Credit Card Rewards

What is a rewards credit card?

Rewards credit cards are linked to a loyalty program where you can earn points for every dollar you spend on eligible purchases. The credit provider will convert your spending into points, which you can redeem in the form of rewards such as flights, merchandise, accommodation, travel packages, gift cards, cash back, and products from the rewards store.

Eligible purchases are generally your everyday purchases like grocery shopping and online shopping. Transactions that don’t usually get credited with reward points are BPAY transactions, cash advances, and account fees.

Essentially, rewards cards help you get more value from your spending – but you’ll have to crunch the numbers to see if they’re worthwhile. Reward credit cards usually charge higher interest and annual fees so you’ll want to make sure the benefits of the points outweigh the amount you are paying in interest and fees.

What are the three main types of credit card rewards programs?

There are three main types of reward programs to consider:

Frequent flyer rewards

Many banks and reward card providers have credit card products directly attached to airline frequent flyer programs such as the Qantas and Virgin Velocity Frequent flyer credit cards. When you make purchases on your credit card, you will earn points or miles for your existing frequent flyer account.

Some credit card reward programs also let you use your points for travel/flight upgrades, lounge access, car hire, and accommodation.

Cash back rewards

Cashback programs allow customers to get cash rewards for their spending, usually in two forms. They can either get a set percentage of credit back on their account, or they can receive cash equivalents like vouchers or gift cards.

For example, if your card pays 2% cashback and you spend $100 in a shop, you’ll earn $2. In recent years in the Australian market, these have become rarer than other types of rewards cards.

General/retail rewards

With a general rewards program, you can accrue points which you can use in supermarkets or major retailers. These reward cards also offer customers instant rewards at the checkout – essentially a discount on your current shop. Popular rewards programs in this category include NAB Flybuys, ANZ Rewards, Westpac Altitude Rewards Program, and Citi Rewards.

Coles and Woolies also have reward credit cards that give customers cashback in the form of shopping cards which can be used at the checkout. David Jones and Myer also have their own white labelled credit card products – issued by American Express and Macquarie respectively – that accrue shopping points.

How do you redeem rewards points?

Each credit card has a different process, but in general terms it’s as easy as following these few steps:

1. Log in to your account and find the rewards tab;
2. Check how many points you have. If you have enough points to make your selection, then go ahead. If not, you can either wait until you have earned more points or you can pay the dollar difference from your account to make up for the extra points;
3. Once you are ready to proceed, click ‘Redeem points’ and follow the prompts to complete your transaction.

How to compare rewards credit cards in Australia

To compare rewards credit cards, you should consider the following before making a final decision.

What rewards program are you after?

You should choose a rewards program that suits your credit card usage habits and is linked with your favourite brands and products – you want to take advantage of what’s on offer.

How can I earn points?

One of the best ways to figure out which rewards card is for you, is to search online and see the different ways you can earn your points.

• Bonus point and sign-up offers: Rewards credit cards offer deals that give you thousands of extra bonus points. This is usually in the form of a sign-up incentive, where the rewards card provider will give you extra points to choose their card over another. This could be a great way to get you started but usually requires you to meet a minimum spend requirement in a set period.
• Points per dollar: The goal is to find a card that gives you at least $1 per 1 point. The higher the better, any lower than that is not considered very competitive.
• Point expiry: Some cards have an expiration date on points or a cap on how many you can earn per month.
• Product-specific bonus points: Credit cards offered by the big supermarkets and retailers often have promotions where you can turbocharge your points if you buy specific items.

What costs are involved with having the card?

While a rewards card offers plenty of perks and freebies, they do also come with some hefty fees. This is usually in the form of an annual fee, which can be hundreds of dollars per year. Ask yourself whether the fees are worth the amount of rewards you can earn.

Are there any complimentary extras included?

Rewards cards come with a decent number of features that you won’t get with a standard credit card. Some of these features include: complimentary travel insurance, complimentary flight and travel credits, hotel stays and discounts, extended warranties, and concierge services.

Rewards programs can be a great way to get extra value from your credit card, as long as the rewards are worth more than what you spend on fees and charges.

What costs are involved in having a rewards card?

The typical fees you can expect with most rewards cards are:

• Annual fees: Most rewards credit cards charge an annual fee. The rewards you redeem with your points should exceed the annual fee if you are to benefit from this card.
• Foreign transaction fees: Foreign transaction fees of around 2%-3% are common on most credit cards and apply to purchases made overseas or with an international retailer online.
• Purchase interest rates: Rewards credit cards often have high standard interest rates on purchases. If you are able to pay off your balance in full every month then this shouldn’t be a problem for you, but if you are unable to make those payments, then you may be better off ditching the points and finding a card with lower interest rates.
• Cash advance interest rates: If you use a rewards card for a cash advance, such as making an ATM withdrawal, you will be charged interest. You also won’t receive any points for cash advances.

What are the pros and cons of a rewards card?

Pros

• Earning points: You earn rewards points for money you were likely going to spend anyway. These could be frequent flyer points, cashback, merchandise, and even discounts on your grocery shopping.
• Perks: Most rewards credit cards come with additional perks such as travel insurance.

Cons

• Higher interest rates and fees: Rewards credit cards often charge higher interest rates and fees than other credit cards. While you can avoid interest if you pay off your bill on time, you usually can’t avoid an annual fee.
• Overspending: Temptation could get the better of you – you’re spending money just to receive points.
• Limitations: There may be caps on how many points you can earn per month e.g. spending thresholds.