On the face of it, credit card reward points look simple — just swipe your card and earn them. But have you wondered how the calculation behind them works? Why does it vary by issuer, card tier, merchant type and even country?
Most cards you use have an earn rate (points per rupee spent) that differs by category: so you get, say, 1 point per rupee on general spends, 3–5 points on travel or dining, and bonus multipliers for purchases through an issuer’s portal. Most programs publish category earn rates and redemption values so you can estimate returns.
Methodologies used by companies
| Flat-rate Points | This is a constant points-per-rupee ratio for all purchases. It is simple to calculate, with elite cards offering more points per rupee. |
| Category Multipliers | Some rewards systems offer higher points for categories like travel, groceries, or fuel), and lower for others. This is common among rewards-focused cards. |
| Partner Bonuses |
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| Spend-based Rewards | Some cards offer
Tools and calculators from comparison sites can help you estimate points for a given spend mix. |
Why debit cards usually earn less (or nothing)
Debit-card rewards exist but are rare and typically smaller. This is because credit card rewards are funded by merchant fees and the interest revenue that credit cards generate (given a lot of people default on the grace period for paying their credit card bills). These rewards are further financed from interchange fees and interest on revolving balances. Since these revenue streams are largely absent for debit transactions, they barely have any programs at all.
Why high- and low-value cards from the same bank differ
Issuers segment cards to match their perceived customer value. Segmentation lets issuers profit from heavy spenders while still attracting entry-level users.
Premium credit cards carry higher annual fees but offer more benefits like
- Higher earn rates (more points per rupee spent)
- Lounge access at airports
- More transfer partners like hotels and airlines (converting your card points to frequent flier miles or hotel stay points)
- Concierge services for custom requests
The more premium the card programmes you opt for, the higher the transfer ratios and exclusive partners you can avail of; the catch is that you need to demonstrate a minimum annual spend. For example, American Express' Centurion Card is a famously exclusive card offering unlimited services to an invite-only high-net-worth clientele.
On the other hand, basic credit cards offer lower or no fees and have modest earn rates.
Merits and demerits of encashing points
If you don't like any of the offers in your credit card rewards programme, you can choose to encash your points, i.e. convert points to real cash. It comes with its merits and demerits, so compare redemption rates before cashing out.
Merits | Guaranteed value, simplicity, and liquidity. |
Demerits |
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Practical tips
- Use a calculator or the issuer’s published earn rates to predict expected points for the way you spend every month (groceries, fuel, travel, etc).
- Maximize category bonuses; and keep track of devaluations (loss of buying power of your points) and expiring points. Frequent devaluations and expiration rules reduce the card's practical value.
- Check for merchant exclusions; some categories like online gaming or government transactions do not earn points.
- If you have more than one credit card, use them for different spend categories as per their earn rate.
- If you want steady returns without complexity, choose a card offering flat-rate points or cash-back.
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