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Cashback vs reward points
Understand how the two reward structures differ and what terms to review.
What Is Cashback on a Credit Card?
Cashback is a credit card benefit where a percentage or specified amount of eligible spending is returned to the cardholder according to the card’s terms. The cashback may be credited to the card account or provided through another method specified by the issuer.
Cashback rates can vary by spending category, merchant, transaction type, and promotional offer. Cards may also apply monthly or transaction-level limits and exclusions.
What Are Credit Card Reward Points?
Reward points are points earned on eligible credit card transactions according to the card’s rewards program. The number of points earned can depend on the amount spent and the applicable reward rate.
Unlike cashback, reward points generally need to be redeemed through options provided by the issuer. Their value can vary depending on the selected redemption method.
Cashback vs Reward Points: Key Difference
The main difference is how the reward is provided. Cashback generally provides a monetary benefit based on eligible spending, while reward points are accumulated and later redeemed through the available redemption options.
| Feature | Cashback | Reward Points |
|---|---|---|
| Reward format | Cash or account credit, depending on the card | Points accumulated in a rewards program |
| Redemption | May be credited or applied according to issuer terms | Usually redeemed through available options |
| Value | Generally easier to understand as a monetary benefit | Can vary depending on redemption method |
| Limits | May have cashback caps | May have earning or redemption limits |
| Exclusions | Selected transactions may not qualify | Selected transactions may not earn points |
How Cashback Is Calculated
Cashback is generally calculated as a percentage of eligible spending or according to a fixed benefit structure. For example, a card may offer different cashback rates for different categories of transactions.
The advertised cashback rate may be subject to maximum monthly cashback limits, minimum transaction amounts, eligible merchant requirements, or other conditions. The actual cashback therefore depends on the card’s complete terms.
How Reward Points Are Valued
Reward points do not necessarily have a fixed monetary value. Their value can depend on the redemption option selected and the rules of the particular rewards program.
For example, the same number of points may have different values when redeemed for vouchers, merchandise, travel bookings, statement credits, or other options. Minimum redemption requirements and processing charges may also apply.
Cashback and Reward Point Limits
Both cashback and reward point programs can have limits. A cashback card may specify a maximum cashback amount during a month or billing cycle, while a rewards card may limit the number of points that can be earned on particular categories.
- Monthly or billing-cycle limits
- Transaction-level limits
- Category-specific limits
- Minimum transaction requirements
- Eligible merchant restrictions
- Excluded transaction types
These limits are important when comparing the advertised reward rate with the actual benefits available under the card’s terms.
Which Transactions May Not Qualify?
Credit card reward programs may exclude certain transactions from cashback or reward point earning. Common exclusions can include cash withdrawals, selected fees, reversed transactions, or other categories specified by the issuer.
The exclusions can be different for cashback and reward points, even when they are offered on the same card. Always check the latest reward terms for the specific card.
Fees and Reward Value
When comparing cashback and reward points, the card’s fees should also be considered. A card may have an annual or renewal fee in addition to its rewards program.
The overall value of a rewards program depends on factors such as eligible spending, reward rates, limits, redemption value, and applicable fees. Looking at only the headline cashback or reward rate may not provide a complete comparison.
How to Compare Cashback and Reward Points
When comparing the two reward structures, consider the complete terms rather than focusing only on the advertised rate.
- Reward or cashback rate on eligible spending
- Monthly and transaction-level limits
- Eligible and excluded transactions
- Value of reward points at different redemption options
- Redemption requirements and charges
- Annual and renewal fees
- Additional card benefits
- Validity or expiry conditions for reward points
Conclusion
Cashback and reward points are two different ways that credit cards can provide benefits on eligible spending. Cashback generally provides a monetary benefit, while reward points are accumulated and redeemed through the issuer’s available options.
The better way to understand either structure is to look at the complete reward rate, limits, exclusions, redemption conditions, fees, and other card terms. Always check the latest information provided by the card issuer before applying or relying on a particular reward benefit.
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Card approval, fees, rewards and benefits are subject to the issuer's terms and eligibility criteria.