What fees come with a rewards card?
A credit card is a super convenient way to spend - and opt for a rewards credit card and you’ll also get the opportunity to earn freebies and perks while you shop. But all that doesn’t come without a price tag attached.
Below, we’ve broken down some of the main fees you can expect to pay while carrying a rewards credit card in your pocket.
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Fees when you use your card
There are some fees you might pay just for having your card, or because you use your card in a certain way. These include:
The annual fee is one of the main fees you’ll have to budget for when you pick up a rewards credit card. Rewards cards usually come with a steeper fee than regular credit cards, often ranging between $100 and $450. On the other hand, you can find options with no annual fee at all - but there aren’t many.
Cash advance fee
If you hit up the ATM with credit card in hand, be prepared to pay for the privilege. The cash advance fee can come in the form of a set dollar amount, or as a percentage of the amount of cash you withdraw. Plus, it’s not just the fee you have to worry about - when withdrawing cash using your credit card, you’ll pay the cash advance interest rate as well, which is often much higher than regular interest, and is applied straight away, with no interest free period.
International transaction fee
Travel often? Or maybe you have a weakness for online shopping at international stores? Either way, if you’re using your card to make payments in foreign currency, keep in mind that the international transaction fee will apply. Like the cash advance fee, this might come in the form of a dollar value, but is more often charged as a percentage of your purchase amount.
Rewards program fee
Depending what program you choose, any fees associated with your rewards program may be covered by the annual fee or they may be an extra cost you have to foot the bill for. Airline rewards programs especially may have extra members fees you should look out for.
Additional cardholder fee
Want a strategy to earn a stack of rewards points fast? Get a supplementary credit card and give it to your spouse, brother, mother or adult child to put all their spending on. Just remember to check if this additional card will come with a fee - and weigh that extra cost up against the value of those extra points.
There are also some fees you might incur if you don’t manage your credit card use responsibly. These include:
If you fudged your budgeting a bit this month then you’ll likely be hit by the dreaded late fee. This is often around $15, and if you form a habit of missing payments, that can add up quite quickly. The good news is all you have to do to avoid this fee is pay the minimum required amount each month. It’s a good idea to think about setting up automatic payments to cover this amount (if not more) to keep yourself out of trouble.
Go over your credit limit while you’re spending up a storm and you might be faced with an overdraft fee. Overdraft, or overlimit, fees often carry a price tag of about $35 - so they’re going to bang your budget around even worse than a late fee!
Replacement card fee
This one’s pretty self explanatory - lose your card and you may be up for a fee to replace it.
Other costs to watch out for
Fees are not the only cost you need to be aware of when using your rewards credit card. You can be stung in other ways if you’re not careful, so keep an eye on:
Your interest rate
Generally speaking, rewards cards will come with a steeper interest rate attached than your average credit card. That means, if you forget to pay off your balance in full each month, it’s easy to wind up with a credit card bill as long as your arm.
The good news is, you can avoid paying interest at all by taking advantage of your interest free days, and always paying your bill. You might even want to set up automatic payments, just to be sure.
Credit card surcharges
When you hit the shops or log in to your favourite online store, look out for retailers applying surcharges for credit card use. While there are now regulations around businesses surcharging excessively, you might still be charged between 1% and 3% to use your plastic.
If one of your regular shopping destinations surcharges for credit card use, it might be a good idea to have a debit card or cash in your pocket as a backup.
Make your annual fee worth it
While the steep annual fee of a rewards credit card may just seem like a pain in the neck, remember that you’re paying it so you can cash in on all the freebies and rewards on offer. So one of the tricks to choosing a good rewards credit card is weighing up the value of your rewards program against the cost of your annual fee.
If you’re someone who travels frequently, shops up a storm, uses complimentary insurance and likes to take the concierge service for a whirl, then a $450 annual fee might pay for itself in rewards value.
On the other hand, if you’re not interested in extra insurances or special VIP offers and instead just want to cash in on a free flight or a toaster now and then, it will be easier to justify a smaller $100 annual fee.
In order to make paying your annual fee worth it, you should also look at factors like:
- Points earning value - as a rule of thumb, aim to earn at least 1 point for every $1 you spend.
- Points redemption value - you might be earning heaps of points, but make sure the value you’re getting for them at the redemption end of things doesn’t cancel out all your hard work.
- Points caps - some rewards card providers cap your points either monthly or annually. Make sure you know what caps apply, to make the most of your spending.
- Points expiry dates - don’t let those hard earned points go to waste! Some cards come with points expiry dates (often around 36 months) so make sure you redeem them before they expire.
Want to know more? Check out our guide on how to calculate rewards points.
Compare rewards credit cards
Think a rewards credit card is for you now that you’ve got a handle on the fees it involves? Find and compare rewards cards offers in our comparison table, to make sure you’re getting the best deal for you.
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