fees of around $120 – $500
Signup bonuses and value-added extras
Some credit cards offer new customers sign up bonuses. You may see an offer such as $200 cashback if you spend X amount within a specific timeframe. The money is returned as an account credit after the customer has met the requirements set by the credit card company. Cashback signup offers are limited by their very nature, and they are a once-off deal. By contrast, rewards cards are ongoing and allow users to benefit from their expenditure – the more you spend, the bigger your rewards. In any case, there are accelerated categories on both points cards and cashback cards, with points being for every $1 that is spent on eligible purchases, or travel/transit-related expenses et cetera.
If we turn our attention to the non-obvious benefits of points/miles versus cashback cards, we can see that value-added services are brought into the equation. For example, frequent travelers can benefit from insurance packages on their travel cards. Other benefits such as lost baggage/ delayed baggage, hotel burglaries, medical insurance, and trip interruption/cancellation are also issues to consider. These protections can save travelers a ton of money, and that’s precisely why so many people opt for reward points/miles when choosing credit cards. It is important to point out that potential payouts on insurance protections are capped (limited) to set amounts determined by the credit card issuer. For example, trip cancellations may have a $10,000 limit per trip, while lost baggage may have a maximum reimbursement of $500. Nonetheless, these are invaluable protections offered to cardholders and may be much more attractive than cashback.
At the end of the day, there is no one-size-fits-all solution. You have to read the fine print and be 100% sure that the rewards you are seeking – whether cashback or points – are applicable to your lifestyle and your needs. That’s why people often have multiple credit cards, to enjoy the benefits of cashback and points.
