Reward points are one of the major attractions banks highlight when pushing credit cards, apart from offers like waiver of fee for lifetime, complementary lounge access at airports and free movie tickets every month. While reward points can be valuable if you make specific transactions at specific places, banks will rarely tell you about the limitations that come along.
The number of credit cards being used in India has risen sharply over the years. According to data from the Reserve Bank of India (RBI), the number of credit cards in use rose to 43.24 million at the end of November 2018 from 34.78 million at the end of November 2017 and 17.03 million in the same month in 2011 (see bit.ly/2tu3Bf3).
Each credit card comes with its own benefits and limitations when it comes to accumulation of reward points, there are some that are common across banks. We looked at credit cards of some top banks in terms of the highest share in the credit card market in India to zero down on six limitations that will hinder you from accumulating reward points to the extent you think you can.
No card seller will ever tell you about the attached cost unless you ask about it specifically. Many leading card companies levy a reward redemption fee when you use the reward points for a transaction. For instance, most credit cards from HDFC Bank and SBI Card charge a flat reward redemption fee of ₹99 plus GST. So if a credit card gives you 2 points for every Rs. 100 spent, and 100 points give you Rs. 25 worth cashback or value, then you would need to spend Rs. 20,000 in valid categories of transactions to earn Rs. 100 worth of points. And if your bank charges you Rs. 100 as redemption fee, you actually get nothing.
Fuel cards are a specific category of credit cards that get you rewards on fuel purchases. Banks have specific tie-ups with oil marketing companies and refuelling from relevant fuel stations will earn you rewards. For instance, if you have a specialised fuel credit card from a bank having a tie-up with, say, HPCL, you will get a fuel surcharge waiver and possibly also higher rewards on your spending at HPCL fuel stations.
However, not all credit cards offer reward points at fuel stations. If you use a regular multi-purpose credit card to pay for fuel purchases, you might not get rewards for the transaction. For instance, ICICI Bank’s Platinum Chip Card gives you 2 Payback points for every Rs. 100 spent for all retail purchases, except fuel.
E-wallets saw rapid adoption and growth in the past few years. Many users preferred using e-wallets for day-to-day small-value transactions like booking a cab or ordering food online not just for the ease and convenience but also because most e-wallets offered attractive cashbacks. Now, leading banks like HDFC Bank have also stopped giving reward points for credit card transactions done to load an e-wallet.
Typically, you would think that you can collect a chunk of reward points when making big-ticket purchases like buying a smart television. However, often such purchases are done on EMI. Many credit cards do not give reward points for purchases made using the EMI facility of the card or if you convert a spending to EMI later. So despite making a high-value purchase using your credit card, you won’t get reward points. In fact, your bank would even reverse the reward points if you convert a regular payment into EMIs at a later stage. Some Citibank cards fall under this category.
Payment of premiums
Like high-value purchases, paying an insurance premium, usually a substantial amount, will also not get you as many reward points as you would expect. Most credit card companies give limited or lower reward points for payment of premiums in comparison to other retail spends. This is an important area because many investment and savings-linked insurance plans have high premiums, which could lead to significantly higher rewards.
For instance, HDFC Bank has a cap of 2,000 points per transaction for insurance transactions. Similarly, ICICI Bank gives 1 payback point for every ₹100 spent on insurance categories against 2 payback points for other retail spending for the same amount.
You might want to accumulate reward points to make a meaningful purchase later. However, remember that reward points could have an expiry date.
In case of HDFC Bank, as per the existing details on its website as on 18 February, the reward points have a validity of two years from the date of accrual. So if 100 reward points accrue at the end of February 2019, these 100 reward points will be valid till February 2021. Some premium HDFC Bank credit cards have rewards validity of three years. Similarly, reward points on some SBI cards are valid for two years.
What should you do?
Raj Khosla, founder and managing director of MyMoneyMantra, said different cards have differing limitations and each card’s limitations should be thoroughly investigated before signing up. “While reward points should not be the only reason for signing up for a card, for maximum benefit, it is smart thinking to acquire a card that dovetails with your spend patterns," he said.
You should always analyse your spending pattern to choose a card that yields maximum benefit on your transaction patterns, said Sahil Arora, vice-president and head of payment products, Paisabazaar.com. For example, if you are a frequent flyer, consider a credit card that offers free air miles, free lounge access and hotel vouchers on your card spends. Similarly, use fuel cards if you spend a substantial sum on fuel for your commutes.
“Reward points, discounts, cashbacks or vouchers available on a credit card should be considered as these help reduce your overall transaction costs. However, while doing so, consider various costs associated with credit cards, such as joining fee and renewal fee, to ensure that the costs do not outweigh the benefits," Arora said.
There are smart ways to use credit cards effectively and maximise benefits from your cards. However, you must remember that a default in repayment of a credit card bill could have a severe impact on your credit profile and hurt future possibilities of getting a loan at low cost. Moreover, credit cards charge an interest in the range of 2-3.5% per month, which comes to 24-42% per annum, if bills are not paid on time. So use your credit card carefully when you need it, and not just for availing offers or freebies.