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All You Need To Know About Types Of Credit Card Rewards

Team BankBazaar
·3-min read
Picture for representation only
Picture for representation only

Increasing digital transactions have propelled our dependence on instruments such as credit cards. They come with varied benefits and offers. Earning rewards through credit card usage is one of the most common benefits of this popular financial tool. Rewards come in the form of cashback, discounts, air miles, freebies, redemption points, gift vouchers or even white goods.

What Are Reward Points?

When you use a credit card to make a payment, the card provider gets an interchange fee for the transaction. The fees ranges between 1-2%. The fee allows the card company to give the customer rewards. Basically, the more you transact, the more value you are able to derive through the card rewards. There are three types of rewards programs that are offered to credit card customers. Your credit card benefits will depend on your card type and card issuer’s terms and conditions.

Cashback Rewards

While shopping for your grocery or during online shopping, you may have come across cashback offers on your purchases through certain cards or payment modes such as UPI. Cashback is a popular way to attract customers to spend through a mode as it gives back a certain percentage of the amount spent. Usually, it ranges from 2-5%. For example, one card issuer offers 5% cashback on utility payments through its card every month, capped at a total cashback of Rs. 500 per month. It is important to note that not all purchases are eligible for cashback; you can get this benefit on select transactions or with select merchants. You can check with the credit card issuer about the terms and conditions.

Points Rewards

As the name suggests, these are points that you accumulate on your card for spending a certain amount of money. For example, one card offers you 5 points per Rs. 100 spent on online transactions, and 10 points per Rs. 100 for transactions via partner websites. You can accumulate and redeem these points for various ends such as gift vouchers and white goods. A conversion rate may apply. For instance, on one card, every point is equal to Rs. 0.25.

Milestone Rewards

These are based on your spending milestones such as amounts spent within the first few months of acquiring the card, or amount spent in a year, or passing spending milestones such as Rs. 1 lakh. Many credit cards offer bonus points, waive off your fee, or give you a gift upon passing these milestones. You can redeem these once a certain number of points have been accumulated. This also provides you with the benefit of converting points to air miles for free or discounted air tickets and using the miles to pay for seat upgrades. Your air miles can also be used for redemption of other travel-related expense, such as special discounts at partnered merchants such as movie theatres, hotels etc. depending on your credit card variant.

While choosing your credit card for reward points, align them with your spending pattern. To not miss your reward benefits, it would be wise to keep checking your monthly statements.

Click here to compare and understand the benefits of a credit card. To know about the top 10 credit cards, click here.

BankBazaar.com is India’s leading online marketplace for credit cards, loans and more.