Get out of credit card reward mirage: Why it’s not the reward earning rate but actual rupee conversion matters

For many of us, credit cards are almost synonymous with the reward points they offer. Generally, with every purchase or swipe we make using our credit card, we earn reward points, which can further be redeemed at various merchant outlets or on online platforms like Amazon, Flipkart, and more. Sometimes even credit card providers have their merchandise stores where these rewards points can be redeemed to directly order a product. These points can also be redeemed for gift vouchers, air miles, cashback, and other utilities.

There are two ways in which people perceive a credit card to be good in terms of rewards points. First, at the earning stage, the card that gives the highest reward points for the same value of spending could be considered as good for reward earning. The second way is to assess which credit card gives the highest rupee value for the same amount of reward points at the time of redemption.

From an earnings perspective, many of us believe that a credit card that offers 10x reward points on every Rs 10,000 spent or 5x reward points on every movie ticket purchase is among the best.

In other words, a credit card is as good as the quantum of reward points it offers per transaction or on spending beyond a certain amount. But is a credit card that offers high reward points every time you swipe it really better?

Consider this. Simply accumulating reward points is of little use if you are not able to get the real rupee value. Many times, even with higher reward points, you will end up having a very low rupee value redemption, while some cards with lower reward points may be able to give you higher rupee value at the time of redemption. Which is why what you should look for is the reward point conversion rate, or the monetary value at which you can exchange one reward point, when you redeem them for a particular benefit such as air miles, cash, or more, which varies depending on the credit card issuer.

What is the reward point conversion rate? Why should I look out for it?

Explains Ankur Mittal, co-founder and CTO of CardInsider, “While looking for a credit card, I will always look for the card’s reward point conversion rate. Say card A gives 10% reward points on every spending, or 10 reward points for every Rs 100 spent. This might sound lucrative, but a closer look would reveal that the actual rupee value of one point is just Rs 0.1. Which means, in effect, the credit card only offers 1% value, thereby making spending on the credit card not a great deal.”

“On the IDFC First Wealth credit card, the average returns are less than 2%, since you only get actual rewards worth Rs 2.5 on every Rs 150 spent,” adds Mittal.

On the other hand, take the HDFC Infinia credit card, on which users earn 5 reward points on every Rs 150 they spend on retail purchases, insurance, education, and utility-related spends. But if users make flight and hotel bookings via SmartBuy, HDFC’s in-house offers platform, the value of 1 reward point comes to Rs 1. So, earning Rs 5 out of every Rs 150 spent is a significant reward in actual rupee terms, which comes out to be 3.3%. Even if users are converting air miles through net banking, one reward point would equate to one air mile, thereby translating into better monetary exchange value for reward points

These cards score great on reward point conversion rate, but are low on reward point earning rate

An even better metric to understand how much reward you are getting on your credit card spending is to calculate the effective return you are getting per Rs 100 spent.

“Smart users should always focus on the effective return per Rs 100 spent, not just the point value on paper,” adds Ishan Tanna, an equity research analyst and a credit card geek who personally owns 12+ credit cards.

Tanna explains that cards that rank high on conversion rate, like HDFC Infinia or HDFC Diner’s Black, might have hidden caveats that might restrict your reward value.

A closer look at the HDFC Infinia’s reward point redemption document notes that users can only redeem a maximum of 70% on travel bookings like flights and hotels using their reward points on SmartBuy. The balance amount will need to be compulsorily paid via the credit card.

Moreover, reward points will not accrue for rental pay transactions, maintenance, packers and movers, and government transactions. Even reward points earned on grocery transactions will be limited to 2,000 every month. This reduces your chances of accruing rewards, despite a high conversion rate.”

Similarly, for the HDFC Diner card, credit card members can redeem up to a maximum of 50% of the booking value through reward points, with the condition that the booking happens through Smartbuy and that the rest of the transaction amount is paid via the same card.

Cash Conversion on Rewards Credit Cards

Card Name	Reward Earning Rate	Redemption Rate (Cash Conversion)	If amount spent (Rs.)	Reward Points Earned	Reward in (Rs.)
HDFC Regalia Gold	4 reward points per Rs. 150	0.2	10,000	267	53
HDFC Moneyback+	2 reward points per Rs. 150	0.25	10,000	133	33
Standard Chartered Ultimate	5 reward points per Rs. 150	1	10,000	333	333
HDFC Diners Club Black Metal	5 reward points per Rs. 150	0.3	10,000	333	100
ICICI Emeralde Private	6 reward points per Rs. 200	0.4	10,000	300	120
IndusInd Bank Legend	1 reward point per Rs. 100	0.5	10,000	100	50
IndusInd Bank Platinum RuPay	1 reward point per Rs. 100	0.35	10,000	100	35
Standard Chartered Rewards	4 reward points per Rs.150	0.2	10,000	267	53
IndusInd Bank Tiger	1 reward point per Rs. 100	0.4	10,000	100	40

Source: Paisabazaar

The ICICI Amazon Pay Credit Card, which is a co-branded credit card, awards 5% cashback on your spending on Amazon India if you are an Amazon Prime member and 3% on your Amazon spending if you are not.

“But on other spends, it only offers 1 point per Rs 100, with 1 point equalling Rs 0.25, which only means a 0.25% return. Hence, while it is great for Amazon spends, it remains below par for other categories,” explains Tanna.

These cards don’t score on reward earning but have good benefit structure on spending

The Axis Ace Credit Card offers no reward points but instead has a flat 5% cashback on utility bills paid via Google Pay and 4% on payments via Swiggy, Zomato, Ola, etc. In other words, if you spend a minimum of Rs 1,50,000 during the year on Google Pay, Swiggy, Zomato, etc., using this card, you can earn a cashback of approximately Rs 6,000.

Similarly, the YES Bank Paisabazaar PaisaSave Credit Card offers a 3% cashback on online spends, i.e., 6 reward points per Rs 200 spent on e-commerce platforms, while a 1.5% cashback, i.e., 3 reward points per Rs 200 spent on other, offline spends. In fact, the cashback points earned using this card can be adjusted against your statement credit in a ratio of 1:1, i.e., 1 cashback point equals Rs 1.

Value-back on Cashback Credit Cards

Card Name	Cashback Rate	Amount Spent	Conversion in (Rs.)
YES Bank Paisabazaar PaisaSave	1.50%	Rs. 10,000	Rs. 150
Cashback SBI Card	1%	Rs. 10,000	Rs. 100
Amazon Pay ICICI	1%	Rs. 10,000	Rs. 100
Airtel Axis Bank	1%	Rs. 10,000	Rs. 100
Myntra Kotak	1.25%	Rs. 10,000	Rs. 125
HSBC Live+	1.50%	Rs. 10,000	Rs. 150
Axis Ace	1.50%	Rs. 10,000	Rs. 150

Source: Paisabazaar

Rohit Chhibbar, Chief Business Officer, Credit Cards, Paisabazaar, explains that cards that offer 1:1 redemption of reward points against cash are generally co-branded. "In such cards, redemption benefits are tied to a specific brand, limiting the flexibility. For example, Tata Neu HDFC cards offer NeuCoins redeemable across partner Tata brands, where 1 NeuCoin = Rs. 1. If you prefer value back in cash over other options and want a straightforward, direct return, it is advisable to go for cashback credit cards over reward cards."

Hidden charges, redemption restrictions may wipe off your reward

Another key factor to watch out for is the reward redemption fee. Some credit cards charge you a fixed fee every time you redeem your points, which drastically reduces your actual savings, especially if your reward value is already low. As mentioned above, the IDFC First credit card charges Rs 99+ GST every time you redeem reward points.

Similarly, many cards, like the HDFC Infinia and the Diner’s Black, restrict the reward redemption to their in-house platforms, such as Smartbuy, which might limit your reward point usage on other sites such as Amazon, Myntra, etc. As Amit Koshal, co-founder & CEO of Twid, explains, “The true value of credit card rewards lies in the rupee value per point, not just the number of points earned. Fewer high-value points can be more rewarding than many low-value ones. Always consider the effective reward rate, ease of redemption, and versatility of point usage to gauge a card’s real benefit".