Credit cards: Cash Back or Reward Points – which one to choose?

Oct 20 2013, 13:22 IST
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Rewards scheme is the oldest form of credit card benefits. Reuters Rewards scheme is the oldest form of credit card benefits. Reuters
SummaryCredit cards prove useful when making high value transactions.

The convenience of using a credit card cannot be argued upon. It is much safer than carrying wads of notes each time you step out, of course with due caution. Credit cards prove useful when making high value transactions. And there is always a proof to rely on when you make payments on cards; they always leave behind a trail. In addition to all these benefits, credit cards also offer you benefits in form or rewards or cash back. Very often we face a dilemma in choosing which card would be beneficial to you. Before going into the advantages, lets try to understand how both the options work.

Rewards scheme

Rewards scheme is the oldest form of credit card benefits. Depending on the card that you possess, points are rewarded on your spend. Gold, platinum card or privileged cards generally award more points per spend. While, a normal card would earn 1 point on spend of Rs 150/Rs125, a privileged card would earn 1 or 2 points for every Rs 100 spent. Ex: A Citibank Rewards Card gives you 1 point on every Rs 125 spent, whereas a Manhattan Platinum Credit Card by Standard Chartered offers you 5 reward points on Rs 100 spent. However, not everyone can get a premium card, stringent income criteria apply for issue of these cards.

Cash Back Scheme

Cash back scheme is a more recent phenomenon. In this scheme, you get cash back on your spend. You get a predetermined percentage of cash back (generally 5%)into your credit card account. Once it reaches Rs 500 of cash back credit, the amount is credited to you. However, not all transactions qualify for 5% of cash back. Ex: Citibank Cash Back credit card gives a 5% cash back only on movie tickets, telephone and utility bill payments registered through CitiUtlity Bill pay and on all other spends only 0.5% cash back is given. Also an annual fee of Rs 500 is charged on this card. A cap of maximum of Rs 100 of cash back for each month also exists.

Both the cards has its own benefits, however, without making any cost benefit analysis one can’t say which is better.

Let us make a comparison of spends of Rs 75000 on Citibank Cashbank credit card and Standard Chartered Platinum Rewards Credit Card. The benefits of Citibank credit card have been mentioned above. Standard Chartered Platinum Rewards Card offers 5

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