Types of Reward Credit Cards and How Do They Work

Reward credit cards encourage credit card loyalty by rewarding the customers every time they purchase through their credit card. These rewards can be in the form of cashback, reward points, or miles. People who use credit cards often benefit a lot from these rewards as they are able to earn more rewards than the annual fee of the credit card. Many times people sign-up for credit cards when the company is offering lucrative sign-up rewards and these can save up a significant amount of money for people who spend often through their credit cards. To use the rewards credit card to your advantage, apply for the one which matches the spending habits that you already have. Continue reading to know more about the types of reward credit cards and how they work.

Cashback Credit Cards

One of the most demanding types of reward cards are the cashback credit cards that earn you cash back on all your spends. Through cashback credit cards offered by different companies, you get an opportunity to earn the cashback across multiple categories such as food, travel, fashion, etc. Even though getting a few rupees on a single purchase might not seem like a lot, if you shop from your credit card often, the numbers can add up quickly. Online shopping through credit cards has increased a lot in the past years due to amazing cashback rewards offered by credit card issuers.

Although cashbacks can be lucrative, you should only spend within your budget so that you don’t have to carry forward the balance to the next month. If you spend more than what you can afford to pay each month, the interest would quickly nullify the cashback that you earned; and consequently, you’ll end up paying more money than you redeemed through cashback.

How Does Cashback Work on Credit Cards

As the name implies, a cashback credit card gives you a cash rebate when you buy goods and services on which the cashback is applicable. This rebate is usually in the form of a fixed percentage. For each purchase that you make from the retailer, they pay a percentage of the money to the credit card company. The credit card company then chooses to share a part of the earnings with the customer.

Depending on the type of cashback program, either of the following methods can be used to redeem cashback rewards :

– The cash rewards are transferred to your bank account which is linked to the app of the credit card issuer from which you have got your card.
– The cashback reward can be applied to your credit card’s balance.
– You can also choose to redeem the cashback against a host of products offered in the reward catalog of certain programs.

Best cashback credit cards

• One of the best cashback credit cards to choose from is the Amazon Pay ICICI Credit Card which is a lifetime free credit card. It offers a 5% cashback on Amazon for Prime members, for non-prime members, the cashback offered on Amazon is 3%, a 2% cashback is offered on 100+ Amazon partner merchants, and a 1% cashback on all other transactions.
• Another great cashback credit card is the Axis Bank Ace Credit Card which has an annual fee of Rs. 499. It offers 5% cashback on Google Pay bill payments and recharges, 5% cashback on Grofers and BigBasket, 4% on Zomato, Swiggy, and Ola, and 2% on all other spends.
• Flipkart Axis Bank Credit Card has an annual fee of Rs. 500 and offers a 5% cashback on Flipkart and Myntra, 4% cashback on select merchants, and 1.5% cashback on other categories.

Also Read: Best Cashback Credit Cards in India

Reward Points Credit Cards

Reward point programs allow you to earn a certain number of reward points on purchases that you make from your credit card. When you accrue multiple reward points, you can redeem them against a host of options such as gift cards, vouchers, discounts, and other products. The value of each reward point varies with the credit card program that you choose.

There are multiple types of reward programs such as :

• Regular rewards in which you earn the normal number of reward points on every purchase
• Accelerated rewards that you earn on specific purchases, such as travel, and shopping. For example, you might get 2x reward points on grocery spends on a card that offers 1x rewards on all other categories.
• Sign-up rewards, in which you get bonus reward points as a welcome benefit.
• Milestone reward benefit is when you get extra reward points on spending a specified amount of money within a given time period.
• Renewal reward points are earned when you renew your card for another year.

How do reward points work?

When you use a rewards credit card, you earn points as a reward for every transaction that you make. The value of reward points offered by different credit cards is different and each spending accrues a variable number of reward points. Some credit card companies require you to accumulate a minimum number of points to be able to redeem them. Also, these reward points come with an expiration date and can vary from 1 to 3 years depending on the card issuer. Along with this, reward points come with an associated fee for redemption which is charged for processing the reward. Once you redeem the reward points, you can use them to get discounts, gift vouchers, and other offers.

Best Reward Point Credit Cards 

• SBI SimplyCLICK Credit Card is a highly rewarding credit card for people who love to shop online. It comes with an annual fee of Rs. 499+GST and offers 10X reward points for online spends on sites such as Amazon, BookMyShow, Lenskart, Cleartrip, and Netmeds. For any other online spends, you get 5X reward points.
• HDFC Bank Diners Club Black Card is ideal for people who spend a lot on hotel bookings and air travel. It comes with an annual fee of Rs. 10,000 per year. Although the annual fee is on the expensive side, the rewards are equally lucrative. You earn 4 reward points on every Rs. 150 spent. (1 reward point = 1 mile). Along with this, there are many other dining and traveling benefits that the card offers.

Also Read: Best Rewards Credit Cards in India.

Miles Reward Credit Cards

Airline miles are generally offered by two types of credit cards. The first is the generic travel credit card, through which you can redeem miles to travel by any airline, the other is through co-branded credit cards or airline brand-specific credit cards. This card offers miles that can only be used to travel by that specific airline. Nevertheless, miles credit cards are extremely beneficial for those who travel often. The more one spends through that credit card, the more miles one earns.

How does the miles reward program work?

The credit card issuer and the airline partner mutually decide the value for each credit card mile. Depending on the miles that you’ve accumulated, you can either get a partial discount on the flight ticket, or sometimes you can even get to travel for free. The number of miles required to pay for a flight ticket is variable, i.e, during the peak season, you might need more miles to pay for a flight ticket. This is also because airfares increase during that time. Some of the miles redemption options are :

– Partial discount or completely free flight tickets
– Upgradation to a premium class flight seat
– In-flight purchases
– Priority boarding
– Some programs also allow you to buy merchandise and gifts cards

Best Miles Credit Cards 

• InterMiles HDFC Bank Signature Credit Card offers you 8000 bonus InterMiles on joining and 3000 InterMiles if you spend Rs. 6000 in the first 30 days of card issuance. The annual fee of the card is Rs. 2500 plus applicable taxes.
• The Citi PremierMiles Credit card has a joining fee of Rs. 3000 plus taxes and you earn 10,000 miles as a joining bonus on spending Rs. 1,000 within the first 60 days of card issuance. You also get 10 miles on every Rs. 100 spent on online transactions.

The Bottom Line

With multiple reward cards available out there, finding the one that can offer you the most benefit can take a bit of research. Also, it should be noted that you’ll require a good credit score to apply for a good rewards card. So before you apply for one, ensure that your credit score lies within the range of the normal application requirement for that specific credit card. The reward card that would work best for you is the one that aligns with your normal spending habits, so if you enjoy traveling, a travel reward credit card would give you the maximum advantage.