Cashback Credit Cards vs Reward - What's the Right One?

Not sure how to choose between a cashback credit card and a reward credit card? Here are a few hints on how to compare credit cards to help you decide which one is the right one for you.

Definitions: A cashback credit card gives you - what else? - cash back on your purchases made with that credit card. The amount is usually a percentage of the purchase from .5% to 5% on certain purchases. Depending on the particular card, the cash back may be a flat rate on any purchase that you make, a percentage of certain qualifying purchases or a combination of the two.

Example: The Morgan Stanley Platinum gives you 1% cash back on the first £2,000 that you charge to your card each year, plus .5% of the rest of your purchases up to your credit limit. They issue you a check once a year for the amount of your cash back.

Example: The American Express Platinum cashback credit card gives you 2% cash back on all your purchases for the first three months, then 1% on all your purchases for as long as you use your card.

Other cashback credit cards may offer you cash back on purchases made at certain merchants, or on a certain kind of purchase like gasoline.

Rewards credit cards also pay you back for using them, but the payoff may be in points or miles or some other scheme. When you use rewards credit cards to make purchases, you'll earn points or miles that you can spend on products offered by the reward programme that your credit card company manages. The products offered in the rewards programme depend on the merchants and manufacturers with whom your card company has partnered.

Example: The American Express Nectar Credit Card is a typical rewards credit card. For every £1 that you spend, you'll earn 4 nectar points. In addition, many participating merchants offer extra nectar points as incentives to make purchases from them - currently, for instance, you can earn double nectar points for every purchase of BP motor fuel of 25 litres or more. You can redeem your points from the membership rewards catalogue that includes luxury merchandise from Bodum, Alessi, Conde Nast and many others.

Compare Credit Cards to Find Which is Best For You There's a lot more to comparing credit cards than deciding which one gives you the most points or cash back though. There are some really good comparison sites that make it easy to compare credit cards side by side so that you can see APRs, fees and any restrictions that may make a difference in choosing the right card for your needs. Some considerations that may apply include:

- You'll get slightly less value in cash back than in reward points, generally - but there's no restriction on where you can spend your cash.

- A rewards credit card that partners with merchants you patronize or offers merchandise you'd purchase anyway may be a better deal for you than the smaller amount of cash back.

- When and how the rewards are paid can make a difference. Usually, reward points can be redeemed at any time, but cash back is only sent back at one time in the year.

- Rewards and cash back may be offset by slightly higher interest rates. If you typically carry a balance from month to month, then the interest charges may cost you more than the cash back benefits.

In the end, choosing the right credit card is all about what works best for you. Good comparison sites can help you compare credit cards and choose the best cash back or rewards credit cards for your needs.