Reward points vs cashback vs miles: which is right for you?

Cashback: simple and predictable

Cashback returns a percentage of your spending as money, either as statement credit or in your account. What you see is what you get. There is no exchange rate, no catalogue and no expiry to worry about.

That simplicity makes it the easiest type to compare. The trade-offs are that the rate is often modest, and many cards cap the cashback per month or per category, so heavy spenders can hit a ceiling.

Reward points: flexible, but the value varies

Points are earned per amount spent, and each point is worth a certain number of rupees when you redeem it. The catch is that the redemption value depends on how you use them. Points spent against your statement, on gift vouchers or on a catalogue can each be worth a different amount, and it is common for the best value to be available only through specific options.

To judge a points card, work out the rupee value of the points you would earn on 100 rupees of your typical spending, using the redemption option you would really use. Then compare it with a cashback card on the same spending. Also check whether points expire and whether the earning rate is reduced on some spending categories.

Travel miles: high value for the right person

Miles or travel points can be transferred to airline or hotel programmes and used for flights and stays. When redeemed well, on a long-haul or premium-cabin ticket, they can be worth considerably more per rupee than cashback.

But that value is realised only if you travel, book with flexibility, and are willing to learn how the programmes work. Award seats can be limited, transfer ratios and programme rules change, and unused miles are worth nothing. Miles cards also tend to carry higher annual fees, so the benefit has to clear that hurdle first.

Which type suits whom

• Occasional spender who wants no hassle: a cashback card, ideally with no annual fee.
• Someone who spends heavily in one or two categories: a points card with an accelerated rate in those categories, if you will actually redeem the points.
• Frequent traveller who enjoys planning trips: a miles or travel card, once you have checked that the fee is covered by what you would really redeem.

Watch for the fine print

• Reward rates are often lower or excluded for rent, fuel, wallet loads, insurance and government payments.
• Programmes change: reward rates and redemption values can be reduced, sometimes with little notice.
• A high reward rate does not help if you carry a balance, because interest costs far more than any reward earns.

Compare on net value

The way to cut through the marketing is to convert everything to net rupees a year: rewards you would earn on your own spending, valued at what you would really redeem them for, minus the annual fee including GST. That is what the Card Finder tool computes. This is general information, not personal financial advice.