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Research: Pros and cons of cash back reward system -

More and more credit card companies are offering reward points to its customers for using their credit cards against monetary transactions. Rewards offered include gaining airline miles to shopping and dining discounts. Cash back credit card offers are also one kind of reward being offered to the customers by different financial institutes. Depending on the need, a credit card user can determine if he will benefit from cash back or point based reward systems. This can be best determined by understanding the pros and cons of both the points as well as cash back reward system.

Pros and cons of cash back reward system

Cash back reward programs offered by the different card issuing institutes allow the user to earn rebates on the basis of a percentage of the regular daily charges. This percentage is a flat rate however in some cases, a tier-based method is applied.  The earnings on the credit card usage vary from one to five percent, where the card is used and for what purpose.

Advantages of cash back over point reward points

  • Point reward system is beneficial only in certain cases. Cash is always treated as king. Cash or check handed over by the credit card companies can be used for different purposes as a dollar. Using the cash will have no limits and unlike in case of reward points, they will not be specific in use. Point rewards, on the other hand can be used for only specific reasons as mentioned in the card’s rules and regulations. They can either be in gas stations, dining in specific restaurants or shopping. This makes the use of reward points limited.
  • Cash back rewards may also be used to credit card bills. Users often give their credit card companies standing instructions to use the cash back earned in balancing their credit amounts. Point rewards cannot be used for repaying credit card bills. They can be used only for pre determined products and schemes.
  • While in point reward schemes, the rewards are granted only after accumulation of specific number of reward points. To achieve this specific number more of specific purchases are to be made and this proves to be disadvantageous for the user. On the other hand cash back offers can be used anytime. As per the slab crested by the particular credit card company, the cash back schemes can be availed any time
  • Understanding point reward system is very difficult. In contrast, the use of cash back reward schemes is very beneficial.

Disadvantages of cash back over point reward schemes

  • Many credit card issuing institutes offer cash back schemes to its users only once in a year.
  • In case of cash back rewards, higher incentives might not be granted for some particular products or use. This again limits the use of cash back. Moreover, some credit card companies also offer only point rewards for particular usages.

If tier based, the cash back reward points become difficult to understand.