Rahul M, a business analyst with a software firm, has accumulated plenty of reward points on his Citibank silver credit card. The bank called him up one day and asked him to pay annual fee for the card. Rahul refused point blank.

Reluctant to lose a high-spending customer, the bank suggested he use his accumulated reward points to pay his fee.

Rahul agreed instantly since he too did not want to go through the hassle of shifting from one card to the other every year especially since he has given Citibank standing instructions to pay his mobile bill through his credit card.

He used up 850 reward points to pay the annual fee of Rs 750 (because there is a transaction charge equivalent to 100 points).

Industry insiders say it is "most convenient" and "more value for money" to redeem points against fee rather than gifts/vouchers.

For instance, 450 reward points would have fetched Rahul a Shoppers' Stop gift voucher worth a mere Rs 250 (In the case of the Citibank gold card, the same voucher can be had for 320 reward points).

But do remember that if you do not utilise your reward points, the bank actually gains.

These points have an equivalency in cash, which add to the profit of the bank if customers do not redeem.

When the bank gives out vouchers and gifts, it is a contingent liability for the bank, while it is a loss of income if the points are redeemed against fees. It's a double whammy card issuers bear to win loyalty.

A bank official said this is one of the reasons why the redemption process has been designed to be cumbersome!

Interestingly only 17 per cent of credit card customers bother to redeem reward points and the majority of them use it to pay their annual fees.

But is it better to redeem reward points against annual fees, for a gift voucher or for a specific item like a camera or a digital diary?

Says Puneet Chaddha, head of credit cards of HSBC, "The effective cash benefit to the customer is similar whether you avail of a gift voucher, a specific item or redeem it against annual fees. Annual fee redemption appears more attractive as it prevents cash outflow. But what customers need to bear in mind is that a similar benefit accrues in case of other redemptions as they do not have to pay for the purchase."

Chaddha says he personally prefers the store voucher because of the flexibility it offers. The computation for accumulation and redemption of reward points varies from bank to bank and from card to card.

For instance, on a Citibank silver card one has to spend Rs 200 to earn a reward point, while with a gold card the same can be earned spending just Rs 150. ICICI Bank is more liberal in that a spend of Rs 100 gets a reward point irrespective of whether the card is blue, silver or gold.

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