Charge Cards

Charge Cards: The Basics

With a charge card, you ‘charge’ each purchase you make on your card to your account, then at the end of the month, you pay off all of your purchases, clearing your balance to zero. This obviously works in a different way to a credit card, with which your card provider provides you with credit, that you can pay back in your own time, with interest charges applied.

So, how does a charge card work? With a charge card in your wallet, you will pay an annual fee, much like you would with a credit card. The annual fee you pay will typically depend on the rewards and features on offer, but you may find that in general, annual fees on charge cards are higher than credit cards, as there is more risk involved for the card provider.

And of course, there is no interest either. Cardholders who carry a balance on their credit card will pay interest to their card provider. Charge card providers – while charging late fees to cardholders who don’t clear their balance on time – don’t have that source of revenue. So, to offer charge cards to their customers – along with all those costly features – they tend to charge slightly higher annual fees.

Types of Charge Cards

Unlike credit cards, there aren’t any no frills charge cards to speak of. While there are more basic options, even those are not what you’d call low cost. That’s why charge cards tend to work better for cardholders who want something more from their card, such as rewards or features, and who generally don’t mind paying a bit more for the privilege.

Rewards Charge Cards: Here in Australia, charge cards typically offer rewards as standard. With the charge card market dominated by American Express, that means charge cardholders earn points on American Express’s Membership Rewards program, or its affiliates. Higher end rewards charge cards may also offer travel related perks, such as airport lounge access and insurance covers.

Gold and Platinum Charge Cards: Charge cards are tiered, just like credit cards. Basic charge cards tend to suit smaller spenders, while gold and platinum charge cards work better for those who channel a larger spend through their card. With higher annual fees, these cards also offer more features, such as concierge services, hotel stays and upgrades on travel.

Business and Corporate Charge Cards: American Express in particular, offers a number of charge cards to business users. With no pre-set spending limit and the opportunity to take advantage of rewards on business spending, charge cards can work extremely well for business users – as long as they can cover the card’s annual fees, while also clearing their balance each month.

Using A Charge Card

So, you’ve got a charge card in your wallet – how do you use it? Day to day, you can use your charge card just as you would a credit card. Keeping track of your spending to make sure you don’t overspend, simply use your card to make the purchases you need. This could be your morning coffee, your weekly grocery shop, or your quarterly electricity bill.

Using your card often – while sticking within your budget – will allow you to earn more rewards, maximising the value of the card and making the annual fee worth paying. Then, at the end of the month, be sure to pay off your balance by the due date to avoid any late fees being charged to your account.

Over time, your good repayment behaviour and established payment patterns should allow your card provider to get to know you better. This should allow you to charge more to your card when needed, while still remaining within your budget to allow you to pay it all back.

Earning Rewards

One of the things many charge cardholders like about their card is the opportunity it provides to earn rewards. With American Express providing the bulk of Australia’s charge cards, we’ll focus here on American Express’s rewards program, Membership Rewards.

In terms of points redemption, Membership Rewards offers a number of options. Cardholders can use their points to cover eligible purchases at Myer made using their card, or to redeem against gift vouchers with retail, entertainment and travel partners.

Travel is also a good option. Members can use their points booking travel direct with American Express Travel Online, or alternatively, to book with Webjet or Helloworld Travel.

The program also offers the option to transfer points to partner airlines (Air New Zealand Airpoints, Cathay Pacific Asia Miles, Emirates Skywards, Etihad Guest, Malaysia Airlines Enrich, Singapore Airlines KrisFlyer, Thai Royal Orchid Plus, Virgin Velocity and Virgin Atlantic Flying Club), or to hotel partners programs, Hilton Honors and Marriott Bonvoy.

It’s also worth pointing out that American Express don’t have points caps, which is good news for big spenders. There are also quite a few bonus points intro offers out there, which can help new cardholders boost their points balance (typically after making an eligible spend).

Using Its Features

As with credit cards, the features included on a charge card will usually depend on its annual fee. Basic options with lower annual fees tend to offer fewer features, while higher end charge cards with higher annual fees generally offer more features. So, what features can you expect?

On a premium charge card, you could benefit from travel credit each year that can be used against flights, car hire, hotel stays and experiences; access to a premium concierge service; worldwide airport lounge access, and extensive insurance cover on both travel and retail purchases.

Charge Card or Credit Card?