One card offers 1.5% cashback. Another offers 4 reward points for every ₹100. Four sounds bigger than one and a half. But you cannot compare them until you know one thing: what a point is actually worth.
This guide gives you a simple way to turn any card’s rewards into a single number, the effective reward rate, so you can compare cashback and points side by side.
Cashback: what you see is what you get
Cashback is simple. Spend ₹100, get ₹1.50 back, credited to your card statement. Check three things:
- The cap. Many cashback cards limit how much cashback you can earn in a month or a quarter, especially on the higher-rate categories.
- The exclusions. Fuel, rent, wallet loads, insurance and utility payments often earn less or nothing.
- Where the high rate applies. “5% cashback” is often only on one partner site or app.
Reward points: the value is in the redemption
Points are an IOU from the bank. Their value depends on what you exchange them for, and the same point can be worth very different amounts:
- Redeemed as a statement credit or voucher, a point is often worth a few paise.
- Transferred to an airline or hotel programme, some points can be worth more, if you actually use that programme.
- Many points also expire, and banks usually charge a redemption fee.
Your card’s reward terms list what each point is worth for each redemption option. Use the value you will really get, not the best one in the brochure.
The formula
To compare any two cards, work out the effective reward rate:
Effective reward rate = (points per ₹100 × value of one point in rupees), which gives rupees back for every ₹100 spent, so it reads directly as a percentage.
Example: 4 points per ₹100, each worth 25 paise = 4 × ₹0.25 = ₹1 per ₹100 = 1%. That “4 points” card returns less than the 1.5% cashback card.
A worked comparison
Say you spend ₹30,000 a month on your card, ₹3.6 lakh a year. We ran three examples through SkyloFin’s credit card rewards calculator, plus a flat cashback card:
| Card (example) | Rewards | Value in a year | Annual fee | Net value | Effective rate |
|---|---|---|---|---|---|
| Card A | 1.5% cashback | ₹5,400 | ₹0 | ₹5,400 | 1.5% |
| Card B | 2 points per ₹100, 25 paise each | ₹1,800 | ₹0 | ₹1,800 | 0.5% |
| Card C | 4 points per ₹100, 25 paise each | ₹3,600 | ₹500 | ₹3,100 | 1% |
| Card D | 5 points per ₹100, 20 paise each | ₹3,600 | ₹1,000 | ₹2,600 | 1% |
On these numbers, the plain cashback card wins. That will not always be true: a points card with good redemption options, bonus categories you use a lot, or a fee waived by your spending can come out ahead. The point is to compare after doing the maths, not before. Also subtract the GST on any annual fee, usually 18%.
Match the card to how you actually spend
- You want simple: a flat cashback card, same rate everywhere, no redemption to remember. See cashback credit cards.
- Most spending on one site or app: a co-branded card for that brand, if the accelerated rate applies to what you buy.
- You fly often and use one airline or hotel group: a points card that transfers to it can give more value. See travel credit cards.
- You do not want a fee at all: start with lifetime free cards.
How to find what a point is worth on your card
- Open your card’s reward terms or the rewards section of the bank’s app.
- Find the redemption options: statement credit, vouchers, a product catalogue, airline or hotel transfers.
- Note the value per point for the option you would really use, and any redemption fee.
- Check the expiry period, and whether some spends earn fewer points.
- Multiply the points per ₹100 by that value. That is your reward rate.
SkyloFin’s card pages list each card’s reward rate by category, its caps and its fees in the same layout, so you can put two cards side by side on the compare page.
Benefits that are not cashback or points
Some cards give value in other ways: airport lounge visits, a fee waived when you spend a set amount, milestone vouchers, lower forex markup, or fuel surcharge waivers. These can be worth a lot, but only if you use them. Put a rupee value on the ones you will actually use in a year and add that to the reward value before you compare.
When the reward actually reaches you
Cashback is usually credited to a later statement, sometimes one or two cycles after the purchase, and some cards pay it only once it reaches a minimum amount. Points usually appear on the next statement. If a return or refund reverses a purchase, the reward for it is taken back too. And purchases converted to EMI often earn fewer or no rewards, so check the terms before you convert a big spend.
Four traps to avoid
- Chasing points by spending more. A 1% reward on a purchase you did not need is a 99% loss.
- Letting points expire. Note the expiry and redeem before it.
- Carrying a balance. Interest at around 40% a year wipes out any reward rate. Rewards only pay if you clear the full bill.
- Ignoring the fee. A ₹1,000 fee needs ₹1 lakh of spending at 1% just to break even.
Frequently asked questions
Is cashback better than reward points?
Not always. Cashback is simpler and its value is fixed. Points can be worth more or less depending on how you redeem them. Convert both to an effective reward rate and compare.
How much is one reward point worth?
It depends on the card and the redemption. Many cards value a point at a few paise for vouchers or statement credit. Check your card’s reward terms.
Do rewards count on every spend?
Usually not. Fuel, rent, wallet loads, insurance and some bill payments often earn less or nothing. The card’s terms list the exclusions.
Is a card with an annual fee ever worth it?
Yes, if the rewards and benefits you actually use are worth more than the fee plus GST, or if your spending gets the fee waived.
Cards A to D are examples to show the method, not real products. This is general information, not financial advice. Check each card’s reward terms and fees on the bank’s site.
