Earn points as you spend with a rewards credit card
Collect points & earn rewards with a rewards credit card
Rewards credit cards give cardholders points for every dollar spent (usually one point for every $1) on eligible transactions. Each card is part of a rewards program where you can redeem your points for flights or flight upgrades, accommodation, cash back, gift cards, fuel vouchers, and merchandise such as clothing, electronics, appliances and more. Some credit card rewards programs allow you to spend a combination of your points and cash to gain rewards. Others may give you a sign-on bonus amount of points if you are making a balance transfer.
Since credit card providers and companies invest significant resources into providing rewards from select retailers, hotels and airlines, interest rates are usually higher than non-rewards cards. They will also have an annual fee attached. You must factor this into your comparison when choosing a credit card that’s right for you.
Common types of rewards programs
Every credit card has its own specialised reward program that gives you access to a suite of airlines, hotels, retailers, merchandise and so on.
One common type of rewards card is frequent flyer credit cards. Click here for a full rundown on frequent flyer credit cards and information on how to compare.
Credit card rewards programs are programs run directly by your credit card company or bank. Some rewards programs give you the option of auto-redemption of specific rewards, or let you choose your own. Some may put an expiry date on your points, and others may have different values for points (1 point in X program may be worth 5 in Y program, etc.) and some cap the amount you may earn. You must also check the fine print for redemption limitations.
Supermarket or retail rewards programs are credit cards tied directly to supermarkets and major retailers, giving you exclusive benefits at these chains.
Cash back credit cards reward you with credit or “cash” when you cross a spending threshold. These may reward you with a percentage of your spend as a cash back or a once off introductory offer (e.g., $100 off one purchase at one retailer.)
Is a rewards credit card for me?
Like all major financial decisions, you should weigh up the costs and benefits of a rewards credit card before you settle on one.
A rewards credit card might be the right choice for you if you already use a credit card on a regular basis and find the rewards program of your new card useful. If you can use rewards such as hotel upgrades, complimentary insurance or merchandise often, this may tip the balance in your favour.
A rewards credit card is also a more favourable choice if you intend on paying off your credit card balance in full each month, as interest rates on rewards credit cards are above the average credit card. Annual fees are also higher, relative to other types of cards.
By factoring in how much the rewards might “cost” per month or year, you can find a credit card that suits your requirements.
Do you have questions about rewards credit cards?
Helpful guides to making the most of your rewards cards
Calculating a “points to benefits” ratio
Each credit card rewards program tally up points for each dollar spent. Usually, $1=1 point. Just like foreign currencies, one point in Rewards Program X (RPX) does not equal 1 point in Rewards Program Y (RPY). To put points in their proper perspective, you need to calculate points to benefits ratio. For a simple way to achieve a “PTB” ratio, you need to look at the rewards card catalogues for similar items on offer. If RPX advertises 10,000 points is redeemable for a $1000 item, the ratio is 1:10. If RPY advertises 2,000 points for the same item, the ratio is 1:2. Though both programs may have their benefits, RPY offers more value than RPX in sheer numerical terms.
Strategies for saving on your rewards card
Rewards credit cards are great for earning cash back or merchandise just for shopping, but they do come with a catch. Rewards cards usually have higher fees or higher interest rates to cover the rewards programs. The best strategy for extracting as much value from your card is to attempt to pay off your credit card balance in full each month, or as close to it. This way you can gain more rewards without paying extra for them in interest (which is how your credit card/bank makes money.) Some rewards cards allow you to put your spend back into your balance, so you aren’t paying for it 100% out of pocket.
Instant vs. point based rewards – what is best?
Many credit card providers and banks offer points based rewards systems. Each time you spend with your credit card on eligible transactions, you gain points. You can use these points to redeem cash back, merchandise, flights, accommodation, and other rewards. Other credit cards offer instant rewards. You get these rewards at the point of sale. These instant rewards usually come in the form of discounts, such as 5% off your total shop at a chain of retailers, or an extra 5c off fuel. There are many different combinations and rewards out there, and it’s up to you to figure out if they are right for you.
Point caps and limits explained
Some of the credit cards we compare place caps and expiry limits on earned points. A point cap means you can only accumulate a certain number of points until the system stops counting, or asks you to redeem the points for rewards before you can start earning more. A credit card expiry limit means your earned points are only valid for a certain period. After that, you lose them forever. It’s wise to look at point caps and expiry as part of your credit card comparison. If you do not spend enough on your credit card to earn enough reward points, an expiry limit will hurt your chances of claiming rewards.