When choosing a credit card, apart from life-time free deals, the other perks we look for are bonus points and cashback offers. Here’s how to choose across similar looking cashback cards.
As the name suggests, every time you swipe your credit card, you have the potential to get back some cash reward. But the process is not that simple—there are caveats and costs involved.
What it costs
While some banks offer the facility free of cost, many others charge a fee. For example, while Kotak Mahindra Bank Ltd offers it free, State Bank of India charges a joining and an annual fee of Rs500 each.
Before deciding to go for the card, make sure the fee is worth the deal. If you can see that you won’t even be able to break even, then look for another option. And that is where looking at the fine print becomes important. And free is always superior to a fee, if other benefits are the same.
How much you get back
In most products the cash that you get back is a fixed percentage of the amount you spend. So, if your card promises you 5% cashback, and you use your card for Rs10,000, you should get a cashback of Rs500. Different banks have different formulas that they use to decide the casback.
Graphic: Yogesh Kumar / Mint
A few banks would even allot you points instead of direct cash, which you can redeem later. For instance, Citibank’s Citi Cash Rewards Credit Card gives one point for every Rs200 spent on a weekday and 5 points for every Rs200 spent on a weekend. Each point is worth Re1 that you can redeem for cash.
Where to spend
Some banks give a flat fixed percentage of what you spend as cashback, irrespective of where you spend. But with some banks, the cashback amount is different at different places across different products. For instance, with HDFC Bank Ltd’s Value Plus Card you get a 5% cashback if you use it to book a railway ticket or at a hospital or medical store; and a 1.5% on grocery purchase, departmental stores, malls and super markets.
In fact, some cards are designed to cater to your specific needs. Subrat Pani, head (credit cards), Kotak Mahindra Bank, says, “Kotak’s Trump Gold Card offers 10% cashback on dining and movies. This card was designed keeping in mind that a high-end salaried employee today goes out for dinners and movies very often and a card like that would be suitable for him.”
Check your bank’s booklets or websites to find out whether the cashback is higher if you shop from certain outlets.
Many banks give 2.5% as fuel surcharge waiver at select petrol pumps and 1.8% as railway surcharge waiver as part of the cashback package. Check if your card gives these.
How much to spend
Most banks require you to spend a minimum amount on your card to qualify for a cashback benefit. For instance, HDFC Bank’s Value Plus Card gives a 5% cashback on retail spending, subject to the condition that the total amount due in the current statement is Rs10,000 or above. You need to judge whether the minimum amount is what you would usually spend. Remember to pay up on time to avail the cashback benefit. You will lose cashback if you don’t pay on time.
There are some cards that allow only a limited number of transactions to be eligible for the benefit. For instance, Kotak Trump Gold Card allows only five transactions in a month, including dining and movies as cashback transaction. The sixth transaction in the month would not qualify for the cashback benefit.
Also, there is always a maximum cashback limit on every card, usually Rs500 a month.
C.V. Giddappa, general secretary, Credit Card Holders Association, says, “There are some really cheeky caveats that say that cashback benefits are offered only if the card is used on the EDC (electronic data capturing) machine installed by the bank. It’s best to avoid such cards, after all it’s a hassle. And its very important to read the fine print. There have been instances where banks did not qualify the swipes due to certain fine print caveats.”
How to redeem
Some banks return this money every month, while others have a predetermined period for payments. Most banks let you redeem the cashback amount against your outstanding statement or bill of the card. In some banks, the accumulated amount appears under the saving summary on your statement, which you can redeem by placing a call to the bank.
What works for you
Go for a card that is accepted everywhere and all through the year. Some cards are special offers and may give the benefit only for a limited period.
You can also choose a card according to your specific lifestyle needs. There are specially designed card for specific needs. For instance, Kotak Trump Gold Card works best for you if you frequently dine out and are a movie buff.
Ensure that your card gives you a fuel and railway surcharge waiver.
Go for a card that has a lower minimum spending requirement. If the minimum spending requirement is high than the amount you usually spend on the card, you will have to let go of the cashback benefit.
It’s best to go for a card where the banks redeem the cashback against the statement on their own, instead of a card where you need to place a call to redeem the amount.