The benefits offered by the cards which Aryan is considering must be something that he is likely to use. Some cards offer higher reward points for every rupee spent for expenses such as airline travel or e-commerce usage or fuel purchases or expenses linked to specific outlets. It makes no sense for Aryan to take these cards unless he expects to have a higher spend on these items or at such outlets. If he has no such specific requirement, then ideally he should look for a card that rewards any expense made on the card. The reward points earned on such cards may be lower, but he will benefit because he will accumulate reward points irrespective of what or where he is using his card. Once Aryan decides on the type of card, he must evaluate the reward program itself. First, he must check how much each rupee of spend converts into reward points and second, how the accumulated points can be redeemed.
Most establishment or service linked cards may restrict use of the rewards to specific outlets or expenditures. If it is a card with a general rewards program, Aryan must go for the one that gives him the most flexibility in spending his reward points. Cards that give a percentage of the amount spent as cashback is the best on this count. Cards that allow him to spend the reward points across a cross-section of outlets and services, should be preferred over those that require him to select products from a catalogue. These not only tend to be over-priced but may also not be products that Aryan requires. He must keep track of the reward points that have been accumulated and redeem them periodically. If he is saving for a large purchase, he must remember that the reward points may have an expiry date.
While evaluating rewards, Aryan must not ignore the costs associated with the card. Many cards that are co-branded and give high rewards, come with a higher annual fee or renewal fee. The interest charged on outstanding balances may be higher than other cards. There is no point in paying a higher recurring fee if he does not extensively use the benefits the card offers. If he is clear about his needs and how his spending habits are going to be, he can plan on the right card and make the best use of it.
Content on this page is courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.