Credit card reward programs and offers are everywhere, but we are almost constantly told that these options are not worth it for most people. Whether it is a report on the average credit card costs, the dollar value of rewards or the difference between introductory and everyday reward benefits, there often seems to be something to say about the value (or lack thereof) in credit card rewards programs.
Rewards are also still incredibly popular among consumers, with research from Hilton Worldwide showing that 65% of Australians prioritise rewards programs when choosing a credit card. The survey, released in June 2014, also found that around 60% of people already have a rewards card on hand.
All of this information shows just how popular credit card rewards are – even with so many people saying there is little value in these programs. The fact is that, despite statistics and averages showing otherwise, rewards cards can give you more value for money.
It all comes down to choosing the right credit card for your lifestyle and strategically using and managing it to get the biggest bang for your bucks. With that in mind, here we take a look at the six most important elements you need to get the most out of credit card rewards.
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From an issuer’s perspective, the goal of introductory offers is to get more people to sign up for a particular credit card. But that does not mean you miss out on added benefits. By understanding exactly how an introductory offer works, you can actually set yourself up to get as much value out of a rewards program as possible.
The bonus points often advertised for rewards cards, for example, are often only available to people who spend a certain amount of money in the first few months of getting the card. If you don’t meet that spending, you miss out.
On the other hand, if you rush to meet that spending goal and then carry a balance for months because of it, you could end up paying more than the points are worth. A good way to avoid either of these scenarios is to follow the three steps below:
It’s also a good idea to find out when bonus points will be added to your account and follow up with your issuer if you have any queries or concerns about it. But going through this process should help you get the bonus points and keep your balance in check so that they are actually adding value to your card.
Most reward programs offer points for every dollar you spend, which means you get greater rewards the more you pay with plastic. Back in 2012 the Reserve Bank of Australia even worked out how much you would have to spend to earn a $100 shopping voucher, with the average for 2011 at $18,400.
While this data is out of date now, it does still put into perspective how important spending is for getting the most out of rewards. So if you have a rewards card, or want one, the key is to increase spending without also adding to your balance.
One of the simplest options is to use your rewards card as your main spending method, but to transfer money from your bank account regularly so that you aren’t earning interest on everything. Another option is to use your credit card for major purchases, which will boost your rewards but mean less ongoing balance maintenance.
Some people also find that choosing regular expenses, such as monthly bills or other ongoing payments, is a great way to keep reward points coming in – just make sure if you do this that the transactions are counted (some might be deemed “cash advances”, which don’t earn points).
The most important thing, though, is making sure you can balance your spending with your repayments. That way you will earn rewards but also avoid paying huge amounts of interest on your card.
Credit card annual fees are one of the biggest culprits when it comes to losing out on rewards, with some cards charging hundreds of dollars every year. While a $700 annual fee like the one charged for the Citi Prestige might be worth it if you earn over the $120,000 minimum required, for many people the $100 to $200 reward card fees outweigh any reward benefits.
Worse still, annual fees can be overlooked when you sign up for a card as many of the issuers waive them for the first year. So if you don’t read the fine print, you could end up with an extra couple of hundred added to your balance after 24 months.
Whether you’re a big earner, a big spender or none of the above, it’s worth considering how an annual fee will affect the value you get from a rewards card.
Alternatively, you could consider a rewards card that has no annual fee for life, such as the American Express Velocity Escape, Qantas American Express Discovery and the Coles No Annual Fee credit cards. While fee free rewards cards may not offer as many points per $1 as the ones that charge annual fees, they do give you more control over how much value you get out of the card.
Almost everywhere accepts credit cards these days, but there can be some issues with rewards cards, particularly the ones that earn the highest amount of points per $1.
Generally speaking, it’s American Express rewards cards that earn the most points per $1 spent. Unfortunately, Amex cards are not as widely accepted as Visa or MasterCard options, primarily because they cost merchants more to process.
As a result of Amex acceptance issues, many credit card companies now offer dual reward cards, so you get both an Amex (with the higher points rate) and a Visa or MasterCard. But another solution that you can use to maximise your points potential is to read up on where your card/s will be accepted.
When it comes to Amex, many larger companies do accept them without question, including:
There are also many international retailers that take American Express cards, which means you could earn even more points when you are travelling or shopping online. Beyond Amex, if you are shopping somewhere that doesn’t accept credit cards at all, such as a market or fair, you could see if the vendors accept other electronic options like PayPal. If they do, you can add your credit card to a PayPal account and should be able to get rewards points for any purchases made.
A lot of rewards cards offer additional benefits and points through purchases made with bonus partners, which can be used to your advantage. If you have a Qantas, Virgin Australia or Coles credit card and make purchases through these companies, for example, you will earn reward points through your credit card as well as the standard amount of points offered through their reward programs (Frequent Flyer, Velocity and Flybuys respectively).
Some reward programs also offer special promotions and deals with particular companies throughout the year, often using bonus points as part of the deal. Basically these partnerships and promotions are a way for you to get more points in a short amount of time (or for less overall spending).
Finding out about bonus partners, and strategically spending to get the most out of these deals means that you can increase your points balance as quickly as possible to get the most out of your credit card.
It’s not the amount of points you have, but how you use them that really helps put value back into your pocket when you have a rewards card. While points can usually be used to redeem everything from airfares to gift cards, account credits, homewares and gifts, the points required vary significantly.
For example, with ANZ Rewards you can get two Event Screen Savers cinema tickets for 6,400 Reward Points, while for 22,225 Reward Points you could get $100 worth of gift cards for Myer or David Jones. Similarly, with Virgin’s Velocity Rewards, two Village movie tickets cost 7,200 points, while a $100 David Jones or Myer gift card is 18,000 points.
What these examples show is that there is a lot of variation between the dollar value of rewards that you choose, so comparing a few options and deciding what to use points on from there will help you get the biggest benefits.
As well as thinking about what you use points for, it’s important to consider when you use them. Some reward programs do have expiry dates or blackout periods for redemptions, which could become a serious hassle if you’re not aware of them. But the more you know about redeeming rewards through your program, the greater the value you can get out of your credit card.
There is no sure fire way to get real value out of being part of a rewards program. When you factor in elements like the money you need to spend to earn points, any fees or interest and the time it takes to consider all the other variables, the benefits of rewards programs really might not seem like that much.
But for some people rewards programs are a convenient way to get more benefits from having and using a credit card. It really comes down to how you use your card and what you know about the associated rewards program.
If you pay with plastic a lot, you will earn a lot of points. But those points will go further if you also make repayments in full every month so that you are not paying more money for having a credit card.
The same logic applies to making redemptions – a fact that people often don’t realise. If you choose redemptions that are favoured by the rewards program (ie a Qantas airfare for a Qantas Frequent Flyer redemption, a Coles voucher for Flybuys etc), you will stretch your points out further and be able to get more value out of them than if you simply pick a reward you like the look of.
If all of this sounds like strategy, that’s because it is. With more awareness of the ins and outs of your credit card and associated rewards program, you will be able to make smart decisions about how you use your account and the rewards that you earn. In turn, that means you can not only get more reward points, but also more overall benefits from your card, so that it really works for you.
Pauline is a personal finance expert at CreditCard.com.au, with 8 years in money, budgeting and property reporting under her belt. Pauline is passionate about seeing Aussies win by making their money – and their credit cards – work smarter, harder and bigger.
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