I recently called in at my phone shop to recharge my account. Whilst I was there the sales guy offered me a basic, entry level phone – it was an Alcatel or Nokia – for $5. Figuring it would be a handy spare to put in the drawer I said sure. He then put my account details in to the system to pay. He turned around and said “You don’t qualify for this, you don’t spend enough. I’m going to have to charge you $10 for it”.
I suggested to him that he might want to check terms and conditions like that before he goes ahead and makes an offer, which got what looked like an approving shrug. The point of mentioning it here for you is to illustrate that anything which seems beneficial for you that a business offers is done solely to make sure you give them more.
There is no business bigger than banks, and so their bonus offers tend to look quite big and beneficial. This is particularly true with credit card rewards. In the light of the cheap phone I didn’t really want being offered to me and taken away, it’s worth having a look to see if any of the reward programmes offered on credit cards in Australia stand out and make it worth either getting or switching your account for.
The short answer for this would be no. Further, if you are presently looking for a credit card and using reward schemes as your guide, the best advice is to stop looking right now as you might not have the right perspective needed to manage it. Rewards for credit card use should be relegated in your mind to a perk that would not bother you if you did or didn’t get, much like, in sticking with our example, a cheap phone being offered for emergency use. If I was there for the phone and not the cheap rate the network gives me, I can assure you me and my money would have been out the door after that.
The average Australian credit card use is just under $20,000 a year. Just about every reward system the credit card companies have in place translates dollars spent into points, with those points being turned into the reward of vouchers once a year. On average, most of these reward schemes need you to spend some $2,000 a month to gain a $100 voucher.
Let’s go back to my phone company. If I had made more calls, or browsed more websites, they would have rewarded me with a cheap phone that I did not want or need. That did not strike me as much of a good deal. Spending $24,000 a year on my card – especially mindful of interest rates at the moment – to get a $100 voucher – does not strike me as a very good deal either. If for some reason it seems tempting to you, then maybe you need to have a closer look at your budget to see if you can either afford it or if you really have a need for that size voucher.
If you are a credit card user anyway then the rewards are a nice touch, but are far from essential, and should not be something you see as luring or tempting you to use a particular bank or financial institution. Picking a credit card on the basis of the rewards offered is about as sensible as picking it on the basis of the colour – you may have a preference for one shade for it to be in, but ultimately it is going to have no effect whatsoever on what you do with it or what it does for you.
The real rewards you want from your credit card are all in the form of lower fees. Let’s have a look at the things you should be looking for rather than vouchers.
At the moment, your line in the sand is 20%, and you are looking for the lowest rate under that. Between 17% and 19% is fair, and anything below 17% at the moment is a deal you need to watch out for hidden catches on, but explore and try to take. Any card offered to you at a rate of over 20% right now is an indicator of straightforward profiteering. Unless there are generous terms in regards of service and fees, avoid them.
When it comes to any bank, these “service fees” are what one pays without ever asking what they are, exactly. Other than the card being issued, these fees seem to relate purely to automated billing and automated charging. Still, they keep banking staff in jobs, which is fair enough.
You need to understand and look at the service fee in relation to the interest rate being offered. Anyone charging you over $100 a year for a service fee had better be also offering you somewhere around a 15% interest rate, otherwise it’s hard to understand what benefit you will be getting from it.
Anywhere between $50 and $75 is a not an unreasonable service fee. Some will offer to waive the fee all together if you spend a certain amount – a deal which may well work out far better for you than trying to earn reward points.
Visa and MasterCard credit cards are accepted just about everywhere, and are fine to take. Other providers, however, can cause you some problems. A number of companies and retailers do not, for example, accept American Express, purely because of the fees that they have to pay to process payments from them (however, they do run some great value membership promo's fairly regularly - see here).
If you are offered a good deal on a card but it’s not MasterCard or Visa, ask very specific questions about who will and who will not accept it.
It’s also worth bearing in mind that Visa and MasterCard often routinely offer deals for their cardholders that might be more valuable than any reward scheme. Both companies like to sponsor big music and sporting events, and you can usually find yourself being able to buy in-demand tickets ahead of their official sale date.
When it comes to credit card reward schemes, the main reward you want is ease of use for a low fee. It might strike some of you that this is basic common sense advice, but in the face of heavy promotion and advertising for other rewards on offer, it can be an easy thing to forget.