Credit card loyalty schemes not worth it for most of us
Often called gold or platinum schemes, these are designed to make shoppers feel special by allowing them to earn points, which can be cashed in for some sort of reward.
However, recent analysis underlines just how much you have to spend on a card these days before you get the promised perks.
According to Canstar, which analysed 128 programs, a shopper has to spend an average of $19,480 on a credit card to earn a $100 voucher. It's a far cry from a decade ago, when $12,400 was required to get a $100 voucher. All the same, they can still be worthwhile, for the right type of shopper.
So how do the returns from loyalty schemes stack up against their costs?
To find out, you have to compare the benefit of a loyalty card with what you pay in annual fees and interest.
Once these factors are taken into account, it becomes clear that they are not the right fit for everyone.
First, the fees. Australians spend an average of $18,500 a year with credit cards, which means many of us wouldn't even qualify for a $100 voucher.
Loyalty schemes come with annual average fees of $69, which suggests there's not a huge amount of reward left over for many people, once they've paid the fee.
Then there are interest rates, which range from about 10 to an eye-popping 20 per cent for some credit cards. Despite the high rates, many of us still pay credit card interest. Of the $49.2 billion Australians have on their credit cards, about $35.3 billion, or 72 per cent, is racking up interest.
"As soon as you start to pay interest, a lot of these rewards are pretty redundant," says Canstar analyst Adam Beu.
The figures show that rewards schemes only make sense if you are a disciplined spender who pays the monthly bill in full.
Even then, it's important to choose a scheme with a fee that suits your spending habits. Some of the most extravagant schemes have membership fees of more than $300 a year.
Although the exact rate at which points are earned varies between cards, to be racking up rewards worth $300 a year, you need to be doing some serious spending.
Canstar calculates that shoppers have to splash out $60,000 on a card to get a voucher worth $285.
Rewards schemes can be a nice way to earn the occasional perk if you're a disciplined spender.
However, as always, it's important to look at the cold hard numbers rather than the glossy brochures.
Frequently Asked Questions about this Article…
Credit card loyalty schemes (often branded as gold or platinum programs) let cardholders earn points on purchases that can be redeemed for vouchers, goods or other perks. Banks award points based on how much you spend on the card; those points are then cashed in for rewards such as store vouchers or travel credits.
For most everyday investors they are not. Recent analysis by Canstar shows you must spend a lot to earn meaningful vouchers, and once you factor in annual fees and credit card interest the rewards often don’t stack up. They can be worthwhile only if you’re a disciplined spender who pays the monthly bill in full and matches your card choice to your spending level.
Canstar’s analysis found shoppers need to spend an average of $19,480 on a credit card to earn a $100 voucher. A decade ago the comparable spend required was about $12,400, so the effective value of points has declined over time.
Annual fees (the article cites an average of $69) reduce the net benefit of any earned rewards. High interest rates — which can range from about 10% to 20% on some cards — quickly wipe out any rewards value if you carry a balance. Canstar analyst Adam Beu notes that once you start paying interest, many rewards become redundant.
Rewards cards make sense mainly for disciplined spenders who reliably pay their monthly balance in full and who spend enough on the card to cover the annual fee and generate worthwhile rewards. If you don’t meet those conditions, a no-fee card or simpler option may be better.
Australians hold about $49.2 billion on credit cards, and roughly $35.3 billion (around 72%) of that is accruing interest. That matters because paying interest on card balances often eliminates the financial benefit of any loyalty points or vouchers you earn.
For most people, no. Some premium schemes charge more than $300 a year in membership fees, and Canstar calculates you’d need to spend very heavily (for example about $60,000) to generate vouchers of a few hundred dollars. These programs generally only pay off for very high spenders who never carry a balance.
Look at the cold hard numbers: the rate at which points are earned, the annual fee, and the card’s interest rate. Compare those costs to your actual average annual card spending (the article notes Australians spend about $18,500 a year on cards) to see if you’d realistically qualify for advertised vouchers. If you’re likely to carry a balance, the interest cost usually outweighs rewards.
Call 1300 880 160
Start a chat
Schedule a call
