The true value of rewards credit cards now just $6 each month

Mozo’s annual rewards credit card survey has found that the net value of rewards credit cards has dropped an average of 20% over the past year, bringing their value down from $88 per year, to just $72.

By analysing the dollar value of rewards such as flights, cashback and gift rewards, then taking into account each card’s annual fee, the survey found the ‘true’ value each rewards card was netting for its user.

The value of rewards cards took a nosedive this year to just $6 each month, in large part thanks to steep annual fees.

“The average annual fee for rewards cards is nearly four times higher than for non-rewards cards, and fees up to $749 can diminish the value rewards cards offer, particularly for consumers who aren’t spending big,” said Mozo Director Kirsty Lamont.

RELATED: The 7 best rewards credit cards of 2016 in Australia

The best rewards card offered a net rewards value of $387 over a year long period, while on the other end of the scale, one of the least rewarding cards would require shoppers to spend a massive $64,000 - three and a half times the average annual credit card spend - to score a $100 gift card.

“Rewards cards are marketed with generous-sounding cashback offers and images of holiday hotspots, but the reality is the rewards can be disappointing if you’re not swiping tens of thousands of dollars worth of purchases,” said Lamont.

The best rewards schemes were those aligned with airline points - such as Velocity or Qantas frequent flyers - as domestic travel offered the best return for the average credit card spend.

“While it’s going to take an average $13,760 spend to to earn a one-way Sydney-Melbourne flight, a paltry $100 gift card will require a huge $24,344 to earn,” says Lamont.

Top rewards credit cards 2016

Rewards credit cardAnnual rewards valueAnnual fee‘True’ net rewards value
NAB Velocity Rewards Premium Card$537$150$387
American Express Velocity Escape Card$358$0$358
American Express Qantas Discovery Card$333$0$333
American Express Essential Credit Card$269$0$269
ANZ Rewards Platinum$358$95$263
NAB Velocity Rewards Card$358$95$263

*Assumes a $19,000 annual spend and excludes introductory and bonus points offers. Where both American Express and Visa/MasterCard are issued per account, calculations assume 100% of spend is on American Express.

Considering the declining value of rewards points, Lamont also suggested that a rewards credit card may not be the right piece of plastic for every wallet.

“Unless you’re spending up big on a rewards card, you may be better off with a low fee, low rate basic credit card, so it’s always a good idea to check whether you’re really getting value from your rewards card,” she said.

In fact, earlier Mozo research showed that 2 out of 5 rewards cardholders hadn’t redeemed points in the previous year, and 1 in 10 had never redeemed points. More than half of rewards cardholders reported that their card delivered poor value.

“You have to question who is being rewarded here – the consumer or the credit card provider?” Lamont added.

Top tips for getting the most from your rewards card:

  • Domestic flights are one of the best ways to redeem points, so choose a card aligned to your favourite airline’s points scheme.
  • If you have companion cards - for example, an AMEX and a VISA card - make sure you use the one that will give you the most points in every spending situation.
  • The average annual fee on a rewards credit card is $168 - look for one with a low or no fee so it doesn’t cancel out your rewards value.
  • Check the value of your points - this can vary a lot, depending on your credit card provider.
  • Always pay your credit card balance off in full each month, since the average rewards card interest rate is 19.72%. Ouch!

Want to find out which rewards credit card will suit your spending style and bag you the freebies and rewards you really want? Check out the Mozo Rewards Revealer, which will crunch the numbers on 111 rewards cards to find the right one for you.