Types of credit card rewards: cash back, points and miles

Get the best credit cards in Singapore

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If you’re looking for a credit card, chances are you’ve seen a wide variety of reward rates ranging from cash back and points to miles (and sometimes a combination). Card issuers design attractive rates and bonuses specifically to attract new consumers, but the true value of a credit card can be difficult to discern without a solid understanding of how rewards structures work. We’ve created a guide to better explain the different types of rewards and to help you find the one that will give you the most value.

What is the difference between Cashback, Points and Miles?

Cash back, points and miles systems all offer value but vary in ease of redemption and flexibility.

  • Cash back: Cashback rewards are by far the easiest rewards system to use. These cards, also known as reimbursement cards, return a fixed percentage of the expenses made using the card. This income is usually automatically applied to your credit card statement to offset your monthly bill. Due to this instant application, the cashback rarely expires. However, it should be noted that discounts can rarely be redeemed for actual vouchers or the like.
  • Points: Reward points are quite common, but are a bit more complicated to use. Points work the same as discounts and coupons which can be redeemed at designated locations and services. The precise point value varies from card to card, and the actual value to the consumer changes depending on why the points are being redeemed. Points redemption values ​​are usually the highest when converted to miles, although they can also be redeemed for cash or vouchers. Sometimes redeeming points incurs additional administrative or processing fees.
  • Miles: Air miles are frequently offered by travel credit cards. While these cards tend to issue points, they are still considered mile cards because the conversion to miles is just assumed (and in many cases the conversion fee is waived). Converted miles can be transferred to airline and frequent flyer loyalty accounts, where they can be redeemed to pay for flights. The value of a mile varies depending on the duration of the flight and the class of the ticket, typically ranging from S $ 0.01 to S $ 0.08. Exchange values ​​are highest for longer flights. and business class tickets.

Which rewards system is right for you?

Naturally, credit card rewards only have value if you use them. If you are a frequent traveler, you will likely benefit more from a card that earns miles, while those who spend most of their time in Singapore are likely to benefit more from a refund card. This is the easiest way to make your decision quickly.

Nevertheless, you can also consider the ease of use. Cash back cards are very straightforward because the discounts are automatically applied to your monthly statement. Miles and points cards, however, require an active effort to research rewards, perform conversions, and sometimes manage additional fees and processing times.

Finally, cash back and rebate cards are more likely to have minimum spending requirements necessary to access higher reward rates. Most of the time, point and mile credit cards do not have minimum requirements, allowing cardholders to start earning immediately.

How to Compare Reward Rates for Cashback and Miles Cards

Cash back and mileage rewards can seem difficult to compare right off the bat. In order to compare them on an equal footing, it is essential to determine their ultimate “consumer value” – or, in other words, the value a cardholder ultimately receives after redeeming rewards for each. S $ 1 spent on his card. This can be calculated in two ways, depending on the type of card.

First, the return value of discount cards is fairly straightforward to calculate. Either way, 1% spending discount of $ 100 returns a reward of $ 1. This metric is true regardless of the advertised reward rate and applies to every cash back credit card. Point and mile credit cards are a little less straightforward, however. As miles are generally converted from points, this calculation is based on the point redemption values. First, determine how many points can be redeemed for a set number of miles on the card’s specific rewards platform (conversions usually need to be done in blocks). Then divide the number of miles by the number of points to find how many miles can be redeemed with a single reward point. Our research shows that 1 mile has a redemption value of S $ 0.01, so you can multiply the number of miles per point redemption to determine the value to the consumer for each 1 point redemption. Unlike cashback values, point values ​​vary from bank to bank. Ultimately, these calculations standardize the value to the consumer between different types of rewards, making it easier to compare options with different reward structures.

Selecting the best rewards card for you

Beyond considering the type of rewards system, it is essential to look at all the details of a credit card, from minimum spending requirements and annual fees to reward categories and additional benefits. The true value of a credit card, whether it’s cash back, points or miles, depends on the buying behavior of the consumer and how the structure of that card meets their needs.

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