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.
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:
- Log in to your account and find the rewards tab;
- 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;
- 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?
- 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.
- 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.
What are frequent flyer credit cards?
Frequent flyer credit cards give card holders a way to earn points on their everyday spending – provided it is eligible. These cards are usually linked to an airline loyalty program such as the Qantas and Velocity Frequent flyer credit cards.
Many cards also come with introductory bonus points, which could give you enough for a free flight.
You will be able to earn points on most purchases, however you will not earn points for cash advances, balance transfers, and BPAY payments. Once the points are redeemed, you can use them towards flights, flight upgrades, and even accommodation (depending on the provider).
What types of features can frequent flyer cards offer?
Most of the features you can redeem range from complimentary flight vouchers or travel credits to airline lounge passes, complimentary travel insurance, and concierge services.
Are there any traps with a frequent flyer credit card?
Frequent flyer credit cards come with many perks, but you must always keep your eyes open for the hidden traps.
- High annual fees: Most frequent flyer credit cards come with an annual fee in the range of $50 and $450. If you aren’t earning a decent amount of points throughout the year, it may not be worth your while to have one of these cards. There are some $0 annual fee frequent flyer cards available, but these don’t usually have the best rates or features attached to them.
- Promotional offers and spend requirements: To take advantage of bonus points offers, you usually need to spend a certain amount of money in a set period of time. Always make sure that this fits in with your budget.
- Higher interest rates: Frequent flyer credit cards usually have high interest rates, around 19-22%. So they are suited best to people who are able to off their credit card balance in full each month.
How many points can I earn for my spending?
There are two main factors to consider when it comes to earning points with a frequent flyer credit card:
- Earn rate: Always find out how many points you earn for each dollar spent. 1 point per $1 is considered competitive, but some can be as low as 0.5 whilst others are higher.
- Points tiers and caps: These cards have a tier system and depending on the card, the number of points may vary depending on the purchase. Some cards also cap the number of points you can earn once you reach a certain amount each statement period.
How can I get approved for a frequent flyer credit card?
You need to determine whether or not you meet the eligibility requirements to receive approval for a frequent flyer credit card.
As with most credit cards, they will request things like proof of income, Australian residency status, and credit history details. As these cards are considered premium products, you may need a higher income in order to be approved. Once you have all your documents in order, the bank will assess your details and documents to determine if you’ll be approved or not.
If you don’t always pay off the full balance on your credit card each month, you might want to consider a low rate credit card.
While you will still need to make the minimum monthly repayment, a low rate credit card can help you keep your debt under control by reducing the amount of interest you are charged on your remaining balance. They may not offer fancy rewards or perks, but they are a good option for staying on top of your finances.
Here you can compare different low rate credit cards from various banks and credit unions to find the best product for your needs.