Are rewards credit cards actually worth it?

A rewards card can help you earn flights, travel and more. But are they worth the extra cost compared to no-frills cards?

21 Apr 2022 - 3 min read

Credit cards aren’t just great for shopping online, paying for flights or buying groceries. They can also ‘earn’ you points - or rewards - for every dollar you spend. But is it worth paying a higher annual fee to get a rewards card? Or should you save the money and go for a no-frills product?

How does a rewards card work?

Generally, rewards cards work by giving you a certain number of rewards points for purchases on your card. While this can be a flat rate - say 0.5 points for every dollar - some cards might offer you more points for specific purchases.

You can generally either transfer your rewards points into frequent flyer programs or put them towards other benefits, such as gift cards and consumer goods. However, some cards - such as the ANZ Qantas Frequent Flyer Black - offer you the opportunity to earn frequent flyer points directly.

Rewards cards typically offer the chance to earn bonus points during introductory periods, if you meet certain conditions. For instance, Westpac Altitude Black currently offers the opportunity to earn 140,000 extra Westpac Altitude Points (which equates to about $590 in retail vouchers).

One thing to watch out for is that a lot of rewards cards will place a cap on how many points you can earn each month. This is something that could impact you if you intend to put a lot of expenses on your card.

Other benefits of rewards cards

Some rewards cards offer generous additional benefits, such as complimentary travel insurance for you and your family. This is especially common in premium rewards cards, often labelled ‘Platinum’, ‘Black’ or ‘Signature’.

This can be a real saving if you travel frequently, as travel insurance can often cost several hundred dollars.

Does a rewards credit card suit you?

While rewards cards can come with genuine benefits, they often attract higher fees and interest rates than other credit cards.

In fact, stayorgo.com.au research shows rewards cards cost an average of $219 in annual fees, compared to the average annual fee of $52 you'll pay for a non-rewards card. You’ll also pay an average interest rate of 20.18% a year on a rewards card compared to just 13.97% on a non-rewards card.

You may need to factor in other fees, such as additional cardholder fees if you have another person linked to your account.

For these reasons, you’ll need to assess whether the value of any points you’re likely to earn will be comfortably higher than the card’s annual fees. Most credit card providers have multiple products with different fees and rewards points earn rates, eg [name] and [name]. So this exercise involves weighing up both the annual fee and the rate of points you’ll earn.

Perhaps most importantly, you should also consider how likely you are to pay off the card in full each month, as the interest rate can be significantly higher than on a non-rewards card.

If you do tend to pay off your credit card in full each month, you could find that the value of the rewards points justifies the annual fee. On the other hand, if you don’t pay off your card in full each month, you may find that you’re better off sticking to a no-frills credit card.

How to compare rewards cards

We think there are four questions you should ask when deciding which rewards card is right for you.

1. Which rewards program is most useful?

First of all, you need to consider whether you want to earn points towards a particular frequent flyer program or gift cards with a certain retailer.

If you want to earn frequent flyer points and prefer to fly Qantas, you may have to commit to a credit card that directly earns Qantas Points. However, if you’re interested in Velocity, Krisflyer or points in another airline program, you can often keep your options open by choosing a general rewards credit card linked to these programs.

2. How much do you spend each year?

By figuring out how much you spend each year, you’ll be able to weigh up the annual fee against the value of the points you'll earn. Remember to consider any points earn rate tiers and caps.

3. What additional benefits will you use?

Some benefits, such as travel insurance, can add real value to your rewards card, especially if you travel frequently.

4. What’s the interest rate?

This is especially important if you don’t pay the full amount off each month. But, even if you do, a low interest rate will potentially give you the opportunity to use the card as a short term loan.

In short…

Choosing the right rewards credit card can be tricky – and finding the card that suits you and your personal circumstances can involve a bit of research.

The good news is that we’ve taken the hard work out of the process.

stayorgo.com.au lets you compare rewards cards from all of Australia’s major financial institutions. That includes unlocking better deals from your existing bank.

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