Reward credit cards allow you to earn points while you spend, with benefits such as free flights, gifts, cashback and other rewards
The goal with any rewards credit card is to maximise the value from the points earned on purchases relative to the annual fee of the credit card. Below you’ll find everything you need to compare a rewards credit card, including easy-to-understand tables showing different credit cards for different amounts of spending, who a rewards card might suit, and finally how they work. Read on to start your rewards card comparison.
Rewards Credit Card Offer
The American Express Platinum Edge Credit Card is a rewards credit card with the ability to earn up to 3 rewards points at major supermarkets and complimentary enrolment in Membership Rewards Ascent program*. Also benefit from some great offers below:
- 0.99% p.a. on Balance Transfers for the first 6 months with 1% Balance transfer fee (reverts to 20.74% p.a.)*
- 10,000 Membership Rewards Bonus Points* when you spend $500 on your Card in the first 2 months of your card membership
- Earn up to 3 x points with Membership Rewards*
- A complimentary Virgin Australia domestic economy return flight every year*
- Complimentary domestic and international Travel Insurance*
- Annual Card fee $195 p.a.
Best Reward Credit Cards ($12,000 Yearly Spend)*
$12,000 is generally a low amount to spend per year for a rewards credit card, so there’s a smaller number of cards which will genuinely reward you.
The following table includes credit cards which have been rated the best* for consumers who spend an average of $12,000 on their card per year. The ratings assume that no interest or fees are charged throughout the year. The ratings are assigned by Cannex, Australia’s largest specialist financial research institution.
Best Reward Credit Cards ($24,000 Yearly Spend)*
An annual spend of $24,000 is a solid amount as far as reward programs for credit cards go. $24,000 is the commonly perceived minimum necessary to benefit from frequent flyer credit cards. These credit cards can also offer travel and purchase security benefits, which you’ll need to ask whether you need or not.
If you don’t, you can still benefit from a rewards card with a different level of spend.
You’ll need to be earning at least $45,000 per year on average in order to be considered for approval on these cards.
The following table includes credit cards have been rated best* for consumers who spend an average of $24,000 on their card per year. The ratings assume that no interest or fees are charged throughout the year. The ratings are assigned by Cannex, Australia’s largest specialist financial research institution.
$60,000 is a high annual spend, and yields the potential to earn over $500 of rewards a year. $60,000 is necessary to spend on these cards as their annual fee is so high – but after you breach the annual fee offset, you can access a world of luxury and rewards. These credit cards offer travel, 24/7 specialist services, purchase security benefits and a wide range of prestige benefits which you’ll need to take into consideration.
If you don’t need these features, you can still benefit from a rewards card, although you may want one more applicable to a different level of spend.
You’ll need to be earning at least $70,000 a year on average in order to be considered for approval on these cards.
The following table includes credit cards that have been rated best* for consumers who spend an average of $60,000 on their card per annum. The ratings assume that no interest or fees are charged throughout the year and are assigned by Cannex, Australia’s largest specialist financial research institution.
What are the types of Rewards Credit Cards?
Retail Rewards: A retail rewards card allows you to earn points by spending on your credit card at major retail shopping chains. This might include getting extra points when you shop at preferred stores such as Myer or David Jones, or when you buy certain retail branded items. This type of card could work for you if you are a regular shopper at retail stores.
Cash Back Rewards: As the name suggests, these credit cards reward you for your spending by giving you cash back.These can be earnt in two ways – directly and indirectly. These types of cards could be for you’d like to be rewarded with cash and gift cards for your spending.
Supermarket Rewards: Customers can be rewarded by their favourite supermaket chain by using their supermarket credit card for purchases. Currently the two biggest chains in Australia offer their own credit cards, each with their own unique selling point. If you’d like to earn Everyday Rewards or flybuys Points, these cards may be suitable for your spending.
Petrol Rewards: If you regularly find yourself paying by credit card at the register after filling up at the petrol station, then you may benefit from a Petrol Rewards credit card.
Rewards include fuel vouchers or a discount at the pump when you pay.
- Who Benefits Most From Credit Card Travel Rewards Points?
- Who Doesn’t Benefit As Well from Travel Rewards?
- Key questions with credit card rewards programs
- How Do Rewards Credit Cards Work?
- The Different Types of Rewards Credit Cards
- How To Compare Rewards Credit Cards
- How To Use A Rewards Credit Card
Who Benefits Most From Credit Card Travel Rewards Points?
Those who benefit most from travel rewards are those who travel extensively. This is not to say travel rewards programs don’t benefit those who travel occasionally, or want to save up their points for an overseas trip. Those who travel frequently will benefit more than a regular traveller because flying earns rewards points just like credit card spending does. Combining these two streams of points means you’ll earn points quicker, and will have more of a payoff.
There are generally three types of people who do well with these types of cards.
- People who travel frequently for business. Business travellers are often able to stack up a large number of credit card points on hotel stays or airfares. If you have a credit card that rewards both then that’s great news, otherwise choose a card that will provide bonuses and rewards that you’re happy with.
- People who travel for pleasure. Hobby travellers may not bring in the impressive totals that business travellers do as far as reward points are concerned but they do add up over time when used wisely.
- Big spenders. If you spend enough money each month you won’t need the added benefit of bonus points for travel rewards. Pick a card that will provide the greatest number of rewards for the way you spend and then spend away. Repay your credit card debt wisely to make sure your racked up points serve you and not the credit card company in the end.
Who Doesn’t Benefit As Well from Travel Rewards?
Some won’t benefit as much from credit card travel rewards as others, including:
- People who stay at home. If you don’t like to travel, it doesn’t make sense to pay extra for a specific travel rewards card. There are still cashback programs and other credit card rewards programs that are likely to serve you better or offer free gifts and goodies for things that are better suited to your particular lifestyle.
- People who rarely use their credit cards. Not everyone relies on credit cards for day-to-day spending. Some reserve their credit cards for emergencies or specific expenses that are paid off monthly. Rewards may be nice but shopping around for a card with better terms, lower interest rates, or cash back on credit card purchases may be a better reward than travelling.
- People who have poor credit. It happens. But if you’re attempting to rebuild your credit you’d be better served with a card that doesn’t offer the temptation of a travel rewards cards. These cards often have higher standards for credit scoring and could serve to harm your credit further by rejecting your application.
Key questions with credit card rewards programs
Ask yourself the following questions when thinking of applying for a rewards credit card:
- Does the rewards program suit my card spending habits?
- Does the rewards program offer rewards I want to receive?
- Am I charged for being a member of the rewards program?
- How many points per dollar are earned, and what is the actual worth of these points when redeemed?
- Are bonus points available and with which bonus partners?
- Will the rewards points expire?
- Is there a cap on how many points can be earned in a year?
- Is it easy to find out what rewards are available?
- Is it easy to redeem points for rewards?
How Do Rewards Credit Cards Work?
Keep in mind that the points per dollar ratio is not the real issue. The most important consideration is how your points then translate back into dollar value. This is a matter of working out how many points you need to earn to redeem for the value of $1. If you need 7,000 points to get a $50 gift card, then you need 140 points for each $1. Until you know what this conversion rate is, you won’t really know the true value of your credit card rewards program.
Rewards credit cards allow you to earn something back from your spending. The points you accumulate when you spend on a rewards credit card can be redeemed in various ways, including cashback, frequent flyer miles, and discounts on goods or services.
Let’s take a look at these different options in a bit more detail.
Points Redemption Options
Cashback – This means what it says. You get a certain amount of cash back for your spending. There are two ways in which cashback works: some credit cards offer a percentage of your total spend back, which is usually 1%. This type of scheme usually operates outside a rewards scheme; other rewards credit cards offer cashback within a rewards scheme, whereby you redeem your accumulated points for cash, although this option may take more points than the equivalent value in, say, shopping vouchers. Cashback is either paid back onto your card or as a cheque, monthly or yearly, depending on how your provider operates.
Frequent flyer cards and travel rewards – Frequent flyer cards have become very popular in recent years, and are now only rivaled by the above cashback option. Clearly, they suit those people who travel frequently and are looking for free or cheaper flights. Some rewards credit cards are dedicated frequent flyer cards, meaning the rewards scheme is geared towards this end. Each card will have affiliated airlines, so it’s best to check which service suits your needs. You may also be able to take advantage of VIP airport lounge access and priority check-ins. Travel rewards can be redeemed with affiliated travel operators, and are more wide-ranging than flights.
Merchandise – There are two ways in which a rewards credit card can work with retail goods. You can earn points for shopping at certain retail locations (possibly earning more points) or whenever you make any purchase (possibly earning less points); or you can have discounts applied at the time of purchase simply because you are making payment with a specific card.
Charities – Charity credit cards are rewards credit cards tied to a certain charity. These work in a similar way to cashback cards in that they will earn your chosen charity a percentage of your total spend. The charities are affiliated with particular providers, so your choice of credit card might be dictated by any preference you may have for a worthy cause. Charity credit cards sometimes involve an annual donation as well.
Generally speaking, one dollar will equal one point, but that is not what’s important. When you compare rewards credit cards, as mentioned above you need to go beyond this and ask what value your points will have. Ultimately, your rewards points are effectively translated back into a dollar value. One provider may have the following calculation: one dollar = one point = 5 cents; another may dictate that one dollar = one point = 50 cents; yet another may say that one dollar = two points = 75cents. You will need to dig deep to uncover the truth, but if you don’t do this then your attempts to compare rewards credit cards will not be based on fact. If cashback is your goal, then you need to know whether you’ll have to exchange more points for cashback than for a shopping voucher of the same value.
How to tread carefully with rewards credit cards
Unfortunately, you do need to be wary with rewards credit cards. Although some people may think they are getting something for nothing, that sort of thinking can be naive. Apart from the above-mentioned advice that you shouldn’t spend unnecessarily to earn points, the key issue is whether there is a fee involved for being a part of the scheme. To give you an example, if you were to pay a $100 annual fee (which would be high), you would have to be spending at least $20,000 annually just to get that fee back. Many experts agree that unless you’re spending more than $1,000 a month, you are most likely paying more in reward scheme fees over the year than you are receiving back in rewards. The message here is to find a rewards scheme that is free or suits your spending.
In any breakdown of the features of a rewards credit card you will clearly see quoted how many points per dollar you will earn. The usual amount is one point per dollar. However, that equation is fairly meaningless if you don’t know how many points are then required for redemption on the available rewards. Your thousand points earned with one provider may get you a product twice as expensive as with the same amount of points earned elsewhere. Points are currency. You wouldn’t equate rupees with dollars, or yen with sterling. The fickle value of points may be evident within the redemption system of just one provider. You may have to redeem 500 points for a shopping voucher, but 1000 points for cashback to the same value.
This requires investigation on your part, so you know you are receiving your maximum points value.
How not to make the most out of rewards points
Earning points to the value of $5 when you end up paying interest to the value of $15 is just plain silly. Ending up with an unpaid balance for one month because you had to make a large purchase is one thing; failing to pay off your debt in full because you’ve been on a points-accumulation spending spree is another thing. You must not spend to earn points, and no matter why you are spending, your intention should always be to clear your balance in full every month. The easiest way to make sure your rewards credit card is paid in full each month is to set up a direct debit to pay it off, but this can be fraught with danger if your spending effectively makes you overdrawn on your bank account. This will get you hit with bank fees and credit card interest.
Redeeming points is obviously the main reason that many cardholders participate in credit card rewards programs, but some credit card issuers can make it hard to redeem your points. This is either through difficult redemption procedures, or minimum points redemption requirements. Attempt to find a company that makes it easy for you to redeem your points. To take it one step further, there are even companies that will let you set up automatic redemption.
Higher Interest Rates
This is one area that many potential cardholders generally overlook. As a result of the wonderful offers associated with a rewards credit card, they fail to see the higher interest rate that is associated with the card. Conduct a credit card comparison. Rewards that are obtained at higher interest rates should not be considered a good deal.
Redemption Point Options
Why accumulate points if you do not have many options for redeeming them? Attempt to use a company that offers redemption in many forms such as cash back, gift cards, airline tickets, hotel stays, etc. Before you accept the terms of a reward credit card, make sure that you are okay with the options for redeeming your rewards or points.
Forced Creditor’s Network
Credit card rewards programs are based upon the credit cardholder getting an incentive for using the card. However, many times in order to get the points or reward associated with that usage, the cardholder has to stay within the creditor’s network. For example, you might get points for booking your airline tickets via your credit card, but you might have to use a travel agent that is listed within the creditor’s network of business partners. Read the fine print and determine if you can make your own choices or are force to use those of the creditor.
Capped Yearly Points Earnings
Many card providers will limit the number of rewards that you can earn within a year. Although it’s recommended that you use credit wisely, a lot of people might opt to purchase more of their everyday purchases with their reward credit card. Every person is different. If you’re able to make these purchases and pay off your balance every month, you may enjoy more rewards. When your rewards are capped, it reduces your possible savings. Try to find a rewards credit card that does not limit your yearly rewards.
What happens if you miss a late payment? Are you penalized in any way? Do you automatically lose your accumulated rewards? Do you lose any membership privileges? Even though no one anticipates getting behind on their bills, it can happen. With some rewards credit cards, you’ll lose all points and rewards if you miss any or too many payments. Conduct a rewards credit comparison and steer clear of these particular programs.
Paying credit card interest on a rewards credit card
Many might ask whether or not it’s worth getting a rewards credit card if you don’t pay your balance in full each month.
If these cards are used sensibly then there isn’t one. However, lenders are banking on our eagerness to be rewarded to guide us into the land of high interest.
Very simply, if you are able to pay off any credit card balance you owe in full each month, then these cards can be very useful, and if you tend to spend regularly on them, you can obtain some nice freebies for your trouble.
However, if you have trouble paying full credit card balances each month, and maybe get by paying just the minimum required payment, then these cards will cost you much more than you gain in free gifts.
How can I lose out with a rewards card?
If you are using a rewards credit card simply to try and obtain the points and rewards available, then what you must consider is interest.
As a consumer who spends $1000 on the card each month but pays the balance in full, then at the end of 12 months, if you get a point for each dollar spent, you will have accumulated 12000 reward points, and had to pay no interest on the balance. If that’s the case then you have used this type of card to it’s potential, and you may have got yourself $100-$200 worth of flights, travel vouchers or gifts in return.
On the other hand if you spent the same $1000 dollars on the card each month, and only managed to pay half the balance each month, and were being charged 10% interest, then you will have over the year paid somewhere in the region of $600 worth of interest, and received the same $100-$200 dollar reward as your savvy counterpart. This will see you down about $400.
Other issues to be aware of
No credit card, including rewards credit cards, should be used for cash withdrawals. These are not only charged at a higher rate of interest, but interest is charged from the moment the cash is in your hand. They do not benefit from the interest-free facility you may have with purchases. You should equally avoid making a balance transfer to a rewards credit card you regularly use for purchases, as the balance won’t count towards your points.
Also keep in mind the following points:
- Make sure your free rewards scheme is not being subsidised by an above-average annual account fee.
- Check if there’s a cap on the amount of points you can earn in a year. This will punish big spenders who might lose out on points.
- Make sure your points do not expire. This will punish lower spenders who will not have the chance to build up points for a decent reward.
The Different Types of Rewards Credit Cards
Qantas Frequent Flyer cards take up a large segment of the rewards card market. Almost all card providers have a product which offers either direct earning of Qantas Points or the ability to transfer rewards points into this program. The program has a large range of possible rewards, including flights with partners such as Emirates, Jetstar, American Airlines and British Airways. If travel rewards aren’t what you’re looking for there are also a range of products from gift cards to clothing, technology and appliances.
Velocity rewards points are handled a bit differently, as they require an entirely different set of cards that sometimes have a varied set of rules. Virgin Velocity is a relatively newer program than Qantas’ Frequent Flyer program, but has been taken up by many card providers, so there’s now a large selection of products to choose from. These include being able to earn and redeem points for flights with partners such as Singapore Airlines, Air New Zealand, Etihad Airways and more. Just like Qantas, Virgin allows you to redeem your points for fashion items, gift cards, leisure and entertainment and technology.
Card provider programs:
Some card providers host and offer rewards programs themselves. The most famous of these is the American Express Membership Rewards program, but most card providers offer a product like this, such as ANZ Rewards Platinum, Commonwealth Awards Program, and many more. With these programs, you earn the card provider’s unique type of rewards points, and these can be redeemed for rewards items, or swapped into frequent flyer points. Because of this feature these cards can have greater flexibility, as you can swap your points for programs such as Singapore Airlines’ Krisflyer, Malaysia Airlines Enrich and more. Most programs will restrict the number of potential airline programs you can transfer to, so for more information check out our page here.
How To Compare Rewards Credit Cards
Rewards credit cards are advertised as providing something for nothing, or at least something for doing what you would normally do, which is spend money on your credit card.
However, for the more canny consumer who knows there’s rarely such thing as a free lunch, a certain amount of research is required before an application is made. When comparing rewards credit cards it can help to ask the following questions:
- Interest free days and interest rates. Like any other credit card, ensure the interest free days and interest rates are to your liking. The main purpose of a rewards credit card is to allow you to make purchases, so ensure your card will be a good tool to use in this regard.
- How can you earn points? A good starting place when comparing rewards credit cards is to compare how points are earned, for what transactions, and at what rates. Most card providers advertise their earn rates as one of their most important features, so it’s not hard to find. These rates will be described as a per dollar rate, for example 1 point per $1 spent. Many cards in the market today feature two linked cards, one of which may have a higher earning rate. In many cases, the higher earning card may have a card scheme which is accepted in less places, such as a Diners Club or American Express card. It’s also a good idea to find out what transactions are counted as eligible for earning points. This can include bills, so check out our guide for Frequent Flyer cards here for more information.
- Is there an annual fee? This is a question, which becomes more important the less you spend. An high annual fee coupled with a low monthly spend could see the value of your rewards overshadowed by the fees you pay each year. Get a rough idea of how much you’ll be spending on this card and the value of rewards you’re likely to choose each year, and compare this to the annual fee.
- What are your points worth? This links with the point above. Working out how much in dollar value your points are worth can help you compare different cards. The way to do this is simple. Find out how many rewards points are needed for a reward you’re interested in. Say it’s 5,000 rewards points for the item, which is worth $50. By dividing 5000 by $50, you’ve worked out that you need to spend $100 for every point. If you do this for all of the cards you’re comparing, you can establish just how much each reward point will be worth to you.
- How can you redeem your points? There are many options for redeeming points, so compare the programs offered on various cards to find one that offers rewards you’re interested in. Possible rewards include cash backs, travel rewards such as free flights or upgraded fares and merchandise. As mentioned above, there are specific travel rewards programs such as the Qantas Frequent Flyer and Virgin Velocity programs, and there are also card providers’ own schemes. These will have different strengths and weaknesses as mentioned above.
- Cap and expiry – Many rewards cards will cap the number of points you can earn in a year or month. This isn’t a bad thing if you don’t intend to earn over this limit. If you plan to earn many points, this detail will be important. Similarly, if you plan to hoard points and save them for one large purchase, it’s important you make sure your points don’t have an expiry date.
How To Use A Rewards Credit Card
The golden rule when using a rewards card is to spend as you normally would. This means you should never spend on your card just to earn yourself points. If that’s understood, there are some ways to maximise your points accumulation and make your rewards credit card work entirely in your favour – not just to benefit your credit card provider.
Key points for points accumulation:
Spend on your card:
You cannot accumulate points on your rewards credit card if you do not spend any money on it. One key trick to start using your credit card for the everyday purchases, such as fuel and groceries, that you would usually use cash or a debit card to pay for. This means you will not be spending any more than you would normally, but you are now getting something back for that spending.
There is one huge caveat here, though: You must keep an eye on your spending and not look at the extra cash in your pocket or bank account as available to spend on other things. The cash you do not touch by switching everyday spending to your rewards credit card must be kept to pay off your credit card statement at the end of each month. This requires discipline to achieve, and if it goes wrong you will end up losing more than you gain, because you won’t be able to pay off your balance at the end of every month, and you’ll then have to pay interest.
Take advantage of bonus points offers:
Many cards offer sign up bonuses to grab new customers. Provided the card actually matches your goals and spending, these can be a good way to build your points balance up.
Use your points:
Make certain you actually use the points you build up. Saving up for a large reward is one route to go down, but only if the conditions of your rewards credit card allow for this. Some schemes impose an expiry date on your points, so if they are not used within a certain time, they will be lost. Make sure you know if your scheme does this, and if so, make a note of when you must start thinking of redeeming them.
Pay off your balance each month:
This is a must, not just for rewards credit cards, but for any credit card. The interest charges that kick in on any unpaid part of your debt will go a long way towards canceling out the benefit of any reward points you may have earned in the previous month. In most cases, you will simply be out of pocket. Whilst this may be unavoidable if you have had to make certain essential purchases that bust the budget for that month, it’s silly if it’s come about because you have been reckless.
Read the terms and conditions:
This is essential with rewards credit cards, as you will need to know exactly how they operate to take full advantage. For example, is there a stipulation that your points are nullified if you are considered in default because you fail to pay your minimum payment amount in time?
Balance transfers and cash withdrawals:
Be aware that you will not be awarded any points for either of these transactions. Moreover, balance transfers, whilst allowing for a lower interest rate, will attract a balance transfer fee, and cash withdrawals will be charged at a higher rate of interest that will activate the moment your cash leaves the ATM. Rewards credit cards are therefore the wrong card to transfer a balance to, unless you are prepared to clear the rewards credit card balance first and cease making any more purchases on it.
Is it worth getting a Credit Card with a Rewards Program?
There is an abundance of Australians who own a rewards credit card, yet who aren’t getting any benefit from it.
In fact, most of these people would be paying more in interest and fees than in value of the rewards they redeem. You should avoid a credit card with a rewards program if you ever:
- Pay interest on your balance.
- Don’t spend significant amounts on your credit card per year. This amount varies from card to card. Some require $12,000+ of spending, while others are as high as $60,000.
- The rewards are of no use to you.
A rewards card can be a good way to earn something on the side for your everyday purchases. If you follow this guide you can be sure the comparison you make and the card you choose works for you.