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Know Your Credit Card: Cashback vs Cash Rebates vs Air Miles vs Rewards

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cashback vs miles vs rewards vs rebates

If you can’t convince them, confuse them.

This is the feeling I get when looking at credit card pamphlets and advertisement.

While the whole world is jumping onto the bandwagon of various reward systems, it is important that we consumers take a step back and know the differences.

“We shall not be fooled!”

 

TL;DR – Difference between Cash Back, Cash rebates, air miles and rewards

Understanding these terms and their differences help one make smarter personal finance decision when it comes to applying for the credit card that best suits his lifestyle.

  Cashback Cash Rebate Air Miles Rewards
Process 1. Item Cost $100.

2. $100 charged to card.

3. Receives $5 by end of month
(assuming 5% cashback)

1. Item Cost $100.

2. $100 charged to card.

3. Receives $5 rebate, “stored in credit card.
(assuming 5% cashback)

1. Item Cost $100.

2. $100 charged to card.

3. Miles credited to frequent flier membership

1. Item Cost $100.

2. $100 charged to card.

3. Rewards credited to card account.

Pros – Little effort needed
– Hassle-free
– Hassle-free – Value of miles usually higher than cashback
– Usually no cap limit
– Value of rewards might be higher than cashback
– Offers exclusive to members
Cons – Cashbacks amount capped.
– Requirements to meet max. cashback
– Needs to monitor amount accumulated. – Miles rate changes
– Can only redeem travel-related items.
– Expiry date
– Can only redeem at merchant partners.
– Expiry date

 


Terms such as cash back, cash rebates, rebates, air miles and rewards are hurled around loosely and we are here to explain all of it.

Difference between Cashback and Cash rebate

Cashback is usually mixed up with cash rebate due to the degree of similarity they both share.

The mechanism behind the amount, however, differs.

Cashback

A simple breakdown of how cashback work is as such:

  • An item costs $100
  • I am using a card with 5% cash back.
  • $100 is charged to my card
  • $5 is then used to offset my credit card bill for the next month.

In short, a percentage of your monthly spending is used to offset your next credit card bill.

Pros of cashback credit card

  • Cashback is a simple mechanism that directly benefits one’s pocket with no fancy effort needed.
  • Cashback is ultimately money that can be used to purchase multiple things
  • The amount is directly back to the credit card account, hassle-free.

Cons of cashback credit card

  • To maximise cashback there is usually a list of requirements to meet.
  • There is usually a cap to the amount of cashback one can receive

Who should apply for cashback credit card?

There are usually certain criteria to meet in order for one to qualify for cashback. Some of these criteria include minimum spending in total or on certain categories of expenses.

Hence, if your spending pattern is rather constant and predictable, a cashback card will be for you.

On top of that, cashback is a simple mechanism that directly benefits one’s pocket with no fancy effort needed.

Editor’s note: The only hassle is to find the best card and take note of the terms and conditions to enjoy the maximum amount of cashback.

Cash Rebate

A simple breakdown of how cashback work is as such:

  • An item costs $100
  • I am using a card with 5% cash rebate.
  • The $5 rebate is “stored” in the credit card.
  • One can charge his purchase to the $5 rebate in the card for his next purchase.

Pros of cash rebate credit card

  • The cash rebate is ultimately money that can be used to purchase multiple things
  • The cash rebate is directly back to the credit card account, hassle-free.

Cons of cashback credit card

  • As the cash rebates are stored in the credit card, it is important to monitor the amount that is accumulated and also to remember to spend the rebates.

Air Miles

A simple breakdown of how miles card work is as such:

  • An item costs $100
  • I am using a credit card for air miles.
  • $100 is charged to my card
  • Miles are credited to my card account and subsequently your frequent flier membership thereafter (eg. Krisflyer miles) to be redeemed for flight tickets

In short, one is rewarded with air miles for the amount spent on his miles card.

Pros of air miles credit card

  • There is often, no cap limit to the maximum amount of miles one can accumulate.
  • Value of miles is usually higher than that of a cashback.

Cons of air miles credit card

  • As earn rate is measured in miles per dollar, each different card has a different rate.
  • Miles can only be spent on travel-related items such as air tickets
  • Miles rate and value changes from time to time.
  • There is usually an expiry date for miles.

Rewards

A simple breakdown of how rewards for credit card work is as such:

  • An item costs $100
  • I am using a credit card with a certain rewards points system (usually a standard rate).
  • $100 is charged to my card
  • Rewards points are credited to my card account.
  • One can go to respective merchants to claim the reward.

Pros of Rewards credit card

  • At times, the value of rewards points can be higher than the cash value
  • Possible offers or gifts exclusively for members under the rewards points system.

Cons of Rewards credit card

  • There might be a cap to the amount of reward one can claim.
  • One can only use it at merchant partners under the reward system.
  • Rewards points may have an expiry date.

 

 

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