Cashback Credit Cards or Travel Credit Cards: Which Credit Card Option Works Best for You?

When choosing a credit card, it is important to understand the difference between cashback cards and travel rewards cards, it is important to understand which card will suit you best. It makes the most sense to acquire a credit card that suits your spending habits and lifestyle.

Cashback Cards: Great for Your Average Spender

Cashback cards offer cash rewards to consumers for transactions made on the card. Once the cashback is earned by the cardholder after purchases are made, the cash is usually credited back to their credit card statement; however, some credit cards may send a check in the mail of the cashback earned.

Summary

  • Cashback is earned after purchases are made—cash is either credited to the credit card statement or a check is sent in the mail
  • Top cashback cards can earn rewards rates between 1% - 3.33%
  • The most flexible rewards system.

Typically cashback cards earn an average rewards rate of 0.79% in India on general spending, with the top cards ranging from 1% - 3.33%. After earning these rates, you will receive your cashback either on your credit card statement or in the mail as a check. This is the more preferred option for many consumers because of how flexible the rewards are.

Advantages of Cashback Cards

Cashback cards earn cash, which is the most flexible reward offered among credit cards. With cashback, the cardholder can use the rewards to directly make more purchases anywhere, rather than having to wait to redeem or having to use the rewards at specific locations.

Disadvantages of Cashback Cards

Cashback cards tend to have lower rewards rates than travel cards. Further, cashback cards are often less attractive to those who are less interested in cash rewards and want to receive more rewards that they could use towards travel.

Who Would Benefit Most from Cashback Cards?

The consumers that would benefit the most from cashback cards are those who are interested in simply receiving cash as a reward for their spending, rather than rewards that are less flexible and more complicated to use. Many cashback cards also earn elevated cashback rates on certain spending categories. For instance, this may help certain cardholders that spend a lot of groceries earn more cashback per rupee spent, than other credit cards that earn more cashback on dining or entertainment. Regardless of the spending category, cashback can be used however the consumer sees fit.

Travel Rewards Cards: Great for Frequent Travellers

Travel credit cards offer cardholders rewards that they can apply to their travel spending. While selecting your travel rewards credit card it is imperative to remember that there are two distinct types of travel cards: travel cards that are airline specific and others that are more generic. For instance, there are cards that earn elevated rewards on Air India transactions but will not earn the same high rewards for bookings made for other airlines, such as Emirates or Etihad. However, there are also cards that will earn fairly high rewards on all transactions, which can be redeemed in a variety of ways. It is also important to note that when earned "miles" are mentioned, it does not equate miles that you fly through the air. It is just a unit of measurement with a different value, determined by the travel provider or Airline. Therefore, it is crucial to understand the rupee value of your card's air miles.

Summary

  • Travel credit cards earn rewards that are applicable to travel spending and future trips
  • There are travel cards that specifically offer elevated rewards for certain travel providers (airlines, travel platforms, etc.) and travel cards that are more generic (all travel spending)
  • Usually offers travel-centric benefits

If you are a frequent traveller, this rewards type may suit you very well due to the perks and promotions that also come with the elevated travel rewards. In addition to miles, some of the travel rewards include flight discounts and vouchers, lounge benefits and travel insurance, which can really elevate the experience of any trip.

Advantages of Travel Rewards Cards

Travel rewards credit cards often offer cardholders great rewards in terms of travel bookings and travel benefits. In terms of travel bookings, the elevated rewards mentioned are primarily higher rewards rates offered by the card on either specific travel providers (Air India, InterMiles platform, IRCTC, etc.) or on spending done on general travel (usually lower rewards rate). In terms of travel perks, the credit cards usually provide flight discounts, lounge benefits, travel insurance, foreign exchange fee waivers, etc.

Disadvantages of Travel Rewards Cards

Because many travel cards are limited to a certain travel provider, cardholders are restricted in the redemption of their rewards.Another risk is that if the travel provider that the card is linked to goes bankrupt or even devalues their miles in relation to the rupee, your points will drop in value faster than you would be able to redeem them.

Who Would Benefit Most with Travel Rewards Cards?

Travel rewards cards benefit individuals seeking elevated rewards on travel spending that can be used on future travels. The best miles cards tend to be travel provider specific or connected to a travel platform such as Yatra or InterMiles. Travel rewards cards are great for those who are loyal to a particular travel provider, have a flexible schedule that would allow the cardholder to use their travel rewards freely and those who value travel benefits (lounge visits, extra baggage, travel insurance, etc.).

The Difference Between Cashback Credit Cards and Travel Rewards Credit Cards

In terms of flexibility, the cashback cards are the clear frontrunners. This is because rewards are earned as cash, which is directly credited to the account to help pay off the statement or is mailed back as cash that can be used however the cardholder pleases. On the other hand, the travel rewards cards are not as flexible as they only come in the travel rewards units offered, usually in the miles unit of a specific travel provider. For example, a credit card may only earn rewards as InterMiles rewards, therefore can only be used to book flights or purchase hotels on the InterMiles platform, limiting the cardholder to one single platform. This can work very well as it may offer high rewards for InterMiles transactions but can be a hindrance for those that want more flexibility on where they book their trips.

Another measure of flexibility is liquidity, where the cashback cards end up on top again. Cashback cards earn cash, the most liquid rewards type. The cardholder can choose where to spend the cash and the value is clear. Each rupee received is in rupees and the value will not change. However, with travel rewards cards, the rewards are usually specific to certain travel providers that can change the redemption rate and can only be used with products and services affiliated with those providers or airlines. Further, the travel rewards earned may expire, because they are not transferable to cash, it can be difficult to guarantee rewards usage if the cardholder does not have a flexible schedule.

In terms of high rewards and travel specific benefits, the travel credit cards are better options than cashback credit cards. Many travel rewards cards have elevated rewards because, unlike cashback cards, they are heavily focused on travel and in many cases, linked to one travel provider. For example, an Air India specific credit card would not offer higher rewards on Emirates Airlines, but the partnership directly affiliates them with Air India, allowing for higher rewards. Through this strategy, many travel cards are able to offer higher rewards in their specialized categories. Additionally, the credit cards generally offer great travel benefits to cardholders, further incentivizing frequent travellers to apply for this type of card. Some of these perks and promotions include; flight discounts, lounge benefits, travel insurance, travel vouchers, flight upgrades or extra baggage. Cashback cards usually would not be as strong with travel benefits.

Are the Fees Worth the Benefits?

Both cashback and travel rewards cards charge fees, and most cards with higher rewards and better benefits charge higher fees. When comparing the fees of both cashback and travel rewards credit cards, it is obvious that cashback cards incur a lower fee. Further, both cashback and travel rewards cards offer affordable options that are either low-fee or no-fee, but this mostly entails lower rewards. It is imperative when selecting any credit card that consumers check to see whether they spend enough to actually benefit from the rewards that are offered. For instance, if the card charges a fee then there is no point having the card if the rewards earned per year does not exceed the cards cost. The best decision would be to look for a lower fee or no fee card instead.

Sahmi Chowdhury

Sahmi is a Junior Research Analyst specialising in credit cards and insurance in India. He previously worked in the financial services sector at Brown Brothers Harriman and True Capital Management.