Are reward points really worth the bother?

Loyalty cards are they really worth the bother? Do they really offer genuine benefits or is it just a ploy to get you spending?

Experts say that it depends on how much you use your card and how often you pay your bills.

When to consider Rewards Cards?

If you spend a lot of money on your credit card every month, and providing that you pay your bill every month and don't rack up any interest, then reward schemes can offer a handy bonus.

If on the other hand you are a modest spender, and only use your card for emergencies or one-off purchases, then it will cost you more in fees than you will get back in rewards.

If however, you always have an outstanding balance any pay interest each month, then forget about reward cards they are not for you.

Peter Arnold analyst of financial researcher Canstar Cannex has stated that some programs are better than others and some rewards are easier to earn. While others will make you spend thousands before you earn a few lousy points.

Loyalty card traps

No matter what type of a spender you are everyone needs to look out for high annual fees especially when you are not spending a lot each month and for capped reward points when you are.

Mr. Arnold warned that choosing what level of rewards was also important standard, gold or platinum cards have a higher annual fee, but they will generally earn points quicker - for example two points rather than one for $1 spent. Which means the more you spend, a higher annual fee can be justified, but you need to be certain that you earn enough rewards to cancel out the higher annual fee of gold or platinum card.

Big Spenders and the cards

Consumer group Choice maintains that unless you are a big spender not to bother with a reward card.

According to Christopher Zinn you need to rack up a credit card bill of at least $2000 a month before it is worthwhile signing up for a rewards program. Anyone who spends a $1000 a month or less definitely should not bother, as you will be spending more on annual fees than you will get back in rewards.

After completing a survey of 63 cards, Choice found it would take about five and a half years to earn enough points to get a $500 digital camera; and that you would need to spend $6600 before you earned enough points to pay for a $50 toaster.

Mr. Zinn stated that a high level of spending was going to get you the best rewards. If you spent about $5000 a month then your best option was Qantas or Virgin Blues velocity points worth about $12000 a year, even after deducting the annual fee.

Retail rewards cards

Mr. Zinn stated that shopping voucher cards were becoming extremely popular with David Jones joining forces with American Express, and Woolworths offering a card through MasterCard.

Mr. Zinn felt that the store cards that offer points that are then converted into gift cards to use in those stores, could still be of value. According to the Choice survey the Myer Visa and David Jones American Express cards scored well, for people who spend $1000 to $2000 a month and the Myer Visa gives the best value but if you spend between $2000 and $5000 then the David Jones card offers a better reward system.

The Woolworths MasterCard was judged the most flexible of the three main retail cards as it could be used at the supermarket and some of the other Woolworths owned stores like Dan Murphy's and Tandy.

It was also pointed out that you needed to notch up at least $2000 in purchases a month to get any positive return.

No matter how hard card providers try to promote the benefits of their particular loyalty cards, the more reward points you get the higher the interest rate and fees you will pay.

Published on August 8-th, 2009 in Credit Cards
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.