Are Rewards Credit Cards Really Worth It?

Free flights. Home appliances. Travel gear. Cash back. These are the promises of rewards cards. They may look attractive on the surface, but are they really worth it?

Most consumers won’t earn credit card rewards quickly, because it takes time to accumulate rewards points based on your spending (which ultimately you not only spend, but pay back, limiting the rewards you can earn naturally). However, the realisation that you’re earning anything at all might be enough to attract you to rewards cards. Depending on your spending habits and purchasing power, you may want to rethink that decision.

Serious Rewards Require Serious Spending

You may find a rewards card, like the Citibank Gold credit card, that offers you one reward point for every dollar you spend. However, that doesn’t mean the reverse is true. One reward point doesn’t equal one dollar on redemption. Depending on the rewards program, you may have to spend thousands or tens of thousands of dollars to qualify for relatively small rewards.

The ANZ Visa Rewards program allows you to redeem points for merchandise or gift cards to your favourite retailers. What you may not realise up front is that to earn even a $10 gift card, you likely have to accrue several thousand points (meaning you spend several thousand dollars if your card has a 1:1 ratio).

Rewards Cards Often Come With Higher Fees

Rewards credit cards may carry perks, but with those perks often come higher fees and interest rates than similar non-rewards cards. For example, the Citibank Platinum credit card features a $125 annual fee at the time of this writing (advertised as a promotional rate — the normal annual fee is $250). On the other hand, you can find non-rewards cards with much lower (or no) annual fees.

That same card’s currently-published interest rate is 19.99% on new purchases. On the other hand, the Citibank Clear Platinum credit card (which doesn’t feature the same rewards program) charges only 11.99% interest on ongoing purchases and an $85 annual fee.

Before deciding on a rewards card, figure out how much you will realistically charge each year, and whether or not the rewards earned will make up for the extra fees and interest you may end up paying. Choose rewards programs you will really use. Otherwise, what you’ll pay for the privilege probably won’t be worth it.

About the author

Roland Bleyer

Roland has years of experience in the financial industry and is the founder of the Credit World group. He has overseen Credit World grow to become the number one reseller of retail banking products. He is a regular contributor to this blog and and aims to help people make the most of their money and help the consumer find the best possible product. Roland dedicates his time writing finance articles to provide people with information they need. You can find him on Google+ & twitter