The Hindu Business Line : Can rewards be rewarding?

While limits, fees and interest rates are the primary decision points in choosing your credit card, more often that not, the rewards schemes interfere with decision-making. But should they?

Finding something worthwhile to redeem your points for takes a fair amount of spending and a good number of months.

Bhavana Acharya

There is a multitude of credit cards out there, each offering different combinations on credit limit, interest rates, reward points and additional benefits. While limits, fees and interest rates are the primary decision points, more often that not, the rewards schemes interfere with decision-making. But should they? How effective are these reward programmes? Read on to know.

How they work

Reward points are primarily meant to encourage spending. It is basically ‘rewarding’ you for using your card. Therefore, the reward points system, across all banks, is based on the quantum of spending. The differing point between the various banks’ schemes is the ratio between spends and the points earned for that. Also, within a bank, the type of card you hold will determine the points you could accumulate. Quite obviously, a platinum card holder would be better off, points-wise, than a silver card holder.

For example, ICICI Bank has a range of points according to spending slabs — spends up to Rs 200,000 per year gives you one point for every Rs 200 spent, between Rs 200,000 and Rs 300,000 you earn three points for every Rs 200 spent and so on. A Citibank Gold cardholder receives two points for every Rs 125 swiped, while a Silver cardholder needs to spend Rs 200 to earn the same one point. In the case of an Axis Bank Gold card holder, for every domestic spend of Rs 100, the cardholder earns a point, with two points won for every international spend of Rs 100.

The commonality across banks, however, is the rewards for which you redeem the points. These address almost every category of spending — from apparel and accessories to electronics, home solutions, even restaurants and so on. Rewards may take the form of vouchers — such as from Pantaloon, Provogue, Prestige, Landmark, and so on — or direct debits from your ‘points pool’, usually for appliances or accessories.

Other common features across bank rewards are the conversion of points earned into air miles, annual card fees or towards a charitable organisation.

What they’re worth

But to what extent should you let these ‘reward schemes’ influence you? Well, considering the level of spending required for redemption of points into something really worthwhile, not to mention the time it would entail to get to a reasonable amount, it appears rather prudential to not let such reward points benefits sway your decision to either spend or even own a credit card.

Let’s look at some examples. Take the basic HDFC Bank Silver credit card. Here you earn one point for every Rs 200 you spend. A minimum of 500 points are required to be able to qualify for redemption. While this is the criteria for most banks, it merits attention that it translates into spending of at least Rs 100,000.

Having gained eligibility, you would then need to earn at least 40 further points to be able to receive a gift, since there are none available for less than 540 points. This would mean that you need to spend a further Rs 8,000 to get the ‘cheapest’ gift on the rewards catalogue. And this is provided you have accumulated at least 3,000 points, making you eligible for the premium category of redemption; if you have less than that, the cheapest gift requires 870 points.

In another example, a basic SBI credit card awards one point for every Rs 50 spent. Appears rather attractive doesn’t it? However, for a voucher of Rs 200 from Dominos Pizza, you require no less than 952 points, meaning you should have spent Rs 47,600 to avail of that. A ladies’ wallet needs 1,337 points or credit card spending of Rs 66,850.

Other benefits

Besides reward points, banks offer a host of other benefits tied to your credit card. These relate to discounts on purchases in certain outlets, waiver of fuel surcharge at petrol pumps, add-on cards and so on. Some banks offer a cash back facility through which a percentage of expenses in select categories such as medical bills and groceries will be reimbursed. For instance, a Standard Chartered Business Card will give you a 5 per cent cashback on fuel and phone bills besides various other discounts. Such cashbacks, however, most often are subject to a minimum monthly statement value and restricted by a maximum limit of reimbursement.

Verdict

Agreed, the reward points and the many attractive items that come bundled with it are quite appealing; in cases of household appliances, useful as well. There is value for even those who otherwise may not consider buying some of the items listed in the reward schemes, such as a branded pen-set or a dartboard. However, bear in mind that finding something worthwhile to redeem your points takes a fair amount of spending on your card and a good number of months.

The spending benefits system, therefore, should not play a significant role while you evaluate different cards; it should at best only be a factor that can be considered if rest of the features between different cards match.

However, you can use the rewards system in conjunction with the other benefits to come up with a clear picture on how much extra you can get out of your card spends. Also, keep track of your accumulated points since unclaimed points can lapse after a period of time.

But do note that while the redemption of points is a rather hassle-free affair, it takes anywhere from two to six weeks to fully come through. Banks may also charge a fee for the redemption process.

(Note that the examples used here are not to be constituted as recommendations on which credit card to use.)

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