Credit card signup deals can look tempting and can be good value – if you get the right one.
If you’ve ever looked online for a credit card then you’ve no doubt come across adverts that tell you to “sign up now and get one hundred million FREE rewards points”. Perhaps the number of points weren’t that many, but you get the idea.
These credit card signup offers are utilised by banks and credit providers to attract new customers in the uber-competitive credit card market.
These offers are meant to be a point of difference: “why get card A when I can get card B which gives me something extra for free?” Some cards might offer just the one special deal while others might include multiple from:
- Bonus rewards and frequent flyer points
- Discounted or waived annual fees for the first year
- Cashback offers (a percentage of each purchase goes back into your account)
- Low-interest or no-interest rates for a limited time
Credit card sign-up offers tend to be a point of contention among credit card aficionados. There are those who love to take advantage of such offers and encourage others to do the same, while some argue that they are nothing more than a marketing gimmick designed to lure them into their credit card web.
As we explain below, the worthiness of credit card sign-up deals depends on what’s offered and the type of credit card user you are.
Credit card deals for the points
We’ll start with this one as it’s the most common sign-up offer you’ll come across.
According to a Reserve Bank of Australia (RBA) discussion paper on Consumer Credit Card Choice (PDF), almost one in ten cardholders say sign-up deals (points or cashback offers) are the most important factor in choosing their main credit card. Rewards points, in general, are the second most common choice influencer, with 30% of cardholders listing it as a relevant factor.
To give you an idea of what you can get from certain signup offers, you can currently (November 2018) get as many as 400,000 points with certain credit cards, while there are several more offering upwards of 100,000.
You don’t automatically get these points though. You might need to satisfy a few requirements first…
Will you reach the minimum spend?
Straight away you can see that these rewards programs aren’t always what they seem, although the providers do list the requirements quite clearly. A common requirement is reaching a minimum spend before unlocking the points.
For example, you might be able to earn 100,000 points by signing up to a credit card, but to do so you may have to spend $1,000 or more each month for three months. Many cards will have similar requirements to this, often making you spend a few thousand dollars within the first few months, which is definitely not unreasonable for people who spend a lot on their credit cards.
You have to consider whether you will spend that much. And if you do spend that much, will you actually be able to pay it back before you start accruing interest? There’s no point to receiving bonus points if you end up losing money that’s greater than what they’re worth, which leads us to another consideration…
Are the points gained actually worth it?
The RBA’s paper reported that only 40% of all cardholders actually make a net financial benefit from their credit card, and a lot of that is due to having rewards cards that don’t suit their profile. Also, these points are worthless if you don’t use them. According to an American Express survey in 2016, 27% of Aussie cardholders with rewards points hadn’t used them for anything in two years.
Mozo found in 2018 that a big four credit card holder would get just $12 of rewards value by spending $24,000 a year, which is a 96% (that’s ninety-six per cent!) decrease on 2016’s $284. This is mainly due to new interchange fee regulations introduced in 2017 which slashed the maximum amount that banks could charge each other from merchant services to 0.80% of the transaction. In turn, this reduced the amount that certain banks could allocate to rewards programs.
So the rewards points offer might not actually be worth it, especially if you end up having to spend more than you otherwise would on your normal card or you don’t end up using them for anything. The points can also be cancelled out entirely by the annual fee, which we’ll cover below…
Remember: each rewards program has differently valued points. What this means is that one Qantas point can be worth a lot more than one bank-branded rewards point. A study by consumer advocate CHOICE found frequent flyer points (e.g. Qantas and Virgin Velocity) represented better value than individual rewards programs, worth about one cent each.
On that generalisation, earning 100,000 Velocity Frequent Flyer points is roughly the equivalent of $1,000. These points tend to be worth a bit more for things like flights and seat upgrades (worth up to six cents), while gift cards and products can be worth as little as half a cent per point.
With 100,000 points, you could potentially get:
- Qantas: Sydney/Melbourne/Brisbane to Los Angeles in Qantas Economy (return flights, 96,000 points)
- Virgin: Business class flights to Los Angeles from Sydney/Melbourne/Brisbane (one-way,95,000 points)
Consider the annual fee
What can really ruin a good-looking signup bonus is a high annual fee, or even a low-ish annual fee that still costs more than the benefits of the points. Many rewards and frequent flyer cards come with high annual fees precisely because of their points programs or the special perks on offer, so you’ll need to be a big spender to accrue enough points to cover the fee.
Each of the five cards in the table above has an annual fee of over $200. So if you don’t get at least $200 worth of rewards from your spending, you’ll have made a loss on these cards. The higher the annual fee, the more your rewards points need to be worth.
Low-interest or no interest offers
Another type of offer you might see is the lowered introductory interest rate, which can sometimes be 0% for a limited period of time. For example, you might get a card that has a 19.99% interest rate on purchases, but an introductory rate of 0% for the first 15 months. These cards can be very useful when used properly, as you can really cut down on your interest payments. But there are normally Ts and Cs:
- You might need to apply before a certain date
- It can exclude cash advances
- The interest rate can revert to a much higher rate once the promotional period is over
It’s important to keep track of how many months are left on the promotional period so you don’t get caught out. Any outstanding balance at the end will be charged at the revert rate, so you’ll want to be prepared.
0% balance transfer offers
These might not technically be a signup offer, but 0% balance transfers are available on many different credit cards to help you pay off your existing debts without being charged interest. This is a competitive space due to the mountain of debt the average Australian has on their credit card, so you can find 0% balance transfers with periods as long as 26 months.
Source: The Checkout
‘Credit card churning’ – a way to make the most of signup deals?
There’s a whole subculture of credit card nerds out there (see r/churning on Reddit) who take advantage of these promotional offers by signing up to the best ones, accumulating the points, either selling them or using them and then cancelling the card. Rinse, repeat, and make money.
While we’re not advocating for this method, it usually goes something like this:
- Check your credit score online: a good credit rating will increase your chances of being approved, but applying for and being rejected by too many credit cards in a short space of time can harm your score.
- Look for the best deals: a combination of high points offers, low annual fees and manageable spending requirements is ideal. Also make sure you read the deal’s terms and conditions.
- Apply for the card: this can usually be done online, and you’ll probably need proof of a relatively high income for some of these rewards cards.
- Make sure you meet the spend requirements: this part is important because you don’t want to pick a card with spend requirements that are too much for you. If this isn’t an issue, putting your day to day spend on the card (and paying it off in full!) is a good way to hit your target. If you’re short then buy some gift cards for your favourite shops to use later.
- Wait for the points: how long this takes will again depend on the card, but it can take up to a few months.
- Spend them: how you spend them is up to you. Some people sell their points online but we won’t recommend this because:
- There are a whole host of issues with selling non-physical points online, such as theft
- Doing so can violate the terms and conditions of your card, so you’ll be in trouble if you get caught
- Cancel the card and go back to step 1: if you like the card you can try asking them to drop the fee or give you some more delicious points
There’s nothing really wrong with this strategy – the offers are there to attract new customers, and there are lots of them, so you don’t have to feel bad about taking advantage of them. You just have to worry about potentially damaging your credit rating, losing money to deals that aren’t up to scratch and losing time researching and applying for cards.
These offers are usually only available for new customers too, so if you’ve recently had a card with a provider then you won’t be able to take advantage of one of their deals.
Savings.com.au’s two cents
Signup bonuses from credit cards can be nice to receive, so long as the credit card is suitable for you and your lifestyle.
If you’re a shrewd spender who spends $1,000-$2,000 a month on a credit card, then a high-flying card with a big spend requirement for its bonus offer of 100,000 points or more might not work out in your favour, especially if it comes with a high annual fee too. For big spenders, deals offering relatively little points are probably not worth the time either.
At Savings.com.au we’re devoted to giving practical savings info, so we believe no signup deal is worth the trouble if it leads you into credit card debt. The debt created by spending the three or four thousand dollars needed to earn those points can cast a bigger shadow than the plane you wanted to be on, so you need to be sure of your capacity to take advantage of these deals sensibly. Always be aware of:
- The interest you’ll be charged on purchases
- Whether you can comfortably reach the spend requirement (and afford to pay it back)
- The annual fee compared to the value of the points offered
And do make sure you actually use those points.