Earn cash in your account every time you shop with your credit card. Sounds too good to be true, right? That's precisely how a cashback credit card works. With that said, there are certain nuances to be followed while picking up the right one that works for you. Here, in this guide, we have rounded up the key details that you should know while choosing cashback credit cards.
What are cashback credit cards?
Cashback offers are one of the most popular offers right now. Online consumers are well-aware of how cashback works. Digital wallets, food delivery apps, ecommerce portals all offer cashback offers to entice customers to spend and shop more.
With a cashback credit card, every time you tap, swipe or pay using the card online or offline, a percentage of the amount you spend is paid back to you. It can be either credited in the form of cash to your account or reward points.
Cashback credit cards are of different types. Some cards offer the cashback facility throughout the year, while others offer it only for specific times, say festival sales, etc. Generally, most cashback credit cards offer this feature only for specific purchases like fuel, utility bills or dining and shopping at select merchants. Today, several cards offer cashback on all purchases that you make, regardless of the type.
How do cashback credit cards work?
Every time you use the card, a percentage of the amount you spend is credited to your account in the form of cashback. For instance, if your card gives you 1% cashback, then you earn Rs. 10 for every Rs. 1000 spent.
Cashback can be paid into your account monthly or annually, depending on the type of card you have chosen.
Most cashback cards credit the cash you have earned onto your credit card balance, thereby reducing your monthly credit card bills. Some cards offer you reward points instead of money. You can then redeem these reward points to pay for your other purchases.
Additional Reading: What is Cashback on Credit Cards?
Which transactions qualify for cashback offers?
It depends on the card type you choose. Today, the majority of cashback credit cards offer cashbacks for all kinds of expenditures like shopping online, in-store purchases, dining, travel, fuel, lifestyle purchases, utility bill payments and more.
Make sure to read the terms and conditions of a cashback credit card to find out the complete list of transactions that earn you cashbacks.
How much money can you earn using a cashback credit card?
Cashback percentages vary from one card to another. Most cards offer cashbacks that range from 0.5 percent to 5 percent. Sometimes, when banks run promotions, they provide higher cashbacks that go anywhere up to 50 percent.
Types of Cashback Credit Cards
Cashback credit cards can be classified into different tiers, based on how much cashback they offer:
Some cards offer a fixed percentage as cashback, irrespective of how much you spend and where you spend.
Some cards offer tiered cashback depending on the total amount you spend using the card in a year. To give an example, you earn 1% cashback if you spend less than Rs. 1 lakh annually and 2% cashback when you spend more than that. Be extra careful when choosing this type of cashback credit card, as you could end up spending more than you usually would, to earn the extra cashback.
Other cards offer different rates of cashback, depending on where you spend. For example, you could earn 3% for fuels, 2% on dining out, 1% on online purchases and so on.
Are cashback credit cards right for me?
If you're someone who pays your credit card bills on time every month, then cashback credit cards are an excellent way to get rewarded on your regular purchases.
On the other hand, if you don’t pay credit card bills in full or on time, then the interest charged on your outstanding debt will be higher than the cash you earn for your spends.
Things to Keep in Mind, while Choosing Cashback Credit Cards
Be mindful of your Spending Habits
If you have a habit of using your debit card or paying with cash, then cashback credit cards may not be the best choice for you. If you’re someone who is not comfortable using credit cards, then a cashback credit card will not give the best benefits for you.
Consider the Annual Fees
Just like regular credit cards, cashback credit cards come with an annual fee. Make sure to factor this fee while applying for a cashback credit card. If you only spend a few hundred rupees on your card every month, then the cashback amount you earn will be wiped out by the annual fee you pay for the card.
Don’t spend more than you usually would
It’s tempting to go beyond your regular spending so that you can earn extra cashback. This is a slippery slope to tread – and you could end up in credit card debts.
Check out the list of Eligible Transactions for cashback
Make sure to check the list of approved merchants to see if it coincides with your spending pattern. To give an example, if the card offers cashback only on fuel purchases, but you don’t own a two-wheeler or car, then you are not likely to get any benefit from it.
Minimum Cash Spend Requirements
Certain cards offer cashback only when the cardholder spends over a minimum amount every month. For instance, if the card requires you to spend over Rs. 10,000 every month, but your average monthly spends is Rs. 5000, then you won’t receive any cashback.
Most cards place a cap on the maximum amount of cashback that a cardholder can receive in a month. Make sure to consider this criterion as it means even if you spend more, the cashback you receive will be fixed.
Top 5 Cashback Credit Cards in India
|S.No.||Credit Card Name||Key Features & Benefits||Annual Fee|
|1||ICICI Instant Platinum Credit Card|| Earn reward points and redeem them for cash.
Enjoy minimum 15% discount at 2600+ restaurants across the country
Get Rs. 100 discount on 2 movie tickets every month at BookMyShow
|2||Standard Chartered Platinum Rewards Credit Card|| 5 reward points for every Rs. 150 spent on fuel and dining
1 reward point for every Rs. 150 spent on other categories
|Rs. 250 per year|
|3||SBI Simply Click Credit Card|| Get an Amazon gift card worth Rs. 500 on joining
Earn 10x rewards on Amazon, Lenskart, BookMyShow, Urban Clap and other partner ecommerce merchants
Earn 5x rewards on all other spends
|Rs. 499 per year|
|4||HDFC Bank Money Credit Card|| Earn 2 reward points for every Rs. 150 spent
Accumulate reward points and redeem it for cashback on credit card bills (100 points = Rs. 20)
2x reward points for shopping online
|Renew card membership for free by spending more than Rs. 50,000 in a year|
|5||American Express Payback Credit Card|| 2 Payback points for every Rs. 100 spent
| First-year – Rs. 750 + taxes
Second-year onwards – Rs. 1500 + taxes
Additional Reading: 5 Best Cashback Credit Cards
Always Remember the Golden Rule of Cashback Credit Cards
Pay off your credit card bills in full and on time every month. Otherwise, any money earned as cashback will be wiped off by the interest charged on your outstanding credit card bills. A cashback card is a great way to earn extra rewards, provided you use it smartly within your limits. Check out CreditMantri to get a list of all the popular credit cards available on the market and pick the right one that suits you best.