They promise lavish gifts for spenders, but rewards cards are costing over a third of Australians more than they give back.
A survey conducted by ME Bank found that 37 per cent of Australian reward card users are getting “negative value” from their cards after the annual fees and higher interest rates charged by issuers are taken into account.
The two-thirds of users who do benefit from their rewards cards have little reason to celebrate either. Of them, 50 per cent said the dollar benefits offered by their card had diminished in recent years.
Around 20 per cent of respondents, the largest cohort, reported receiving $50 or less each year through their rewards program. A further 14 per cent reported receiving between $50 and $100, another 11 per cent got between $100 and $200.
Only 7 per cent of respondents reported an annual dollar benefit of $500 or above.
Canstar financial services group executive Steve Mickenbecker said consumers needed to be extremely careful about reward cards.
“In the right hands, these credit cards are terrific products, but in the wrong hands they can be a debt trap,” he said.
“They share that with buy-now/pay-later services too. Credit cards aren’t a bad thing, but used poorly they are.
“There are two kinds of people that regularly use these cards that shouldn’t; people who leave a balance on their accounts and don’t pay it off every month, and people who pay off their debt each month but are small spenders,” he said.
Attractive offers ‘bedazzling’ consumers
ME Bank credit card specialist Christopher Mak told The New Daily there was a lack of understanding among consumers about how the value of the rewards received compared with the costs of using them.
“There’s a lot of focus on acquisition offers, those big headline deals like ‘1000 points just for signing up’, and people find themselves forgetting to check the fine print to make sure the card works for them,” he said.
“Those headline offers can be really bedazzling, and people don’t think ahead.”
Consumers need to instead weigh up the dollar value they can realistically expect to earn by using the card over the long term, and compare that with not only the annual fees being charged by the issuer, but the additional interest charges accrued by customers making large purchases and paying them off over longer periods.
Mr Mak used the example of someone with the capacity to earn $200 in rewards, but having to pay an annual fee of $195 for that privilege. Once the interest repayments are factored in the costs associated with the card make it an unappealing choice compared with a low rate credit card.
‘Significant’ benefits for the right people
While many people are losing money on these cards, and those that are benefitting are getting less now due to recent regulatory changes, when used properly these cards can offer “quite significant benefits”, Mr Mickenbecker said.
Anyone thinking of using a rewards card, or reassessing whether their existing card is right for their needs, has to ask themselves two main questions:
“Am I repaying the card in full every time? If the answer is no, forget rewards and just get a low rate card,” Mr Mickenbecker said.
“If you pass that criteria, the second question is how much you’re spending in a year – If it’s less than $15,000 it’s probably not worth it, though there are exceptions.”