Cash Back vs. Rewards Credit Cards

Consumers today are given more options when it comes to credit cards. There are cash back credit cards that give away rebates or points equivalent to cash while some credit cards provide bonuses by means of rewards such as free travel, free gas, charity donations, etc. With all these choices, which credit card should you get? To answer this question objectively, let’s consider the advantage of both cash back credit cards as well as rewards credit cards.

Cash-back Credit Cards

An advantage of cash back credit cards over rewards credit cards is its flexibility. With a cash back card, you automatically earn a point or a rebate with any type of purchase you make on your card. Of course, the amount of rebate depends on the credit card issuer which can be from 1% to as much as 2% rebate. Despite the low rebate points of cash back credit cards, it gives the card holder the freedom to use the card in any store he prefers and still get points from all his purchases.

Rewards Credit Cards

Rewards credit cards generally give a higher percentage of points for its card holders. Most reward credit cards give as much as 5% from purchases. However, these rebate points are only limited if you make the purchase from a designated affiliate merchant.

For example, if you select a gas rewards credit card, you’re only entitled to get rebate points each time your refuel your car from affiliate gas stations. If you use your gas rewards credit card to purchase from other establishments, no points will be counted in your account.

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The Best Cards for Christmas Shopping

People seeking a new credit card should be aware they are much harder to obtain than they used to be, with half of all applications turned down. To have a new card ready for Christmas shopping, you need to apply soon, as most card issuers say it can take at least 10 working days for an application to be processed.

But first ask yourself: what type of shopper are you? If you will always settle your bill, you could get a cashback card, refunding a percentage of spending.

Andrew Hagger, of comparison website moneynet, said: "If you pay your balance off in full every month the interest rate is irrelevant, so you should look to get some sort of reimbursement on your shopping."

Michelle Slade, of Moneyfacts, agreed and said: "If you pay the balance in full, then a cashback credit card is a good option. That way you are earning money out of the bank rather than the other way round. American Express Platinum is offering 5pc cashback for the first three months and up to 1.5pc thereafter."

Mr Hagger tipped the new Abbey credit card, which offers 3pc back on your supermarket and petrol spend for the first six months.

You can get even more for your spending with reward points rather than cashback. For example, the Tesco Clubcard credit card is a great deal for those who buy their shopping and petrol at Tesco. Alternatively, you could look at the Partnership Card from John Lewis/Waitrose, where rewards are converted into store vouchers.

Read more at Telegraph.co.uk: Labour is 'hypocritical' on credit card interest