Restricted earnings on your credit card
The reward schemes of credit cards may seem like you’ll be earning discounts all year round. But nearly all cards, barring the most premium of them, have various caps and conditions.
You’d probably get a credit card regardless, but reward schemes are crucial in deciding which card is for you. If you do use a particular service regularly, why not get the card that offers a small discount each time you use it? This is why branded and cashback cards are so popular. But, if you don’t pay attention to the benefits that you accrue each month, you’re missing something – the discounts are much lower than you think. This is because most credit cards, aside from the most expensive options, have various restrictions. Here’s what you can expect.
Capped cashback: The cashback schemes can seem highly beneficial. If you generally use your card to pay for services you use regularly, they appear to be great. Pay your internet, mobile phone and other utility bills or for movie tickets with this card and you get cashback of flat 5%. But wait, there’s more! Or less, actually. The discount is capped at Rs100 per month. So if you’ve got this card specifically to earn some of your hard-earned money back, only spends up to Rs2,000 per month would result in a discount. What’s more is that not even all vendors or merchants will be able to process this discount. This is, in fact, the case with most cashback cards on the market (Standard Chartered’s Super Value Titanium and ICICI’s HPCL Platinum card as well).
Paltry returns: Learning the points isn’t enough; you need to know what they’re worth. To do this, you need to see what you can buy with those points from the rewards store. More often than not, you’ll come back disappointed. For example, at SBI’s rewards store, you need 4600 points to earn a Rs1,000 voucher from The Mobile Store. Earning them will require you to spend Rs 92,000 (5 points per Rs100 with the Platinum card). This works out to a discount of under Rs2,000, on a card you’re paying close to Rs3,000 a year for.
Annual fee waiver: You win some, you lose some. Credit card providers make sure of it. Most cards have an annual fee. If you spend a certain amount, you may be told that this fee would be waived. This waiver could simultaneously result in a loss of benefits. Take the HDFC Bank World card as an example. It has a hefty cost of Rs2,499. One of the advertised benefits of the card is a waiver of a single base fare each year and a renewal discount of Rs750. Another is an annual fee waiver if you spend Rs3.5 lakh in a single year on your card. But if you happen to spend Rs3.5 lakh in the year, you automatically lose the right the base fare. You don’t pay the annual fee, so you also lose the renewal benefit of Rs750.
Point ceilings: Yes, it happens even with points. You may be promised amazing rewards every time you swipe your card, but these too may be capped. This can happen even with premium cards. The ICICI Sapphiro, for example, costs Rs 5,000 a year, but you can’t accumulate over 60,000 miles on it at any time. With SBI’s Platinum card, the cashback is prominently featured in the brochure, but you can earn back only Rs 6,000 a year from it. Another example is with the fuel surcharge waiver. It’s real, but this is always capped at Rs150 per month.
Earnings drop: Just as the rewards seem to be working for you, you may find a sudden drop in your earnings rate. For example, the Citibank Rewards Card is supposed to fetch you 10 points for every Rs125 you spend. But the higher rate only applies to the first Rs 7,000 you spend in each bill cycle at departmental and apparel stores. From then on, you earn 1 point per Rs 125 you spend.