What are credit card rewards, cashback, and points? If you own a credit card, or are thinking of applying for a credit card, you have probably seen a mention of “points, cashback, or rewards.” It is fairly common practice for credit card companies to offer these programs as an additional incentive to use that particular card.
Using a credit card with one of these incentive types (either rewards, points, or cashback), can be a great way to save on interest, and even sometimes PROFIT from using your credit card! In fact, I have made profits from these programs many times, and I often find myself using my credit cards just to get additional points. It is very fun.
What Is the Difference Between Cashback, Points, and Rewards?
Credit Card Rewards is really just a generic word used to describe any number of methods in which a credit card company offers you some sort of benefit or compensation for using their card. This may be something such as cashback, or a points system which you can redeem for anything from gas, frequent flyer miles, gift cards, and more.
Rewards are an AWESOME thing for credit card users, especially if you use credit cards for everyday purchases. You can rack up points in no time using your credit card for things such as utilities, groceries, gas, and more.
Cashback is generally a rewards program where the credit card company will offer you a portion of the percentage of your purchases back in the form of cash. This type of program usually has a limit you must reach before you can redeem your “cashback.” For example, Discover usually requires your account accrue a minimum of $20 in the cashback account before redeeming it.
Many times they will exclude balance transfers from this cashback accrual, and the credit card balance, as well as other fees. The cashback generally only applies towards new purchases each billing period.
To redeem cashback with most credit card companies, you can request a check or a credit on your credit card account. Some may even offer direct deposit.
Points Programs operate in a similar way to cashback. You earn a percentage of new purchases, and these are counted as “points.” These points will accrue in your “points” account. Companies may offer different amount of points programs. For example, one credit card may offer 1 point for every $1 you spend, while another may offer 100 points for every $20, etc.
The points build up in your points account, and you can redeem them once they get to a certain point (which will vary depending on the credit card programs). Credit card companies that offer points often have a “shopping area” where you can redeem your points for merchandise, gift cards, and even cash checks or statement credits.
I have a Chase Mastercard, and I typically find myself so eager to redeem my points. I usually just get a Walmart giftcard, or a cash check. I have probably earned hundreds of dollars from points programs at this point, and have paid little interest, so I have definitely profited from point thus far.
Which is Best: Credit Card Rewards, Cashback, or Points?
I think it really comes down to what the end-user needs, and you really can’t go wrong with any program. But I tend to prefer the points method most times. Why? Because not only can you also get cash, but you also have the option of getting giftcards, merchandise, and more. With cashback, you only get cash. Cash is great, but if you can get both cash and merchandise with points, it seems better to me.
Also, it seems that credit card companies are a little more generous with the “points” than with straight cashback. I usually find myself earning enough points to redeem a $10 giftcard every couple of months with my Chase card, whereas, my Discover takes noticeable longer to earn even the minimum $20 (months, sometimes years).
So in my personal opinion, I prefer points based rewards cards that you can use to redeem a wide range of merchandise, gift cards, vacations, etc. However, each person should consider their own needs and wants when selecting a credit card with a good points program. If you want to fly a lot, perhaps you should get a card that offers frequent flyer miles (I never fly). Otherwise, get a card with a rewars program you can use, and make sure to see which one offers the most generous rewards for your spending.