Cashback Rewards and Reward Points: What’s The Difference?

You've probably heard of reward points and cashback benefits while selecting a credit card. What do they signify, though? Choosing the best credit card for your requirements might be aided by knowing the distinction between reward points and cashback. This blog will describe each, explain how to use it, and describe the best fit for you. You can choose the best credit card wisely if you grasp the fundamentals, regardless of whether you want straightforward cash returns or want to accrue points for purchases or trips.

What does Cashback Mean?

Cashback refers to the small percentage a cardholder gets back on spending with a credit card. For example, if you use your credit card to shop with a spend of Rs. 10,000, the small percentage of refund you receive on this spend is cashback.

Cashbacks are often associated with credit card purchases, but depending on the merchant and lender, they can also be availed for some limited debit cards, UPI payments, and net banking. Now that you have the answer to the question, what is cashback? Let’s move to rewards points.

Understanding Reward Points

Banks offer reward points to credit cardholders as a reward for spending money on their card. You can earn points for each purchase and redeem them for gift vouchers, merchandise, air miles, and more. The value of each reward point may vary by the credit card provider and can change over time.

For instance, a bank can offer 2 reward points for every Rs 150 transaction. Some banks provide 2X reward points for online transactions. These points can also be redeemed and used to repay credit card bills.

Workings of Cashback in Credit Cards

Once you get the cashback reward on the credit card purchase, you can redeem it in multiple ways. Cashback on credit cards works pretty straightforwardly. Here is the working of a cashback in a credit card:

• Purchases: When you use your credit card to buy something, as a cashback, you’ll receive some percentage of the purchase amount back to your credit limit. For example, if your credit card offers 2% cashback and you spend Rs. 20,000 to buy something, you’ll receive Rs. 400.
• Accumulation: The bank will deposit your cashback for your purchase directly into your credit card account.
• Redemption: Your earned cashback can usually be redeemed in various ways, including as a credit to lower your bill, a bank account deposit, gift cards, or specified purchases.

Tips to Earn Reward Points

Here are some useful tips that will help you earn reward points easily:

• Choose the Right Card: Select a credit card that offers the best rewards for your spending habits, whether travel, dining, or everyday purchases like groceries and fuel.
• Use the Card for Everyday Purchases: Use your credit card for regular purchases to accumulate points on items you already buy, such as groceries, fuel, and online shopping.
• Take Advantage of Welcome Bonuses: Look for cards that offer a sign-up bonus of many points if you meet spending criteria within the first few months.
• Utilise Bonus Categories: Pay attention to rotating or category-specific bonus points opportunities, and plan your spending to earn extra points in these categories.
• Pay Your Bills on Time: Use your credit card to pay recurring expenses like utility and phone bills, ensuring you pay off the balance in full each month to avoid interest charges.

What makes Cashback differ from Reward Point?

The table below shows the key differences between cashback and reward points:

In The End: What Would You Choose?

Cashback and reward points have features and benefits compared to credit cards. Cashback gives you a direct percentage of your credit limit, and reward points let you redeem them for better deals. Now, what would you prefer for purchases? Stay assured: You can use both with a single credit card, as many credit cards offer both facilities. Owning two separate credit cards is another fantastic way to enjoy cashback and reward points.