Maximise reward points by using the right card for your each spend

Beware that on some expenses you could be levied a fee for card usage

While the number of credit card users is growing, not all of them are savvy at maximising the benefits from the reward points they earn. Used smartly, these points can help you meet your regular expenses or purchase a product you have coveted for a long time.

Sanjeev Moghe, president & head, cards & payments, Axis says, “Reward points are a fundamental driver of customer loyalty, specifically in the case of cards.”

Varied reward structures 

Credit cards offer a variety of reward structures. Sachin Vasudeva, director & business head, Paisabazaar, says, “While most cards work on the reward points model, some offer cashback, air miles, or loyalty points with select brands.”

Cardholders earn reward points at a pre-set rate. Gaurav Chopra, founder & chief executive officer (CEO), IndiaLends, says, “Credit card issuers could offer 1 point for Rs 50 to Rs 100.  The conversion rate varies from one card to another. Sometimes, the reward points can be a percentage of the amount spent, and can range from 0.2 to 2 per cent.”

Cardholders can redeem these points to avail themselves of vouchers or other products from their bank’s rewards catalogue.  

Air miles and loyalty points work similarly but their redemption options tend to be limited. Air miles can be redeemed upon booking flight tickets, while loyalty points can be redeemed only with the associated brand. Cashback means the consumer earns a certain amount at a pre-set rate, which is credited into the card account. Chopra says, “First-time users prefer cashback cards as their benefits are the easiest to understand.”

Co-branded cards can help maximise benefits on recurring expenses. Chopra says, “To cite one example, the Axis Flipkart Credit Card offers a good value proposition to anyone who shops regularly at Flipkart. An airline co-branded card is perfect for a frequent flier.”

Rate of earning varies…

Credit cards have a base reward rate that applies to all transactions. In addition, they allow customers to earn reward points at an accelerated rate on select categories. For example, the SBI SimplyCLICK Credit Card offers 1 reward point per Rs 100 spent on retail transactions. But if you spend the same amount on online purchases, you get five times more reward points.

…So does the value of each point

The value of each reward point can also vary, depending on the type of card and the redemption mode. For example, when you redeem the points on the HDFC Diners Club Privilege Credit Card, the value of 1 reward point will be Rs 0.50 for booking flights or hotels via SmartBuy, Rs 0.35 for purchasing vouchers or products through the rewards catalogue, and Rs 0.20 if you convert the points into cash. Vasudeva says, “Choose the redemption option that gives the highest value.” 

Things to be mindful of 

Credit card reward points must be used on time. Vasudeva says, “They usually have an expiry date, so redeem on time.”

Spending a threshold amount can earn you a sign-up bonus. Adhil Shetty, CEO, Bankbazaar, says, “Plan your spending such that you meet this requirement without going overboard or getting into debt.”

Use your credit card on everything that doesn’t charge a fee. Earn more reward points by linking subscriptions to credit cards. Paying school fees or rent with the card may trigger a fee. Shetty says, “Using the card may not be worthwhile where the fee exceeds the rewards.” The reward points may not at times cover the full cost of an item. Raj Khosla, founder and managing director, MyMoneyMantra.com says, “Some rewards come with part payment or own spending conditions, especially air tickets, where you have to pay say 30 per cent and redeem the miles for 70 per cent.”

Keep an eye out for additional, temporary bonus offers. Some cards offer bonus points to encourage spending during the holiday season. Crossing certain thresholds on some cards can earn you additional points.  

Choose the right card for the right spending category. For example, a card that offers extra reward points on groceries should be used primarily to buy groceries.