Rewards credit cards vs annual fees

Is the annual fee of a rewards credit card worth it? The answer to this question will vary from one person to another as it depends on several factors which we will go through in this guide. So before you sign your life away to a flash rewards credit card take the time to learn if it’s the best piece of plastic for you.

How much is the annual fee for rewards credit cards?

Part and parcel of credit cards are fees and charges, some are avoidable while others you just can’t dodge. The annual fee for rewards credit cards is one of those ones you can’t evade! This account-keeping fee is high, and can range from $0 to $450 for platinum rewards credit cards. For example, the ANZ Frequent Flyer Black credit card has an annual fee of $425!

Most rewards cards have higher annual fees than other credit cards. For example, a low interest credit card has an average annual fee of $60. However you can avoid this charge altogether with a no fee credit card while some providers will waive the fee! Have a read of our guide on avoiding credit card fees.

4 step guide to the right rewards decision

To help you decide if you will receive maximum value from a rewards credit card follow these easy steps.

Step 1: Take the time to calculate your annual credit card spend. This can easily be done by going through a couple of monthly statements. If you spend less than around 5,000 a year on your credit card you’re unlikely to get value from a rewards credit card as the annual fee will nullify any benefits. If you’re a big, regular spender you will get value with a rewards credit card.

Step 2: Figure out your travel habits and which airline you like to fly with. If you travel regularly be it for work or pleasure then you are likely to benefit from a frequent flyer rewards card. These rewards cards come with added benefits such a free travel insurance to the annual fee may be all worth it!

Step 3: Calculate if your annual credit card spend will net enough points to pay for the annual fee OR if your travel insurance saving is greater than the annual fee.

Step 4: Banks will charge high interest rates on reward credit cards. So when it comes to rewards cards, credit debt is a no no! If you don’t pay your bill in full and carry a balance over, all those points, frequent flyer miles will be lost to paying interest. You’re better off with a low rate card. We know that choosing a rewards card isn’t easy and you want one that will offer you rewards you’re interested in. That’s why Mozo developed the Rewards Revealer Tool. Simply plug in your annual spend and we'll show you which card will give you the best rewards for your situation.

Crunching the rewards numbers: Are you suitable for a rewards card?

Once you’ve come across a rewards card you might be interested in, calculate the minimum you would have to spend to recoup the annual fee back in rewards. Is the reward of a new toaster worth the annual fee?!

Rewards credit cards are best for…

- Big spenders

- People who use their credit card regularly

- People who will pay off their bill in full and on time each month

- Those lucky people who travel frequently

- People who have a good credit rating and earn a minimum of around $35,000 per annum.

Scenario 1

Jane is a university student who is looking at getting a credit card, so she can pay for concert tickets and clothes online as well as other day to day expenses such as food and petrol. On a tight budget, Jane plugs a few figures into the Mozo budget calculator and learns she’ll spend about $10, 000 a year on a credit card. Researching rewards credit card, Jane realises she’ll only earn around $50 worth of rewards. This definitely isn’t worth it given the annual fee can be as much as $60.

Scenario 2

John is in a long distance relationship, he lives in Sydney while his girlfriend is based in Melbourne! Flying every couple of weeks to spend time with his girlfreind, John is now all too familiar with Sydney and Melbourne airport but he knows he isn’t reaping in the benefits from all the flying. John uses the Mozo rewards revealer to find a worthwhile and beneficial rewards credit card.

John’s preferred airline is Qantas and with an ANZ Frequent Flyer Platinum credit card he can earn points direct to the Qantas Frequent Flyer program. There’s no annual fee for the first year which is a bonus but then it’s $295 per annum after that. However doing the maths, John knows that with all the frequent flying he’ll be doing as well as paying for all bills and shopping with a credit card the reward points he’ll earn will outweigh the annual fee.