The credit card reward mirage: High earn rates, low real returns

'It's not how many points you earn, but what they're worth,' says Adhil Shetty, 'as flashy reward rates often hide poor rupee conversion value.'

Swipe, earn, repeat. That’s the rhythm many of us follow with our credit cards, driven by the thrill of earning points on every transaction, be it a coffee run, an online order, or a weekend getaway. But here’s the catch: not all points are created equal.

 

While flashy ads boast of earning “5X reward points” on spends, what they often leave out is the most important detail: What are those points actually worth when you redeem them?

 

“A high rate of earning points doesn’t necessarily mean better returns if those points have low redemption value,” says Adhil Shetty, chief executive officer of BankBazaar.com.

 

It’s not about how many, but what they’re worth

 

Credit card rewards are only as valuable as their conversion rate. Shetty explains with an example: a card offering 5 points per Rs 100 might seem superior. But if each point is worth only Rs 0.10, the return is just Rs 0.50 per Rs 100. Meanwhile, another card offering 2 points per Rs 100, but with each point worth Rs 0.50, yields Rs 1 in benefits, double the value.

 

“It’s crucial to evaluate both how many points you earn and what they’re actually worth when redeemed,” he adds.

 

Why conversion rates vary

 

Reward point conversion is driven by strategic partnerships and backend negotiations. According to Shetty, airlines and hotel chains often offer better value due to bulk deal arrangements. On the other hand, gift cards or merchandise typically have lower redemption value because of added costs and markups.

 

For example:

 

Travel bookings via card platforms like HDFC’s SmartBuy can give Rs 1 per point. 

The same point might be worth just Rs 0.30 if converted to cashback.

 

Best reward conversions in the market today

 

Here’s a quick comparison of some cards with strong conversion systems:

 

• Standard Chartered Ultimate: Rs1 per reward point across most options. 
• HDFC Infinia & Diners Club Black: Rs 1 per point on travel via SmartBuy. 
• Kotak Solitaire: Direct 1:1 conversion to Air India miles. 
• Cards like Axis Bank Magnus and BoB Eterna also offer high earn rates, but their value depends on how (and whether) you redeem them effectively.

 

(Above mentioned data is provided by BankBazaar.com)

   

Common mistakes to avoid

 

Shetty points out several traps:

 

Focusing only on points earned, not on their actual worth.

 

Redeeming points for low-value options like merchandise.

 

Overspending just to earn rewards, which can lead to debt.

 

Choosing cards that don’t match one’s lifestyle-- like travel cards for non-travellers.