How Well Do You Know Credit Card Reward Points?

Reward programs often motivate customers to utilize a credit card for bill payments, shopping, dining, travel, etc. In exchange, the users can accrue points and redeem them later for various perks and gifts. But why do these card companies offer reward points in the first place? Let's delve into a more in-depth discussion to discover the nuances of rewards points.

What are Credit Card Reward Points?

Whenever you use your credit card for any transaction, the credit card issuers earn an 'interchange fee' from the merchant, which varies between 1% - 2.5%. The outlet may negotiate for a lower fee if its sales volumes are soaring.

Along with the 'interchange fee,' credit card companies also make money from the annual fee and high interest earned on penalties of unpaid bills from the card users. So, to attract and retain customers, the company allocates a minuscule portion of its earnings (primarily from the interchange fee) to the users as reward or loyalty points. 

Benefits of Reward Points

• Air miles: If you are a frequent flyer, then air miles are a bliss for you. As a card user, you can redeem your reward points into air miles with the airlines that are in collaboration with credit card companies and get amazing discounts. Here are some examples of airlines that are associated with reward programs:

  • Air India - Flying Returns

  • Vistara - Club Vistara

• Gift vouchers: Another benefit of reward points are gift vouchers, which may range from a minimum of Rs. 100 to Rs. 5,000 or more. You can utilize these gift vouchers anywhere as per your convenience, either at the brand's store or an online store. The categories of gift vouchers include apparel, books, groceries, lifestyle, food, beverages, and much more. 

• Room miles: Banks also affiliate with hotels for their reward programs, which provide customers with the leverage of redeeming their reward points into room miles at the partnered hotels. 

• Cashback: If gift vouchers and miles don't woo you enough, then a cashback offer may do so. The cashback that you receive on redeeming reward points can be used either against your credit card bill or for shopping. If you have a substantial amount of cashback through reward points on your plate, it could help you save a considerable amount of money.

• Loyalty Points: Loyalty points are not new in the game of reward programs. However, if your bank offers you the provision of accumulating reward points earned on your debit as well as credit cards (of the same bank) under one roof and redeeming them together, isn't that a fascinating scheme?
  et's discuss this with an example of Axis Banks' eDGE loyalty rewards program. Here, as a loyal customer, you get to accumulate reward points on the credit/debit cards along with savings accounts and foreign remittances.

How to Calculate Reward Points?

Let's consider an instance: Suppose your credit card bill reflects 10,000 points against all purchases that you have made in the last one year, then what will the value of these points be in monetary terms?

The value of the reward points may vary from one company to another and can lie anywhere between 10 paise/point and Re.1 per/point. It can be determined by the price of the gift available against redemption. For example, if a credit card company is offering a wrist watch worth Rs 1,000 against 10,000 reward points, then each reward point is worth 10 paise.

How to Earn Reward Points?

• Daily spendings: Use your credit card even for minimal-amount transactions.  This can help you earn a substantial number of reward points, ranging from 1 - 10 or even more, depending on your spending frequency.

• Welcome bonus points: Every bank offers some bonus points to welcome their customers. Before purchasing the credit card, check out the terms and conditions stated by the bank to earn these bonus points. If the spending threshold suits your budget, then this can be an excellent opportunity for you to obtain a considerable number of reward points by purchasing within 90 days of card issuance.

• Co-branded cards:  Reward points on co-branded cards are 5-10 times higher than other cards. Co-branded cards are launched by the card companies in partnership with airlines, petrol pump companies, and branded stores. So, if you use a co-branded card at any of the associated petrol pumps, you can earn extra reward points and discounts.

• Spend on special occasions: You can also accomplish bonus points for using credit cards during festivals and other significant events. For example, during Diwali, some credit card companies offer 50 bonus points on the first online transaction.

• Premium Purchases: Spending on high net-worth items such as jewelry or international travel bookings can also fetch you more reward points.

• Use a premium card variant: If you use a card variant which is premium or super premium, you can earn a substantial amount of reward points for every purchase made. For example, Axis Bank My Zone card members can accrue around 40 reward points on every Rs 200 spent on dining during weekends.

How to Redeem Reward Points?

Before redeeming your accumulated bonus points, check out the following terms:

• Minimum reward points: Find out the minimum number of reward points that you require to reach the stage of redemption, as mentioned by the credit card issuer.

• Expiration Date: Reward points have an expiry period, which can vary from 1 to 3 years. Banks deduct the accumulated unused reward points at the end of every financial year as they are a liability on the banks' records, which they would want to eliminate. It is also a technique used by banks to coax card users into redeeming the points on time.

• Redemption Fee: Reward redemption entails a fee of around Rs.100, which the bank levies to redeem the points.

Avenues of Redemption

You can redeem your reward points through any of the following modes:

• Customer Care: Approach the customer care representative of your bank, either through phone or email, and place your request for redemption by providing the essential details. Download the redemption form, fill it in with the necessary information, and send it to the bank through e-mail or post as instructed by the executive.

• In-Store: Banks have also partnered with several retail brand stores, which let customers shop and pay for their purchases through their accrued reward points. Any remaining balance for the purchase will be charged via your credit card.

• Online: In partnership with numerous brands, most reward programs have started offering an array of categories such as garments, home appliances, and cosmetics, besides gift vouchers and charity donation, wherein you can utilize your reward points to shop online from any of these categories. Online redemption is the most convenient option among others.

A Few Tips to Be Vigilant

•  Read the terms and conditions that accompany credit cards. 

• Make sure that the reward system suits your financial needs and lifestyle. For instance, If you aren't a frequent traveler, then don't choose credit cards that provide air miles.

• If you are unable to comprehend your rewards account, then get in touch with a customer care executive and learn the nuances of your credit card reward points.

In a Nutshell

A wise man once said - "Don't judge a book by its cover" - which applies to credit card buyers as well. Make sure that you don't fall into the trap of excessive bonus points available on the credit card before checking out the background information.

Also check your credit score regularly to make sure that you are not spending beyond the recommended credit utilization rate.

Enjoy the Rewards!