While splurging wisely from your credit cards, you can earn reward points. You can earn reward points while using not only credit cards, but debit cards as well. Reward points are something which can be redeemed as cash back into your account. Also, you can redeem reward points against certain products available on respective cards’ websites. Do you know, why do you get rewards points on using your credit or debit cards?
Why do we get Reward Points on using credit or debit cards?
The card company earns an ‘interchange’ fee from the merchant outlet, whenever you use your credit or debit card for a transaction. This fee may vary from 1% to 2.5% of the transaction amount.
Apart from the ‘interchange’ fee, the card company makes money from the annual fee it charges from card holders and interest earned on rolling over unpaid bills. So, the cards share a part of their earnings, mostly from interchange fee; with the card holder in the form of reward points to encourage him or her to use the card more frequently. If you recall, whenever a telecaller calls up for selling you a credit card, they always try to tempt you with the reward points offered on the card for your every transaction.
Recommended Read: How to use Credit Card wisely?
How do you get Reward Points?
Each time you use your card to make a transaction, you get reward points. Especially relevant that you get reward points only on selected transactions, and not on cash withdrawal. However, now-a-days, you get reward points on almost every transaction. Generally, you get one point per Rs.100- Rs.250 spent. However, it also depends on the card and the bank.
Value of Reward Points:
The value of each Reward Point vary more one card to other; and one bank to another. The bracket of value of a Reward Point could be between 10 paise to Re.1.00.
What are the factors that determine the number of Reward Points earned?
Number of Reward Points earned depend on the following factors:
- Quantum of each transaction.
- Type of card used – higher the card variant, the more Reward Points you earn against your purchases.
- Using your card for shopping on special occasions such as festive season. On special occasions, card companies offer extra points on your transactions.
Expiry of Reward Points:
Reward points expire after a certain period. That certain period could vary from one-three years. Since, reward points are considered to be liability on the books of banks, therefore, banks want to settle them yearly. Hence, banks deduct the accumulated unused reward points at the end of every financial year. Also, due to expiry of reward points at a certain period, card holders keep redeeming the points. As a result, banks earn interchange fee from merchant outlets.
How to Redeem Reward Points?
Once you accumulate a good number of reward points, call your bank and place a request for redeeming the reward points you have on your card. And, bank will redeem the reward points as cash back to your card. This is one way. The other way is, visit your card’s bank website and choose from the gifts or products available against the reward points on their website.
Reward points are actually reward for customers for using the cards for their transactions. However, for credit card users, reward points are beneficial only if, they use their credit cards wisely. Be Credit Wise while using your Credit Cards so that you can pay them off within the interest-free period.