Rewards credit cards - a user's guide

Discover how to make the most of your rewards card and avoid the hidden traps.
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01.The basics

Rewards credit cards present the opportunity to earn flights, accommodation, merchandise and vouchers while going about your daily spending. The more you use your credit card – the more potential you have to earn rewards.

While this concept is simple enough, the world of credit card rewards can be a confusing one. Each program has its own rules and limitations, and there are plenty of things that can leave you scratching your head. The following is a basic guide to help you understand rewards cards and the best ways to use them to your advantage.

How much do you spend?

Make sure you have the right card for the amount you spend each month. This relates to two key factors:

• The amount of points you earn per dollar spent
• The annual fee

You need to match your credit card matched to your spending level, or you could find the annual fee is higher than the rewards value earned. Spending around $1000 a month or less on many rewards cards will often see you paying more in annual fees than you earn in rewards.

Here is where it can become confusing. The rewards cards with the highest annual fee often earn the most points, so at first glance, the more expensive cards can seem like the better option. For example, the Westpac Altitude Platinum card allows you to earn a maximum of 3 points per dollar, which is better than the 2 points per dollar that the standard Westpac Altitude card offers. Looking purely at the points you can earn, it seems the Platinum card is the way to go. However, the Platinum card also has an annual fee of $295 – much higher than the $100 fee of the standard card.

A lower spender of around $1000 a month will never earn enough rewards to offset the Platinum card’s $295 yearly fee. It will, in fact, will leave you $34 out of pocket per annum once the annual fee is deducted from the value of any flights rewards. In reality, despite earning less points, lower spenders are better off with the standard card, which would earn $86 per annum in the same scenario.

This all changes when you start spending more, though, because you can begin to take advantage of the better points-earning rates. At the highest surveyed monthly spend amount of $5000, the Altitude Platinum can earn over $1000 in flights rewards per annum, while the standard card offers just $768 per annum.

So those who don’t spend much should use a standard card with lower fees, whereas mid to high credit card spenders should opt for a gold or platinum card to earn points at a better rate.

Other costs

There are other costs to look out for, such as any interest charges incurred if you fail to pay off the balance each month. Rewards cards often have high interest rates, and it’s easy to see how a monthly interest cost can quickly kill any rewards benefits. For those who don’t pay off their card in full, you are better saving money on a low rate credit card and using the savings as your reward.

In-built benefits

Some rewards cards come with in-built benefits that you should also look at when making an assessment on whether a card suits you. These are mostly apparent with gold and platinum cards and relate to things such as travel insurance, concierge services and purchase protection, to name a few. While most in-built features also have their own terms and conditions you should consider carefully, there is always potential that these additional features will add value for you.

Which rewards offer the best value?

As mentioned, there are many different types of rewards available, from flights to merchandise and even cash back onto the card. Past research has shown that flights rewards typically offer the best return in terms of a dollar value in comparison to other rewards. However, there may be other benefits to vouchers, such as the ability to access sale items for example. Of course, often the best strategy is to choose the rewards that most appeal to you.



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