Card rewards not always rewarding

AUSTRALIANS really love their credit card rewards - around 65 per cent of us have a card linked to a rewards program. I’m all for getting something for nothing but recent research by Citibank shows that the focus on earning rewards and other freebies can be taken to extremes.

Around 36% of Citibank’s respondents say they’ve put expensive purchases on the plastic just to earn reward points - even though they had the cash available to pay for the item.

And when I say ‘expensive’, I really do mean big ticket buys. The average amount spent by people on their most expensive credit card purchase was a whopping $5,164.

A further 30% of cardholders say they look forward to receiving their card statement each month to see how many points they’ve built up. Yet rather than making good use of those points, one in five reward cardholders say they don’t redeem their points – they just like to watch the tally grow.

Reward-based cards can offer good deals but there are plenty of strings attached. You can expect to pay for the rewards with a big annual card fee and a high interest rate.

It’s on the issue of the card rate that the real problem lies. As a rule, around 60 per cent of cardholders pay off their card in full each month thereby avoiding interest charges. The remaining cardholders, who carry an ongoing balance, are being slugged by some of the highest interest rates around – over 20 per cent in some cases.

On the average credit card debt of about $3,000, that could mean paying interest topping $600 annually. Add on the annual card fee, which can run into a few hundred dollars, and it’s hard to see how reward points offer significant value if you have an outstanding card balance.

The general rule with card rewards is that you need to spend a lot on the card, and have no ongoing card debt for the rewards to be worthwhile. Even then, you still need to shop around for a card with a low annual fee.

Unless you pay off your credit card in full each month, chances are you’re better off with a low rate card. Two of the cheapest on the market are the Aussie MasterCard charging 9.99%, and MECU’s Low Rate Visa with a rate of 10.49%.

There are a few cards that offer ‘instant’ rewards where you get discounts at the point of sale with participating retailers. These are offered by the likes of HSBC, BankSA and St George, but again you need to check whether the perks outweigh the cost of the card for your type of spending and repayment pattern.

Check out websites like and to compare the rates and annual fees charged by a wide cross-section of credit cards.

Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.


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