Reward points on credit cards: Reality check

It's raining rewards on credit card holders, thanks to the ongoing festive season. Banks are today cashing in on the fact that the modern customer is no longer debt-shy, is more imaginative and does not wince before swipinghis credit card when he takes his family on a holiday.

Today, a credit card heavily loaded with reward points gives you the opportunity to enjoy holidays at exotic locales, shop for jewellery, fashion accessories, apparel, electronic equipment, cosmetics et al.

However, as a cardholder, you need to be aware that there are no free lunches. Banks have a penchant for giving you a reward with their left hand, and simultaneously charging you for it with their right hand.

In any case, it always pays to be safe than sorry. You need to be aware of a host of complicated rules and regulations before you let yourself to be swayed away by these so-called lucrative offers. To begin with, banks do not conform to a uniform set of reward point schedules.

For instance, while in case of American Express Bank, card members receive one point for every Rs 40 charged on their credit card, ABN Amro Bank credits one point to the customer for every Rs 50 spent.

Standard Chartered credits one point for every Rs 125, whereas Citibank rewards you one point for every Rs 100 spent. Private sector ICICI Bank awards you one reward point for every Rs 200 charged on their card. Also, ICICI Bank links the reward points to the slabs of amounts spent, i.e. upto Rs 75,000 or above Rs 4,00,000.

The main hitch here is that you can seek redemption of reward points only after you have accumulated the minimum required points of 500.

This apart, banks also follow a pattern wherein they credit varying amounts on every point earned, depending upon the card categories. Citibank rewards cardholders Re 1 for every point earned on the Citibank Platinum Card, while the Diners' Club International and Citibank Gold cardholders receive only Rs 0.65 for every point gathered. The Citibank Silver cardholders on the other hand get Re 0.50 for every point they manage to accumulate.

The difference in redemption structures also creep in, based on the outlets offering you redemption facilities. Dutch-based ABN Amro Bank offers you redemptions via gift vouchers that can be redeemed at superstores, apparel, beauty and healthcare et al.

As a credit card holder of ABN Amro Bank, you need to accumulate at least 1,000 points to be eligible for redemptions at Pantaloons, Lifestyle, Adidas, Allen Solly or Philips outlets.

Whereas to avail of vouchers, redeemable at Zodiac, Wrangler, Arrow or Titan, you should have accumulated a minimum of 500 points. Being a cardholder, it is mandatory that you find out the cash transactions that curtail your eligibility to these programmes.

Most banks restrict their customers from treating cash withdrawals, interest charges, card fees, demand drafts, service charge transactions, disputed transactions, purchase of foreign exchange, EMI transactions, travellers cheques and other insurance charges as opportunities to accumulate reward points.

The rewards points can also be redeemed online. This is how you can do it. You need to login on the concerned bank's website and visit the "Reward Points" section on the credit card page. To web-enable your credit card, fill up the account linking form available on the site.

You then need to select the rewards catalogue for the card you hold and accordingly, choose the products or vouchers for which an online order has to be placed. The product or the voucher is then delivered at your doorstep.

Card-issuing banks offer cardholders the facility to seek an annual fee waiver, by adjusting the amount against the reward points. HSBC for instance offers cardholders who have gathered a minimum of 500 points the facility to seek a fee-waiver of Rs 250.

One also should check on the available timeframe within which cardholders need to redeem their points. Cardholders cannot exercise redemption rights on expired or delinquent cards.

American Express Bank has a programme called "Points+Pay" option where customers can speed up their redemption. Amex cardholders, through this programme, can use their accumulated rewards points and pay the balance amount with their card.

For example, if he has reached 7,000 points and would like to redeem a holiday worth 16,500 points, he can do so by paying a certain to purchase the balance points required. The payment, charged to his card, will appear in his next statement.

But the issue really is are you getting what you want or is it that you are getting lured by a few offers made by banks to such an extent that you end up splurging huge amounts just to avail of an offer that is nothing monetarily beneficial.

So, the homework required is that read the card statement religiously, check the website for the offers and eligibility norms and also, check if you are charged indirectly for the so-called freebies.

THE ECONOMICS

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• The hitch is that you can seek redemption of reward points having accumulated a minimum of 500 points
• Cardholders can seek an annual fee waiver by adjusting the amount against the reward points