Credit cards don’t just offer spending flexibility but also help you earn reward points through whatever you spend. Two primary categories dominate this domain, i.e., cashback credit cards and rewards credit cards.
Both types of credit cards offer financial freedom. However, they widely differ in aspects like reward structures, redemption options, targeted customer bases, usage complexity, and alignment with spending habits. In fact, their long-term value differs as well.
Let’s break down the specifics of each category in detail below.
Understanding rewards credit cards
Reward credit cards help you earn reward points on your purchases, which you can redeem for travel, products, gift vouchers, or discounts.
Pros
- Versatility in redemption: Rewards credit cards offer multiple redemption options, such as travel, merchandise, gift cards, and even additional perks, which may attract a wide range of consumer interests.
- More value in specific categories: These cards often offer higher points for spending in particular categories like dining, insurance premiums, travel, fuel, or groceries. This maximises rewards for targeted spending behaviours, and if redeemed wisely, points can exceed the value you get from the cashback.
- Extra perks and benefits: Some credit card rewards offer additional benefits like travel insurance, extended warranties, and complimentary concierge services.
- Sign-up bonuses: Another common feature is the attractive sign-up bonuses. These bonuses reward new cardholders with bonus reward points after meeting some initial spending criteria.
No expiration: Many rewards credit cards offer points that don’t expire as long as you keep the account active. Such a benefit helps you collect rewards without the pressure to redeem your reward points when you don’t want to.
You can opt for the IndusInd Bank Legend Credit Card to increase your spending power and enjoy benefits like:
- High milestone reward points within the first year of card issuance.
- Rewards for shopping, bill payments, booking movie tickets, and more.
It is one of the best rewards credit cards with no annual fee as it will helps you prioritise savings alongside exclusive rewards.
You can apply for a credit card online with a 100% paperless process with IndusInd Bank today!
Understanding cashback credit cards
A cashback credit card gives you back a fixed percentage of your qualifying spending. The cashback amount varies, depending on your bank and the type of credit card you hold.
Pros
- Simplicity in earnings: Cashback credit cards offer a simple value proposition. You receive a certain percentage of your spending back in cash and this same process continues over time.
- Flexibility in redemption: The cashback earned does not have restrictions on how it can be spent. The cash earned can be used for any purpose you want.
- No redemption hassles: Cashback cards don’t require you to browse through redemption catalogues to get benefits.
- Save more for everyday savings: Many cashback cards offer higher rates on daily spending categories like groceries, dining out, and fuel. This approach can directly reduce your monthly expenses.
Cashback vs. rewards credit cards | Analysing the cons
| Cons of rewards credit cards | Cons of cashback credit cards |
| You can unlock the true value of credit card rewards only with a strategic approach to spending and redemptions. | The value often falls short when compared to the credit card reward programs, especially in specific spending categories. |
| The value of reward points can vary depending on how they are redeemed. You need to explore redemption options carefully to extract maximum value. | Cashback cards come with fewer additional benefits, such as travel insurance or airport lounge access, which are more commonly found with rewards cards. |
| Some rewards credit cards come with higher annual fees. You need to make sure the value derived from the card outweighs these costs. | Many cashback cards have a flat-rate reward system. This means you get the same return on all purchases, no matter how big or small. |
Which one should you choose: Cashback or rewards credit cards?
Both cashback and rewards credit cards offer unique benefits that target different consumer preferences. Cashback cards offer the benefits of simplicity and instant value. Rewards point cards offer versatile redemption options and additional perks, particularly for frequent travellers or specific spender profiles.
The final decision will depend on your spending habits, daily expenses, and how much value you want from your credit card usage. Irrespective of the card you choose, make sure to use it responsibly so that any potential fees or interest charges do not offset the cashback
Also Read: Mastercard to end magnetic stripe on cards
