Rewards credit cards work just like any other credit card - you spend using the card, either in-store on online, then pay off your purchases later on when the bill comes - except that you’ll earn points on your shopping.
What happens to those points and what you can redeem them on depends on which card you choose and which rewards program its attached to. So it’s also important to understand the different types of rewards credit cards and what they offer.
There are heaps of different types of rewards credit cards, and picking the best one can be tricky. The main categories rewards fall into are:
If you’re still not sure how to pick the best rewards card for you, why not start with our Mozo Experts Choice Awards page. Each year, the Mozo money experts review all rewards credit cards in our database and award those cards that offer the best value to customers based on their spending habits.
How do I choose a rewards program?
It is a common assumption with rewards credit cards that the more money you spend, the better the rewards. This is only partly true. To get the most value from a rewards program you will need to choose a card that delivers you value for your spending habits AND offers you the greatest benefit for the rewards you are interested in. What's the point in having a card with the highest-earning rate for Qantas Frequent Flyer miles when you don't travel often?
Mozo's Rewards Revealer tool is the only calculator in the market that will give you a ranking of rewards cards based on your spending level and rewards you're interested in. A quick search with the tool will reveal just how different the rankings are for someone who spends $18,000 a year on their card and someone who spends over $60,000 annually.
But before you start reviewing cards for flight or shopping offers, first ask yourself: will I pay my credit card balance off in full each month? If you answered no, a rewards card may not be for you. Rewards credit cards have higher interest rates and annual fees than standard credit cards so if you have an ongoing balance, the amount of money you will pay in interest and fees will almost certainly outweigh the value you will get from any rewards. Instead, compare low-interest cards and choose a piece of plastic that fits your style.
What type of credit card features should I look for?
It’s not all about choosing the right rewards program! Rewards cards also offer other features, perks and bonuses, like:
- Interest-free days. If you pay your balance off in full each month you will get a set number of interest-free days. On rewards cards, this will range from 44 to 62 days.
- Worldwide access. Your card will come connected to either the MasterCard, Visa or American Express scheme and you’ll be able to use your card in Australia and overseas wherever these cards are accepted.
- PayPass or PayWave. All credit cards these days come chip-enabled which means that you can use contactless payments in Australia for purchases under $100.
- Fraud protection. Rewards cards will have fraud protection where you won't be held responsible for any unauthorised charges online as long as you notify the card providers immediately upon discovery of any fraudulent transactions.
Other features you may get with your card:
- Complimentary travel insurance. Many rewards cards come with inbuilt overseas travel insurance when you pay for some of your pre-travel expenses on the card. Every card has different eligibility criteria so you will need to review this carefully. Some will require you to book your flight with your card others will only require you to have spent up to a set amount.
- Extended warranty and purchase protection. If you lose or damage goods bought with the card in a set period you may be able to claim them on your card’s insurance.
- Price protection. With this insurance, you will never miss out on a sale. If you purchase an item with your card and you see it cheaper within a set period you can claim back the difference. For this insurance, generally, the difference in price needs to be $50 or more.
- Concierge. Many rewards cards come with a concierge service that you’ll be able to tap into for restaurant and entertainment booking or recommendations for when you’re out shopping or visiting new cities.
What fees do rewards credit cards have?
On the flip side of all those perks and freebies, rewards cards can also come with some killer fees. It’s important to be aware of them, so you can make sure they don’t eat into your budget. Common fees include:
- Annual fee. Rewards credit cards usually have higher annual fees than credit cards without rewards programs. If you will only be using your card occasionally look for a low annual fee rewards card, otherwise you could find that you will pay more in the annual fee than you receive in rewards value.
- Cash advance fee. Using your card for cash advances is one of the biggest credit card no-no's as you'll pay interest immediately. But you will also have to pay a fee which will be a percentage of the withdrawal amount or a flat fee depending on which is higher.
- Foreign transaction fee. When you use your credit card overseas or when you shop at international online stores your credit card company will charge you a fee. This fee will be a percentage of the foreign transaction amount converted into Australian dollars. It is usually around 3%.
- Late payment fee. If you fail to pay your credit card on the due date you could be charged a late payment fee. These can be as high as $30 so it is best to automate your payments through online banking or direct debit.
- Frequent Flyer Program Fee. If you opt for a credit card that is directly linked to an airline's frequent flyer program you may have to pay an annual program fee on top of the card's annual fee.
- Frequent Flyer Membership Fee. If you are not already a member of a frequent flyer program like the Qantas Frequent Flyer Program you may have to pay a fee to join. Look to see if the credit card comes with a complimentary membership.
How to earn points on a rewards credit card
There are two main ways to earn rewards points with your plastic:
- Spend on your card. Most rewards cards come with a regular earn rate on eligible purchases - for example, 1 point for every $1 you spend - and some also have different earning tiers, where you can nab more points when you spend with particular businesses (usually major supermarkets or petrol stations) or when you spend internationally.
- Meet bonus point conditions. The best way to plump up your points balance fast is to qualify for a bonus point offer when you first sign up. To do this, you’ll usually have to spend a certain amount within a few months of being approved. As long as you’re not overspending just to get the points this is a great strategy. TOP TIP: plan to get your card just before you make a big spend, like a new phone or laptop, so you can score bonus points. Just make sure you can pay off that big purchase in full before the due date!
In general, credit card rewards are offered as an extra incentive for you to spend using your credit card - it’s important to avoid overspending, but as long as you were already going to spend the money anyway, scoring some rewards while you’re at it is not a bad deal.
How can I use credit card rewards?
There are heaps of different redemption options for when it comes time to use your rewards points, from travel to gift cards, cashback to retail buys. Exactly what redemption options you have will depend on which rewards program you pick, but most programs have options including:
- Retail products - whether you shop through the rewards program online store or use points + pay at the counter, most programs give you the chance to use your points on retail products like technology, clothes, beauty buys, or home and garden purchases.
- Travel - some programs allow you to book flights, holiday accommodation, rental cars or tour packages directly through the online store or with the airline. Others allow you to purchase travel vouchers, or book holidays with your points through agents like Webjet.
- Gift cards - one of the most versatile redemption options, you can’t go wrong with a gift card! Many programs have extensive lists of gift cards you can redeem points for, letting you cash those points in at your favourite retailers.
- Cashback - another flexible option is to cash in your rewards points for a credit on your account. This can either mean you’re in credit for extra spending, or in some cases, you can have rewards points go directly to paying your cards annual fee.
- Charity donations - if you’d like to give something back, some programs also allow you to use your points to donate to a list of charities
How to compare rewards credit cards
So how exactly do you find the best rewards credit card for you, when there are so many options out there? When comparing rewards cards, it’s vital to make sure you’re comparing them on an even footing, which can be tricky when each one has different perks and bonuses available.
Some of the things you need to consider include:
- The usefulness of the rewards - is a free flight each year useful to you? What about the option to use points on your weekly grocery bill? Working out how you’ll really use your points it key to finding the right card.
- The cost of the card - all those rewards aren’t much good if you can’t really afford the annual fee, and keep getting stung by sky-high interest. It’s best to find a card that fits in your budget then consider the rewards a bonus on top.
- The criteria for having the card - some premium rewards options come with minimum income requirements to be eligible. If you don’t fall into the right income bracket, not only will your application be rejected, but you probably don’t want that card anyway, because it wouldn’t suit your lifestyle and budget.
But all that is easier said than compared. That’s where Mozo comes in. The table at the top of this page gives you a quick snapshot comparison of some rewards credit cards, including some of the key features. Then, if you want to compare even more options, you can compare our whole database of rewards credit cards and narrow your search by the type of rewards you’re after and how much you usually spend. Piece of cake!
Are credit card rewards worth it?
That depends on how you use your plastic. A rewards card generally has a higher annual fee and interest rate than other credit cards, so you have to make sure that you will get enough value out of the rewards and perks on offer to justify those extra costs.
If you’re a big spender who loves to cash in on freebies and will use all the extras offered by a rewards card, then yes, the annual fee and higher interest rate could be worth it. On the other hand, if you only occasionally use your plastic and wouldn’t get much value out of freebies and points, then a rewards credit card might be a drain on your budget. You might be better off with a low rate credit card instead.
What is an eligible transaction on a rewards credit card?
If you check the fine print, you’ll often find that you only earn rewards points on “eligible transactions” or “eligible spends”. But what does that mean? And the eligible transaction is usually any regular purchase, which excludes things like:
- Cash advances - in fact, not only will you not earn points, but you’ll pay interest immediately on a cash advance with your credit card, so steer clear of the ATM!
- Government charges - aside from GST on your purchases, most government charges don’t earn rewards points, although some cards do offer a very minimal point earn these days.
- Interest, bank fees and charges - think the silver lining of your credit card annual fee or those late fees is that you’re earning rewards points? Think again.
- BPAY payments - if you’re paying bills via BPAY, you usually won’t score any rewards points.
Can I earn rewards on a balance transfer?
No, you will not earn any rewards points on a balance transfer. That means that if you’re applying for a balance transfer card, you won’t earn points on the balance you’re moving over, as if it were a spend on the new card.
Ideally, you shouldn’t really be doing any new spending on a balance transfer card either, but you will save on interest if the card has a low balance transfer rate.
What other factors do I need to consider with rewards programs?
Last but certainly not least, here are some quick tips to put you on the right path when it comes to choosing, earning, redeeming and using a rewards card and rewards points.
- Not all points are created equal. The standard points per dollar spent equation is 1 point per $1 spent but some cards will have higher or lower points earnings per dollar amounts. And to make matters even more complex, when it comes time to redeem, 1 Amex point might be more valuable than 3 points earnt on Visa. It’s best to compare programs on what those points will actually buy you. Check the redemption rates before you sign up because you could find that there is a big difference between what 50,000 points will get you on Card A and what you can get with 50,000 points on Card B. To help cut out some of the confusion Mozo has a “spend required” column in the table above which helps you to compare the difference between points values. American Express cards have on average higher points earning rates than Visa or MasterCard rewards cards.
- Points capping. Some rewards cards will have a cap on the amount of points you can earn in a month or over a year period. If you’re a big spender look for a program that does not have any points caps. Click on the ‘more info’ link in our tables to see if a cap applies.
- Points expiry. If it’s going to take you a while to build up enough points for a reward, you’ll want a program where your points don’t expire.
- Bonus points. With some rewards cards, you will get the opportunity to earn bonus points. You might get them as a lump sum when you sign up for the card, or when you spend a set amount on the card in a specific timeframe. Other rewards cards will give you bonus points when you spend money with specific retailers or stores. When weighing up bonus points offers, it is important to ensure you review the ongoing interest rate and any fees attached to the card, especially if there are spending limits to earn the bonus points. You don’t want to overspend and get into debt just to earn $50 cashback, for instance.
- Your lifestyle. Do you only ever travel with Virgin Australia? Then choose a program that’s linked with the Velocity Frequent Flyer program. If you want the flexibility to choose between travel or shopping rewards then go for a general rewards program that will allow you to redeem points for more than one type of reward.
- Easy points redemption. Some programs will automatically send you a reward once you have reached a set number of points or in the case of airline frequent flyer programs, automatically transfer points earned each month to your frequent flyer account. With other cards, you may have to wait for vouchers to be sent or products to be shipped.
Check out our tables to compare Rewards Credit Cards and get the right deal for you!
Written by: Kelly Emmerton, Mozo Money Editor