As one of the biggest drivers of our nation’s economy, the ridgy-didge Aussie consumer deserves to be rewarded for their spend. With a credit card rewards program, they can be.
But attaining the consumer Nirvana of getting ‘something for nothing’ through a rewards credit card is not always simple, given there’s the potential to be made financially worse off by them. At Savings.com.au, we want to help Aussie consumers make their rewards credit cards work harder for them and provide them with the net financial benefits they warrant, whether it be through sharing info on how to maximise their rewards point earnings or how to choose a suitable rewards credit card in the first place.
What are credit card rewards?
Credit card rewards are benefits earned by a consumer for simply spending with their credit card. These benefits often come in the form of rewards points.
Rewards points can often be redeemed for any of the following:
- Fuel and grocery shopping
- Store discounts and gift cards
- Flights, accommodation and seat upgrades
- Frequent flyer points (see our travel credit card section)
- Free and discounted tickets for things like concerts and movies
- Cashback and credit
Whether you can use your points for all of these will depend on the type of card you have.
What are the different types of rewards?
Essentially there are four different types of rewards programs:
1. Credit card rewards programs. General credit card rewards programs are offered by the credit card provider, allowing customers to accrue branded rewards points which can be redeemed for a variety of the things above. Rewards points from different programs often differ in value and the programs themselves usually have various partners that allow you to earn points faster for spending with them. Also, most credit card rewards programs allow points to be converted into frequent flyer points with specific frequent flyer programs.
2. Frequent flyer programs. Frequent flyer programs very similar to credit card rewards programs but allow you to earn points specifically towards particular airline groups and their services. Credit card products attached to these programs can be offered directly from the airlines themselves (e.g such as the Qantas and Virgin Velocity Frequent Flyer credit cards) or through credit card providers like banks. Credit cards with a frequent flyer program attached can be more suitable for people who travel frequently, hence the name.
3. Retail rewards programs. Retail rewards programs optimise spending in certain stores – usually supermarkets or major retailers – offering high earn rates for in-store purchases. As well as points, these cards also offer customers instant rewards at the point of sale (like a discount on your current shop). These programs can help reduce the cost of your grocery and shopping bills.
4. Cashback rewards programs. Less common, cashback rewards programs offer to give members a percentage of their purchases back into their account. Some credit cards offer cashback deals as an introductory bonus, requiring new customers to spend a specified amount within a limited period of time to get, say, 5% cashback.
What are the fees and interest rates on rewards cards?
These will vary with the card, but as a general rule, a rewards credit card is more likely to charge higher fees and carry a higher interest rate than non-rewards cards. This is because there are often costs associated with running a rewards program from a credit card provider, and fees and interest charges are one way they pay for it.
To make a rewards credit card worthwhile, the cost of the fees (such as the annual fee) and potential interest repayments need to offset the value you get from the card. So, if your card had an annual fee of $400 and you only got $300 worth of rewards back, then you’ve made a loss on that card.
Are rewards cards suitable for everyone?
Rewards cards are definitely not suited to everyone. According to a 2018 study released by the Reserve Bank of Australia (RBA), 30% of customers actually make a net loss on their credit card, and inappropriate rewards schemes are a major factor in this. To get the maximum value out of certain rewards cards you may have to spend up to thousands of dollars a month, which not everyone is capable of doing.
Rewards and frequent flyer cards are generally more suited to big spenders and people who travel a lot. For those who are a bit tighter with money or are struggling financially, low rate or low annual fee cards are probably better options.
How can I save on a rewards card?
You can definitely save money on a rewards card, even though their primary purpose is to earn points through spending money. Consider the following:
- Where can I earn the points?
- What are the points actually worth?
- What can I redeem the points for?
- What’s the maximum number of points I can earn?
- Are there any big signup offers on the card?
By finding a card that suits your spending habits down to a tee, you can really optimise the number of points you earn. And if you can redeem these points for things that are useful to you like groceries, fuel or that holiday you were keen for, then that’s money saved. It’s just important that you don’t spend more than you normally would without the card and don’t be charged too much in fees or interest