Rewards scheme is the oldest form of credit card benefits. Depending on the card you possess, points are credited into your account on each spend. Gold, platinum or privileged cards generally award more points per spend. While a normal card would earn one point on a spend of R150/125, a privileged card would earn one or two points for every R100 spent. A Citibank Rewards Card gives you one point on every R125 spent, whereas a Manhattan Platinum Credit Card by Standard Chartered offers you five reward points on R100 spent. However, not everyone can get a premium card: Stringent income criteria apply for issue of these cards.
Cash-back scheme is a more recent phenomenon. In this scheme, you get cash back on your spend. You get a predetermined percentage of cash back (generally 5%) into your credit card account. Once it reaches R500 of cash-back credit, the amount is credited to you. However, not all transactions qualify for 5% cash-back. For example, Citibank Cash Back credit card gives a 5% cash-back only on movie tickets, telephone and utility bill payments registered through CitiUtlity Bill pay, and on all other spends only 0.5% cash-back is given. Also an annual fee of R500 is charged. A cap of a maximum of R100 of cash-back for each month also exists.
Both cards have their own benefits. However, without making any cost-benefit analysis, one cant say which one is better.
Let us make a comparison of spends of R75,000 on Citibank Cashbank credit card and Standard Chartered Platinum Rewards Credit Card. Chartered Platinum Rewards Card offers five reward points per R100 spent on dining, fuel and hotels and two points on all other categories of spend.
As the graphic shows, the rewards points card gives you 2,750 points and a cash-back card R700 (after accounting for annual charges). Reward points of 2,750 can give you lifestyle benefits like gift vouchers, dining coupons, apparel vouchers, etc. Some reward points can also be redeemed at specified outlets/e-commerce sites to make some purchases. However, the value of points differs. For example, 1,300 points of rewards can get you an Arrow Gift Voucher of R500, while, at the same time, a R500 GV of Lifestyle would cost you 1,500 points. In our case, with the points value of 2,750, one can get around R1,000 of gift vouchers. Hence, the rewards card proves beneficial in this case.
A cash-back card, on the other hand, may prove beneficial in a different way. You get direct benefits and it frees up cash, unlike a rewards card on which you gain rewards much later.
Also, it may be difficult to choose something from the limited list of rewards catalogue. Annual and joining fees for a cash-back card will also have to be taken into account. Often a cash-back card may be better for big spenders, when the maximum cap of monthly cash-back does not exist.
Choosing a card depends also on the kind of expenditure you incur. If you are a frequent flyer or fill fuel at a particular outlet most of the time, co-branded cards prove beneficial.
In any case, a credit card should be used with caution and your expenses should remain within your budget, irrespective of nature of the card. Before going in for any card, carry out a cost-benefit analysis, basing it on your current expenditure.
* The writer is CEO, BankBazaar.com