Which would you rather have: a credit card that earns rebates or one that earns rewards points?
Choosing between cashback credit cards and rewards credit cards isn't as simple as that, though. Understand the pros and cons of each type of credit card, so you can pick the one that's better for you.
What is the Difference Between Cashback and Rewards Credit Cards?
Before we get to the cashback vs rewards credit cards debate, let's be clear on the differences between the two.
Both of them offer rewards on credit card purchases to encourage cardholders to spend more. They just differ in the kind of rewards earned per purchase.
Cashback credit cards are exactly what they're called—you'll get back a percentage of your purchase in cash when you use your card.
Rewards credit cards earn points for every purchase made, which can be redeemed for a variety of rewards from the bank's partner merchants. Now, to go deeper to the cashback vs rewards credit cards argument, let's look at their pros and cons below.
Pros and Cons of Cashback Credit Cards
Advantages of Cashback Credit Cards
Great for Saving Money
The biggest benefit of using a cashback credit card is the savings you get every month. Typically, cashback credit cards in the Philippines earn a maximum rebate of around PHP 1,000, which means cardholders can save as much as PHP 12,000 per year.
The cash rebate you earn each month gets credited to your credit card account, lowering your outstanding balance by the cashback amount. Let's say your credit card balance is PHP 5,000 and your cashback earned from the past month is PHP 1,000. Applied to your current billing statement, your outstanding balance becomes PHP 4,000.
Note, though, that cashback can't be used to reduce the minimum balance.
Easy to Use and Understand
Cashback credit cards are straightforward to use. All you have to do is swipe your card, and you'll get a percentage back on your purchases for the month.
It's easy to understand how a cashback credit card works because the rewards are in pesos, not points or miles. There's no learning curve involved. You can easily see the value of a cashback amount. With a cashback card, you know how much your rewards are worth. You can expect how much you'll earn back without having to compute or convert points.
Ability to Maximize Rewards
Most cashback credit cards in the Philippines have variable cashback rates, allowing cardholders to earn a higher rebate in certain spending categories. For example, Citi Cash Back offers up to 6% cashback on supermarket purchases. If you plan to use a cashback credit card mainly for groceries, then you can maximize the rebate you'll earn from this card.
Cashback from credit cards is generally easier to redeem than rewards points. It's automatically credited to your credit card account each month, as in the case of cashback credit cards from HSBC, EastWest Bank, and Security Bank.
Related: EastWest Bank Credit Card Promos 2022: Get This Year’s Most Exciting Deals
Disadvantages of Cashback Credit Cards
Rewards are Limited to Cashback
Other than cashback, there's nothing else you can get. The rebate earned can't be exchanged for other types of credit card rewards, like air miles and waived annual fee. You can't even use it to claim actual cash or convert it to a check.
There are certain terms and conditions you need to watch out for when you get cash back from a credit card. The most common is the rebate limit (typically PHP 1,000 per month) and the minimum spend requirement to qualify for cashback.
Also, certain types of transactions don't earn rebates, such as overseas and online purchases.
Pros and Cons of Rewards Credit Cards
Advantages of Rewards Credit Cards
Variety of Rewards
With a rewards credit card, you can exchange points for a lot of different things:
- Gift certificates for shopping, dining, travel, wellness, etc.
- Air miles, which is great for frequent travelers
- Annual fee waiver, which is a great way to save on credit card fees
- Donations to different charities
- Cash credits
This feature makes a rewards credit card more fun and exciting to use than a card that earns only cashback.
Enjoyment of Receiving Freebies
For some people, there's an inexplicable kind of joy in getting something for free without much effort. Just use your credit card and wait until you've earned enough points to redeem a reward. A gift certificate for a day at the spa or a relaxing hotel stay? Why not?
Disadvantages of Rewards Credit Cards
Complicated to Use
A rewards point is not equivalent to one peso. Neither is one point equal to a mile, if you're trying to convert your points to air miles. This is what makes rewards cards more difficult to use than cashback cards, especially for busy people.
The rewards rate is complex, and if you want to maximize the rewards you earn, you'll have to use different cards for different types of purchases. For example, you must use a credit card that earns points on travel purchase for booking your flights, accommodations, and tours. For online shopping, you need a separate card that earns higher points for online transactions.
Time-Consuming to Redeem
It takes time to earn enough points to redeem a reward, especially for cardholders who don't spend that often.
For example, you have a BDO credit card that earns 1 point for every PHP 50 spend. You want to redeem a GC worth PHP 500 at your favorite restaurant. The required points for redemption is 4,500. This means you should have accumulated purchases worth PHP 225,000 to qualify for the GC!
Another frustrating part of redeeming credit card rewards is finding something from the bank's rewards catalog that you actually like that requires the number of points you can qualify for.
And when you've finally found the perfect reward, you'll have to send a request to the bank and wait several weeks for the processing and release of your reward.
Although the credit card rewards up for redemption are numerous and varied, they're still limited to the merchants that the issuing bank partners with. If you prefer a certain brand and it isn't among the bank's partner merchants, you have no choice but to keep looking for other rewards to redeem.
Also, even though points don't expire, redemption for certain rewards are valid for a limited period. If you're eyeing a specific reward, you might not have enough time to accumulate points if it's nearing the end of the validity period.
Cashback vs Rewards Credit Cards: Which is Right for You?
Now that you know the benefits and downsides of using a cashback or rewards card, which do you think is better for you? If you still aren't decided yet, keep reading to ensure you'll be making the right choice when deciding on cashback vs rewards credit cards.
Who Should Get a Cashback Credit Card
- People who are looking for something simple and straightforward, with no patience for browsing through rewards catalogs
- Consumers who don't spend much and with predictable spending patterns
- Cardholders who prefer saving money than getting fancy rewards
Read more: Top 5 Credit Cards with Highest Rebates in the Philippines
Who Should Get a Rewards Credit Card
- People who are disciplined in their spending and have no tendency to max out on their card (Rewards cards provide an incentive to splurge, and exceeding one's credit limit can lead to the cardholder losing his rewards points.)
- Those who love the thrill of finding and getting rewards
- Those who don't mind putting in the effort to earn and redeem rewards
Cashback vs rewards credit cards? Ultimately, the type of credit card you choose depends on your financial goals, lifestyle, and spending habits. You want to get the most out of using a credit card, so you have to consider these factors seriously before making a choice.