Credit cards try and attract us with rewards schemes, but those often require large spending amounts and have tricky conditions. So which ones are worth considering — and which ones might actually cost you more than the rewards?
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If you’ve seen the George Clooney film Up In The Airyou’ll know what I mean when I say that most of us love the idea of earning massive mounds of rewards points without questioning whether they are actually worth it.
For those who haven’t seen it, Clooney goes to extreme lengths to earn one million frequent flyer points, just because he can, and when he eventually does he has a sombre, mid-flight “so what” moment.
The same can be said about rewards credit cards. Contrary to the love affair Aussies have with them, these can actually end up costing us money each year when you weigh up the benefits against the annual fee.
Mozo.com.au recently analysed 119 rewards cards to find the best value programs and in the process discovered that a third of these cards offer the typical cardholder just $20 of net rewards value each year once you subtract the annual fee.
If that’s not enough to make you rethink the benefit of a wallet crammed with plastic rewards, spare a thought for the unlucky Aussies stuck with a card that charges a higher annual fee than can be earned in rewards each year.
One in four rewards cards actually have you in the red each year, unless you’re spending well above the average $17,000 a year.
Annual fees on rewards credit cards are on average nearly four times that of non-rewards cards, at $161 versus $43 each year. Interest rates differ greatly as well, with rewards cards charging 19.62% compared to non-rewards cards at 14.48%.
Before you throw away your rewards card altogether, note it’s not all bad news. Mozo’s researchers found 34 rewards cards that return more than $100 in net rewards value each year to the average spender, with the best card offering a net rewards value of $296.
Big spenders putting $60,000 a year on the plastic can earn up to $1,415 a year in net value.
So what are the top rewards cards picks on the net rewards value equation?
Best value rewards cards for average spenders ($17,000 a year)
- 1. American Express Velocity Escape: $296 net rewards value
- NAB Velocity Rewards Premium Card: $293 net rewards value
- American Express Qantas Discovery Card: $276 net rewards value
Best value rewards cards for big spenders ($60,000 a year)
- NAB Velocity Rewards Premium Card: $1415 net rewards value
- ANZ Rewards Platinum: $1242 net rewards value
- NAB Qantas Rewards Premium Card: $1213 net rewards value
The full results are available at Mozo here.
Kirsty Lamont is a director of Mozo.com.au which helps Australians compare and save on credit cards, home loans, insurance and other financial products. Kirsty was one of the launch team for Virgin Money when it started in Australia in 2003, and also held a senior role at BankWest before joining Mozo in 2007. A consumer finance expert, she has access to Mozo’s up-to-the-minute data about different financial products on offer.