Credit card basics · Updated October 2026 · 6 min read
Credit cards pay you back for spending in two main ways: cashback and reward points. Cashback is simple and instant. Points can be worth more or less, depending on how you redeem them. This guide shows you how to compare them in plain numbers.
In short: Cashback gives you money back directly, with a clear value. Reward points have a value that varies by card and by how you redeem them. To compare, work out the effective reward rate: how many rupees you get back for every ₹100 you spend.
What is cashback?
Cashback is a percentage of your spend returned to you, usually as a statement credit or amount in your account. If a card gives 5% cashback and you spend ₹2,000, you get ₹100 back.
- Pros: Easy to understand, no redemption effort, and the value is fixed.
- Cons: Often capped per month, limited to certain brands or categories, and rarely worth more than its face value.
What are reward points?
Reward points are earned on each purchase, for example 5 points per ₹100 spent. You then redeem them for vouchers, products, travel, statement credit or transfers to airline and hotel partners.
- Pros: Can be worth more when used well, especially for travel, and many cards give bonus points in certain categories.
- Cons: The value per point changes with how you redeem, some rewards have fixed catalogues, and points can expire or be devalued.
How to compare them: the effective reward rate
Use this formula:
Effective reward rate = (points earned per ₹100 × value of one point in rupees) ÷ ₹100
Examples (illustrative numbers):
| Card type | How it works | Effective rate |
|---|---|---|
| Cashback card | 5% cashback on eligible spends | 5% |
| Points card, statement credit | 4 points per ₹100, each worth ₹0.25 | 1% |
| Points card, vouchers | 10 points per ₹100, each worth ₹0.25 | 2.5% |
| Points card, travel transfer | 4 points per ₹100, each worth ₹1 when transferred well | 4% |
The same card can have very different effective rates depending on how you redeem. Always check the redemption value on your bank’s rewards page before you decide.
What to check on any rewards card
- Caps: Is there a monthly or yearly limit on cashback or points?
- Eligible categories: Which brands or spends earn the higher rate, and which earn little or nothing?
- Exclusions: Fuel, rent, wallet loads, insurance, utilities and government payments often earn reduced or no rewards.
- Expiry: Do points expire, and when?
- Redemption limits: Is there a minimum number of points, a fee, or a cap on how many you can redeem?
- Changes: Banks can change reward rates and redemption values. Read their notices.
Which is better for you?
| You are… | Usually better |
|---|---|
| New to credit cards, and want something simple | Cashback |
| A heavy online shopper on a few big platforms | Cashback card tied to those platforms |
| A frequent traveller who can use transfers | Points, redeemed for travel |
| Someone who does not want to track redemptions | Cashback |
| Spending across many categories | A flat-rate card, or compare both options carefully |
Common mistakes
- Ignoring caps. A 5% card capped at ₹500 a month does not help if you spend ₹50,000.
- Letting points expire. Check expiry dates, and redeem before they lapse.
- Redeeming at a poor value. Redeeming points for low-value items can halve their worth.
- Spending more to earn more. A 2% reward on a ₹100 purchase you didn’t need still costs you ₹98.
- Ignoring the fee. Rewards only count after you subtract the annual fee. See joining fee vs annual fee.
Common questions
Is cashback taxable?
For regular personal spending, cashback is generally treated as a discount on your purchase rather than income. Tax treatment can vary, so check with a tax professional for your situation. Can I get both cashback and points?
Some cards give cashback in certain categories and points elsewhere. Read how the rewards work. Why is my reward lower than the advertised rate?
Usually because of caps, exclusions or the redemption method. Check your statement and the card’s reward terms. Should I pick a card based on rewards alone?
No. Check the fees, interest rates, and whether the benefits suit your real spending. Rewards never outweigh interest if you carry a balance.
See what each card offers: Browse cashback and rewards cards and filter by fee. Next in this series: credit card mistakes that cost you money.
Cards to look at
If you prefer simple cashback:
- SBI Cashback: 5% back on all online spends.
- HDFC Millennia: 5% back on 10 popular apps.
- Axis Flipkart: up to 7.5% back on Myntra and 5% on Flipkart.
- If you prefer reward points: SBI SimplyCLICK, HDFC Regalia Gold or, for big spenders, Axis Magnus.
See all 101 cards with fees and eligibility on our credit cards page, or get a personal pick from the Card Finder.
Disclaimer: This guide is for education and is not financial advice. Fees, rates and benefits differ by card and change often, so check your card’s current terms. Some links on Koshfin are affiliate links; we may earn a commission at no extra cost to you.