Just Rewards

Just Rewards

Sydney Morning Herald

Wednesday February 27, 2008

Annette Sampson

The strategy: To work out the right rewards program.

How do I do that? The first step is probably to ask whether it's worth being in a reward program at all. Credit cards with reward programs inevitably carry higher fees and interest rates than non-reward cards. So if you're an irregular card user, or if you're maxed out on your credit-card limits and need to reduce your debt, you may be better opting for a credit card with a low interest rate, a lower annual fee (or none at all) and forgetting about rewards you'll probably never receive anyway.

The research company Cannex recently reviewed reward programs and found that, on average, spending $13,500 will give you $100 of rewards. That is not a big return on your spending and, in most cases, will barely cover the annual fee on your card. It found that if you spend only $1000 a month, or $12,000 a year, 64 per cent of reward programs won't give you a positive return after taking annual fees into account. But if you spend $5000 a month, you can expect a positive return from 96 per cent of reward programs.

So even if I spend $5000 a month, I won't come out ahead with some programs? Rest assured, says Cannex financial analyst Frank Lopez, that the other 4 per cent includes only a small number of programs which tend to offer promotional rewards to a restricted range of users. And if you spend $10,000 a month, you'll be pleased to know you'll come out ahead with all the programs Cannex surveyed .

So how do I work out which one I should use? Lopez says the first step is to work out what sorts of rewards you want. Reward programs tend to fall into three main categories. The first offers general or shopping rewards - often through vouchers. Cannex found these programs have improved in the past year and now offer 20 per cent better value. It found a consumer spending $12,000 a year would now receive rewards of about 74 cents on average for every $100 spent - or rewards worth $89 on their annual spend. Cannex found the stand-out card in this category is Westpac's Altitude Platinum American Express card, which provides rewards of $215 on a $12,000 spend.

Frequent flyer reward programs also improved in the past year, according to Cannex. It found a Sydney-Melbourne return flight now requires an average $18,630 spend - down from $20,000 last January. That average has been dragged down by the American Express Blue Sky rewards program which only requires you to spend $8000 to obtain this flight.

This card is one to watch as it doesn't have periods when you can't use your points but, on the downside, international flight routes with this program are limited, according to the results of Cannex's research.

Instant reward programs are not point- or spending-based and are often offered on cards with low or no fees as well as the traditional reward cards. These programs take the form of special offers and discounts made to card members.

To work out which card is best for you, you need to look at your spending patterns, then what type of rewards you want.

Are there any tricks or traps I should know about? Just over half of the 106 reward programs assessed have a limit on the maximum number of points you can earn in any 12-month period. Some cards have monthly points caps where, once you spend a certain amount on your card, subsequent points accumulate at a slower rate. You can find Cannex's ratings report on these programs at www.ratecity.com.au.