Individuals are highly attracted to the word “rewards”. All the service providers take this leverage to build and expand their business. Credit cards also provide rewards based on usage and other factors. But are they actually worth it?
Read further to know if credit card rewards are worth it or not.
How Do Credit Card Rewards Work?
Every time you pay using your credit card, you earn a certain reward points according to what you pay. For example, if your card provides 3% cashback on online purchases and you spend ₹10,000, you are given ₹300 as cashback.
There are various types of rewards available, depending on the credit card you select. The structure of these rewards is determined by the terms of your card, so understanding your card’s system is essential to maximizing the benefits. In our upcoming discussion, we will explore the various reward types and their benefits, along with examples.
Types of Credit Card Rewards:
- Cashback Rewards: Cashback rewards are probably the easiest to get and the most common reward. It is a certain percentage of the amount spent that is refunded.
- Travel Rewards: These rewards are in miles or points redeemable for travel rewards like airline tickets, hotel stays, upgrades, and lounge visits.
- Points-Based Rewards: Generally, most of the credit cards provide reward points on transactions. Points may be used for merchandise, gift cards, eating out, electronics, or gasoline.
- Co-Branded Rewards: The credit cards associated with a specific brand (e.g., Amazon, Flipkart, or airlines like Vistara) provide special rewards and benefits from the brand.
- Fuel Rewards: Fuel credit cards offer rewards on fuel purchases, including cashback and rebates on fuel surcharges.
- Lifestyle & Dining Rewards: These cards give discounts or reward points on eating out, cinema, and lifestyle services.
- Shopping Rewards: Credit cards that offer improved earnings on purchases at retail shops and websites, especially during sale periods.
| Type of Reward | Ideal For | Key Benefit | Example |
| Cashback | Everyday spenders | Instant money back | 2% cashback on groceries |
| Travel Rewards | Frequent flyers | Free tickets, upgrades, lounge access | 1 mile per ₹100 spent |
| Points-Based Rewards | Versatile spenders | Redeem for gifts, vouchers, etc. | 2 points per ₹150, redeem for vouchers |
| Co-Branded Rewards | Brand loyalists | Higher rewards for specific brands | 5% cashback on Amazon, Myntra, Flipkart |
| Fuel Rewards | Car/bike users | Cashback + surcharge waiver | Save ₹150/month on fuel |
| Lifestyle & Dining | Urban professionals | Discounts + bonus points on dining, movies | 20% off dining, 2x points |
| Shopping Rewards | Online & retail shoppers | Reward multipliers during sales | 5x points during festival sales |
Pros and Cons of Credit Card Rewards
Let us get a deeper insight into the pros and cons of credit card rewards for a better understanding of the reward system, to choose wisely on what to spend.
Pros:
Reduce Spending on Daily Expenses: Utilizing cashback or fuel surcharge waiver cards can help lower monthly costs. For example, if a customer spends ₹3,000 per month on fuel and uses a card offering 5% cashback, they can save ₹150 each month, which totals ₹1,800 in savings over the year.
Free Travel and Upgrades: Cardholders may receive benefits such as free flights, hotel stays, lounge access, or seat upgrades.
Special Offers and Discounts: Many of the credit cards provide exclusive deals on restaurant dining, shopping, cinema tickets, and more.
Cons:
| Potential Drawback | Impact |
| Joining/Annual Fees | May offset the value of rewards |
| High Interest Rates | Higher Interest, if you default |
| Reward Expiry/Devaluation | Points may expire or devalue over time |
| Overspending Temptation | People can overspend just to earn extra rewards |
Example to illustrate the working of rewards:
Annual Fee: ₹6,000
Spending: ₹3 lakhs/year on travel, dining, and shopping(assuming 10% in cashback points)
Points Earned: 30,000 points, equivalent to ₹8,000 worth of flight tickets
Savings: Lounge access + flight tickets = ₹12,000
Net Benefit: ₹12,000 – ₹6,000 fee = ₹6000 gain
Bottomline
Credit card rewards can provide significant value, but only when used wisely and strategically. Many cardholders miss out on these benefits due to a lack of awareness. If you are disciplined and informed about your spending, rewards can enhance your purchasing power and give you access to products at discounted prices. However, if not used correctly, they may not be as advantageous as they appear, so spend accordingly.
Written by: Tanya Kumari