How much is your loyalty worth?
Many credit cards offer reward programs because they entice customers to spend more on their card then they otherwise would. Usually in the form of a points system, every purchase made on the card earns a certain number of points that can be exchanged for different rewards. Airline miles, store discounts, concert tickets and accommodation are all common rewards you can exchange your points for. Some programs even allow you to name any reward you wish, quoting you the number of points you need to earn based on the practical cost of your desires. Others still, so called cash rebate cards, refund a percentage of the purchases you make on the card.
As attractive as some reward programs may initially seem, however, most will be of little real benefit to the average consumer. Why? Generally speaking, if you spend below a thousand dollars a month any reward points you accrue will be offset by annual fees, or worth the equivalent of at most 150$. Even if you spend upwards of 3,000$ a month (or about 750$ a week) on your credit card, the most generous program will barely earn you enough points for an economy-class flight from Sydney to Perth after a years worth of spending.
In addition, most programs have introduced points caps – whenever your monthly or annual spending exceeds a certain threshold you receive fewer points per dollar spent or no more reward points at all. Coupled with this, most reward points expire after several years which makes it even more difficult to acquire a significant number of points at any one time. Cash rebate cards aren’t any better, with refunds typically being no more than 1 or 2 percent. If you were to spend 1,000$ a month on your card you would receive in the area of 150$ in rebates a year – not even enough to offset many annual fees.
Nonetheless, if you make over or around 1,000$ a week of purchases on your card, looking carefully at reward programs is really worth your while. You should decide whether you would prefer frequent flyer points, gift certificates or cash rebates/fuel discounts as your primary reward as most programs tend to focus on one of these at the expense of the others. Many programs also offer you bonus points if you shop at certain stores. It’s obviously not worth going out of your way to patronize these places but try to make a mental note of them anyway – simply changing from Woolworths to Coles for the weekly grocery shopping may earn you thousands of extra points per year.
Summary: Those who don’t expect to use their card for purchases totalling more than 1000$ per month are probably better off opting for a card with a low annual fee. For those who plan to spend considerably more, however, a rewards program can end up proving very valuable indeed. Always remember to check whether your program comes with any point caps, and make a note of when your points are due to expire.
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I have to agree with Jonathan for the most part. But there are a few exceptions. I have an American Express Blue Cash with no annual fee (I refuse to have any CC that has an annual fee) and it has “great” rewards for the type of card it is. I use my CC to make all of my purchases each month and spend between $700-$1000 a month (plus an occasional business expense) and last year earned about $150 by using the card. Yeah its not a great return but its free, it actually benefited me because I earned interest on my money in the bank before at the end of the month I paid the CC bill and it helps me keep track of my spending by allowing me to up load purchases where as with Cash I’d have to keep a hand written log.
I agree with Future Millionaire. We use the Blue Cash card as well. We earned $432 last year.