Money

Card rewards aren't freebies

Paul Clitheroe
Paul Clitheroe

WE all like the idea of getting something for nothing but when it comes to credit card rewards, chances are any 'freebies' you earn will come at a surprisingly high price.

Almost half of all credit cards offer points-based rewards, and while they have the potential to deliver worthwhile benefits, these cards should be approached with caution. They are best suited to big spenders who pay the card off in full each month. 

That's because reward schemes are expensive to run, so it's no surprise that you'll generally pay a lot more for a reward-based card than for a standard credit card.

As a guide, comparison site RateCity found the average purchase rate for credit cards with a rewards program is 19.41%. That's almost 3% more than the average rate on non-reward cards.

The annual fees tend to be higher too. The average for a rewards card is $134 annually compared to $55 for a standard card. This fee alone can easily outweigh the cash value of any of any merchandise or flights received as rewards.

The picture is even grimmer if you carry an outstanding card balance. By way of example, RateCity compared 10 popular reward-based cards to see which offered the best value to earn a $100 spending voucher. The GE Money Myer Visa came up trumps, but you'd need to spend $10,000 on the card just to earn the $100 voucher. With an interest rate of 20.69% anyone using this card would only need to have an ongoing balance of about $485 for the reward to be wiped out by interest charges - and that doesn't take into account the $69 annual card fee.

If you must have a card offering rewards, it's important to choose a scheme that matches where you shop as well as your personal spending budget.  If you're unsure whether your card spending is sufficient to justify the card fee, check past statements for an idea of what you regularly rack up on the plastic.

Be sure to invest some time reading the product disclosure statement to work out how many points you can earn for each dollar spent on the card. This varies widely between cards and it can be confusing, though it is an essential step in maximising any value from reward schemes.

Finally, always aim to pay off the card in full each month. If you can't, chances are you'll pay more in interest than the value of any rewards.

As a word of caution, RateCity estimates less than 5% of card holders benefit from a reward program. They really work best for people who spend a lot on their cards - often around $60,000 annually, and who don't have a lingering balance that will attract interest. If that doesn't sound like you, bypass rewards and go for a low rate card.

Paul Clitheroe is a founding director of financial planning firm ipac, chairman of the Australian Government Financial Literacy Board and chief commentator for Money magazine. Visit www.paulsmoney.com.au for more information.

Topics:  credit cards



Maryborough forecast to break January record temp

Generic hot weather photo.

The last time a record was broken was in January 1995.

TOP JOB: Teen to host event to help fight cancer

Luke Strochnetter, Kay Nixon and Charmaine Bailey at last year's Relay for Life in Hervey Bay.

A Hervey Bay teen is doing his bit in the fight against cancer.

Disability access mats rolled out on Torquay Beach

Cameron D'Amico was one of the first to officially trial the Mobi-Mat beach access mat on Monday morning, with the structure soon to be a permanent part of the Fraser Coast.

The mats were officially trialled on Monday by support workers.

Local Partners

Teen starts gofundme page to get to barrel racing worlds

RYLEY Burke may only be 15-years-old but that isn't stopping the teenager and his horses Rebel and Spin from working hard to live his dreams.


What's on: 11 gigs coming up at the Brolga

Xavier Rudd will be performing a benefit concert at the Brolga Theatre on January 21.

There's a gig for everyone with lots happening in coming months.

Why platinum selling Xavier Rudd won't charge to play M'boro

Australian singer songwriter Xavier Rudd at Bluesfest 2015

All funds raised at the show will go towards community support.

Donate unused items to help fight against breast cancer

The Mini-Field of Women is a tribute to all those affected by breast cancer in the community.

Hervey Bay man will host garage sale for Breast Cancer Association.

REVIEW: Undressed is more than titilating entertainment

Nathan and Tahlia meet for the first time on the TV series Undressed.

'DIVERSE' dating show goes more than skin deep.

Will there be a Game of Thrones spin-off?

Emilia Clarke and Peter Dinklage in a scene from season six episode 10 of Game of Thrones.

HBO’S original programming president has teased fans.

Ed Sheeran's intimate gigs down under

Singer Ed Sheeran

CHART-topper playing invite-only shows in Australia next month.

Eddie McGuire's scandal-free focus and new-look Hot Seat

Eddie McGuire hosts the new Millionaire Hot Seat Super Game.

HOST wants out of the hot seat himself to focus on game show revamp.

Embattled Amber Sherlock back on TV after leaked video

Amber Sherlock seems to have brushed off the leaked video

Read Kim Kardashian's terrifying statement on robbery

“The individual with ski goggles rips out my BlackBerry phone.”

Historical home leaves family's hands after 75 years

SALE CONFIRMED: The Gympie Regional   Realty team which sold the Ramsey property are (back) Mel Gastigar, Dorothy Palmer and Margaret Cochrane, with (front) home seller Terri-Jayne Ramsey.

Ramsey family played a huge role in Gympie's growth.

What a year 2016 proved to be

Entrance Island, Birtinya

Get the inside info from the agents themselves

REVEALED: What Coast wants in an international airport

Sunshine Coast business people share their views on what's needed

Time for a cool change

43 Eckersley Ave, Buderim.

Family home goes to the auction floor

Designer home set in lush tropical gardens

This home has it all and more

Ready to SELL your property?

Post Your Ad Here!