Cashback vs Points
There are two general types of rewards that cardholders can get depending on the type of card they have. The first is cashback which gives you a percentage of purchases made back to you. The second is points that let you earn a certain number of points per dollar and are put into a rewards system. Both rewards systems have their advantages and disadvantages so it is important to understand which one is right for you.
Pros and Cons of Cashback
Pros:
- Flexibility: Cashback rewards can be used on almost all purchases and be easily deposited directly into your bank account. You are not restricted to certain purchases like a rewards system.
- Simple rewards system: Many rewards programs have complicated systems that are not easy to redeem. Cashback is easy to redeem and does not need as much of an intricate understanding as cashback programs are usually similar across banks.
- No annual fee: Many cashback cards, however not all, have no annual fee which allows you to earn cashback immediately without having to pay anything out of your pocket.
Cons:
- No Perks: Cashback cards usually do not have traveling, merchandise redemptions, or other perks like other regular points-based cards. If you are looking for perks specifically, then a cashback card might not be for you
- Earning Caps: Many times cashback expires or there is a cap on how much cashback you can earn in a given billing cycle. This limits your ability to earn rewards significantly more than a normal rewards program.
- Signup Bonuses: Most Cashback credit cards have smaller signup bonuses or intro offers than other rewards cards.
Pros and Cons of Rewards
Pros:
- Higher Rates: Rewards cards usually have higher rates of rewards making it easier to accumulate points. It is common for cards to give 5x or 6x rewards per point on eligible purchases whereas cashback cards commonly have 1% to 3% cashback on purchases.
- Signup Bonuses: Rewards cards have much higher signup bonuses that can be put towards participating merchants.
- Travel benefits: Many rewards cards come with travel benefits that are useful to the frequent flier.
Cons:
- Complicated Rewards Programs: Many points programs have complicated systems that change the value of a point depending on the purchase. Also, redeeming points can be more nuanced than regular cashback programs
- Limited Use: Many rewards programs do not allow their points to be used on regular purchases, but only on certain purchases such as airline tickets or hotel stays.
- Annual Fee: Many rewards credit cards come with an annual fee so it is important to see the terms and conditions of the card before applying.
Which is Better?
There is not a clear cut answer to which rewards system is better. If you value flexibility and simplicity then cashback is the way to go. If you are a frequent traveler and you want to make your experience not only cheaper but also more comfortable then points are the way to go. It is all up to understanding your spending patterns and what you are looking for in a credit card when deciding which one is best for you.