If you’re in the market looking for a credit card, you may have come across different credit card types. The prominent ones include cashback credit cards, rewards credit cards and travel credit cards. Each variety comes with its own range of benefits and is ideally used to reward particular type of card expense. For example, a cashback credit card typically earns a percentage of every eligible transaction, say when you buy groceries at a supermarket, and credited back to the card account to help you save more.
Then there’s another popular credit card category: the rewards credit cards. The cardholder earns rewards points on eligible transactions that can be redeemed for gift vouchers, discounts, and merchandise in line with the terms and conditions. So, if you’re looking to apply for a rewards credit card, here are some of the top things you need to keep in mind:
Joining Fee And Annual Fee
This is a one-time fee that you have to pay to obtain the card after your application has been approved. However, many banks waive off the approval fee to encourage more customers to sign up for the card. Then there’s the annual fee which you will have to pay every year for using the card. At times you earn bonus rewards points for paying the annual fee. Also, while there are many zero annual fee card variants out there, most of the cards with high-quality benefits do charge an annual fee. That said, depending on your relationship with the bank, you might get a discount or a waiver on the annual fee. Also, the bank may have a rider in terms of minimum annual spending requirement that needs to be met to waive off the annual fee.
Reward Points Earn Rate
This is the main reason why people apply for rewards credit cards – to earn and redeem reward points. Reward points are offered per Rs.1 spent on the card. There may be minimum transaction value and maximum points earning potential. There are different ways in which points are awarded on credit cards:
- Accelerated reward points – Additional points offered per Re.1 spent on select categories such as groceries, online shopping, etc. E.g. 10 points per Rs.150 spent.
- Regular reward points – In most cases, 1 to 2 points are offered per Rs.100-Rs.200 spent in other categories.
- Milestone rewards – This reward is offered based on your yearly credit card spend. E.g. 20,000 bonus reward points awarded per Rs.2 lakh spent in the previous year.
Reward Points Value, Accumulation, And Validity
Value: To know exactly what your points are worth, read the terms and conditions of the rewards catalogue of the credit card issuer. Most issuers tell you the points to rupee conversion value. For instance, on basic rewards credit cards, the conversion would be something like 1 point = 30-50 paise, while on higher-end cards, it would be Rs.1 or more.
Accumulation: On almost all cards, you will have to accumulate a certain number of reward points before you can redeem them. So, you will have to make enough transactions to earn the minimum required points. How long it takes to accomplish this will depend on various factors including the earn rate on the card and your spending behaviour.
Validity: Most credit cards have an expiration date on the reward points accumulated. This period can be anywhere from 1-5 years. Also, points earned on each transaction will have different expiry dates depending on the transaction date on the card. Also, the date you make the transaction may be different from the date the points are credited to your account. So, you may not be able to use all accumulated points at the same time if you’re saving points for a big payout.
Also, there are minimum and maximum limits placed on points redemption.
Rewards Credit Cards Charges
Just like any other credit card, a rewards card will charge you your typical credit card fees such as interest rate charges and late payment fees. These fees and charges will be the same as the fees charged on any other credit card within the same tier offered by the bank. However, you will be charged a fee specifically on a rewards card, known as the redemption fee. This fee is what you pay every time you redeem your points. The redemption fee charged is usually upwards of Rs.100.
Reward Points Redemption Options
Most banks have an online Rewards Catalogue with different categories to redeem your earned points. You can filter as per categories and points required for redemption. You can redeem points for shopping vouchers, discounts on hotel reservations and flight bookings, or merchandise from different brands.
Another way to redeem your points is to convert it to cashback. Some cards do have this option. However, note that in most cases, you get a lower points-to-rupee value when you choose to convert your points to cash instead of redeeming it on the rewards catalogue.
What you cannot redeem your points for: Although reward points have a rupee value, you cannot use your points to pay your credit card bill or any associated fees and charges.
Reward Points Redemption Process
The easiest way to keep a tab on your earned reward points is to check your monthly statements. It will tell you how many points you have earned in that month and what your total earnings are till date. If you wish to redeem your points on the catalogue, you can log into your net banking account.
Remember that banks take a few days to process your redemption request and, in most cases, any redemptions for an offline product like free merchandise will only be sent to your registered address. So, if you have changed addresses, you will first have to update the bank records before making a redemption request. On the other hand, if you’re redeeming your pool of points for an online product like an e-voucher, it will be mailed to your registered email id.
The sure-shot way to maximize the benefits of a rewards credit card lies in reading its fine print. The first thing to keep in mind is to see whether the spending categories that fetch more rewards points are aligned with your frequent spending patterns or not. For example, if you’re someone who regularly uses a credit card for grocery purchases, you should ideally go for a rewards card variant that earns multiple reward points on grocery transactions. Doing so would ensure you earn multiple points quickly which can be redeemed for your favourite gifts like free merchandise or shopping vouchers.
Secondly, and more importantly, make a monthly budget for your total card expenses, and try to find a card that allows you to earn a good number of reward points within that budget. Never breach your budget just to avail maximum rewards points because that would make it difficult for you to pay your dues leading to interest charges at steep rates (like 40% p.a.), late payment penalties, snowballing debt and an impacted credit score. So, a rewards card should help you enrich your card spends with wonderful freebies but be disciplined with your card bill repayments to avoid any unpleasant eventualities.
The writer is CEO, BankBazaar.com, India’s leading online marketplace for loans and credit cards.