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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02.American Express and Visa/MasterCard


American Express and Visa/MasterCard

You have probably noticed that there are cards featuring the Amex logo along with cards that have the Visa/MasterCard logo. In many cases, banks may offer both an Amex card and a Visa/MasterCard with their rewards program. We refer to these cards as ‘companion cards’. There are some good-value options for those who prefer to use only Visa/MasterCard, but Amex scheme cards almost always earn the most points.

Benefits of companion cards – Having both Visa/MC and Amex means that you can use the Amex card as much as possible (earning more points), but where a fee is charged or Amex is unavailable, you still have the option of using Visa/MC.
Problems with Amex – Amex is less widely accepted than Visa/MC and sometimes you may pay a surcharge to use Amex. It is hard to speculate on how accessible Amex will be for any particular individual. According to the RBA, around two-thirds of large merchants do not surcharge Amex users. Smaller merchants surcharge at an even lower rate. Their data suggests surcharging will increase, though.

Any time you pay a surcharge to use Amex, the additional cost will severely impede any rewards value you earn. In this case, you are usually better to use your Visa or MasterCard option, but unfortunately this again leads you to another Catch 22. Visa/MasterCard rewards cards that are paired with Amex cards typically earn the lowest points (and therefore lowest rewards) of all.

For example, one of the best performing cards we surveyed utilising Amex is, again, the Westpac Altitude Platinum. As mentioned, it will earn over $1000 in flights rewards per annum for those who spend $5000 each month using the Amex scheme card. If you applied that same $5000 monthly spend but only used the Visa card, you would earn a paltry $139 per annum – one of the lowest returns of all cards surveyed at this spend level.


Ultimately, if your shopping habits allow you to spend on Amex consistently (over 50%) and without surcharges, then American Express rewards cards can often provide value for you. However, if you can’t put the majority of spending on Amex, look to a dedicated Visa/MasterCard Reward program for the best value.

Points capping and expiry

Rewards can take some time to earn, especially if you are saving to earn a bigger ticket item such as an international flight. It’s important to check whether your chosen program has points that expire, and if they do, be certain to redeem any rewards before this occurs. Points capping may be a concern if you spend a lot, so if this is the case, make sure points caps don’t affect your earning potential.

Airline loyalty programs

Rewards credit cards are often linked to airline loyalty programs, which also offer vouchers and merchandise as well as flights rewards. Some cards deposit points directly into an airline’s program, and others simply allow you to transfer points at a time of your choosing. Depending on your card, membership to an airline loyalty program may be included, or you may have the choice on whether to join a program or not.

For those interested in travel rewards, it’s likely that you will need to join an airline’s program. The program you choose can also affect the value you gain from a rewards credit card, so make sure you choose the right program to suit your needs (see below for more information on the two leading programs in Australia).

Converting points

Occasionally, you may need to convert your points between programs. As mentioned, this commonly occurs when you earn points with your credit card program but then need to transfer those points an airline loyalty program. For example, if you earn ANZ Rewards points, you have the option to transfer your points into the Velocity program (linked to Virgin) where you can redeem those points for Velocity rewards, such as flights.

Often, points are converted at different ratios, and naturally, this can become quite confusing. Make sure you understand the ratio your chosen program uses when converting points. You can then accurately calculate how much you really need to spend before earning a particular reward of your choice.

Qantas Frequent Flyer and Velocity

The two major airline loyalty schemes on offer in Australia are the Qantas Frequent Flyer program and the Velocity program. If you have a preference for either airline or its partners (see each program’s website for a list), then choosing a program is probably an easy decision. However, if you are interested in each program from a value perspective, there are some notable details to consider.

The primary concern is the number of points needed to redeem flights, which brings us to the issue of ‘Rewards’ seats.

Rewards seats explained

When the time comes to redeem points, you have two options to book your airline seat. The first option is to book a Rewards seat, which the airline will have allocated for this purpose (Qantas calls them Classic Awards seats while Velocity users know them simply as Rewards seats), and the second option is to book with a function called ‘Any Seat’.

Rewards seats typically provide the best value but are offered at lower availability and in fewer time slots. In effect, this means you must be flexible with the date and time that you fly, and it’s highly advisable to book in advance to secure the seat you want. As the name suggests, ‘Any Seat’ allows you to book seats that are available to the general public, but these generally cost significantly more.

Here is where it becomes interesting from a value perspective. The points required to book a Qantas Classic Awards seat are largely fixed (using the Qantas website’s points calculator will display exact figures for your chosen destination). However, with Velocity Rewards seats, the points needed to make a booking are flexible, which means often seats are available for less than shown on the Velocity points calculator (available on the Velocity website). Velocity members can see the lower points cost of seats for themselves by logging into their Velocity account and using the ‘Find Rewards Flights’ feature.

When we asked Virgin about this, they informed us that around one third of their sale fares (called ‘Go’ fares) are available as Rewards seats. In practice, this often translates to fewer points needed to redeem flights, and better value for you.

Joining fees

While the Velocity program is free to join, the Qantas Frequent Flyer program currently charges an $82.50 joining fee. However, it’s important to point out that many rewards credit cards will waive that $82.50 fee just for being a cardholder, and for those that are faced with the joining fee, there is an easy solution.

By joining the Woolworths Everyday Rewards program (free), you can automatically become a member of Qantas Frequent Flyer. You can see our article on shopping loyalty cards for a review of the Woolworths program, but other factors aside, it is a simple way to waive the joining fee.

Bonus points

Both airline loyalty programs and rewards cards present the opportunity to earn bonus points (extra points on top of what you would normally earn) for shopping with a select range of bonus partners. By doing this, you can often significantly boost your points-earning potential. However, if you are not careful, this can also become yet another Catch 22 of rewards credit cards.

Changing your spending habits solely for the purpose of earning additional points will almost always cost you more money in the long run. To illustrate this point, let’s look at buying a one-way domestic flight from Sydney to Melbourne.

Let’s say there is a flight with Virgin at a cost of $70. Assuming you are a member of the Velocity program with a similarly aligned credit card, you will earn points for purchasing the flight using your credit card, as well as bonus points for flying with Virgin. However, let’s also assume Tiger Airways has a fare that is $30 lower. With a difference of only $30, you might consider booking with Virgin anyway to earn the bonus points, but those extra points are worth far less than $30.

And here is why. Using the Velocity website, we can see you would earn around 350 bonus points for a flight around this cost (Red level member) plus add 70 points for paying for the flight using your credit card – this gives us 420 points in total. It would normally take 8700 points to redeem that same $70 flight for free, and to earn 8700 points at this rate, you would need to take the trip 21 times. If you instead chose the Tiger fare every time (assuming it is consistently $30 cheaper), after 21 flights you would have saved $630 – a substantial difference.


The same rules apply not just to flights, but to all bonus partners. If you can earn bonus points along the way with items that are the same price and quality, this is a great way to boost your points balance. Just don’t pass up a lower price to earn extra points – it’s almost always better to go with the cost-effective option.

05.Are rewards cards really rewarding?


Are rewards cards really rewarding?

Rewards cards can provide decent value, as long as you choose the right card for your spending level. However, they are by no means a simple apply-and-spend proposition – you must choose, and use, your card carefully. With the right information, you should be able to make some informed choices about whether the rewards are worthwhile for you, and if they are, the best programs and credit cards to suit your spending habits. A survey of travel rewards credit cards is available for members on the CHOICE website.

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