“Credit card reward schemes are heavily promoted, luring customers with the promise of free flights and money to spend on shopping sprees,” Consumer reported.
“But unless you’re a big spender, the rewards you earn can be less than impressive.”
Consumer compared 29 cards to see which gave the most rewards for a spend of $25,000 over two years.
In the best case, Consumer said a good card would give someone “enough reward points to enjoy a small treat.” But in a worst-case scenario, high annual fees would leave the credit card owner with virtually nothing.
The study said even when a person spent $25,000 over two years, none of the cards tested would pay for a $600 return flight from Auckland to Sydney.
“When we deducted the cost of annual fees to get the net value, eight cards resulted in a negative return,” Consumer added.
Consumer said people had to “spend big” to earn decent rewards.
“Don’t spend just to earn a few extra points: the returns aren’t worth it. These schemes only make sense if you earn points as part of your regular purchases. If you’re selecting a rewards card, make sure you take the annual fees into account. High fees can quickly erode the value of the points earned.”
The study said high card fees meant earning points to buy goods could be less than rewarding.
“Eight of the 19 cards that offered shopping voucher rewards had a negative net value,” Consumer reported.
Rewards depended in many cases on card fees, and how and where cards were used.
“Unless you’re a big spender, the returns are likely to be limited. And if you don’t pay off your credit card balance each month, interest charges on the unpaid balance will quickly outweigh the value of any rewards,” Consumer reported.
Consumer analysed specific cards and spending scenarios.
A BNZ Visa holder would have to spend $9250 to earn enough Fly Buys points to buy a $40 toaster. To get a $70 dustbuster, worth 320 points, a person would need to spend $16,000 on this card, Consumer said.
The same dustbuster needed spending of $11,850 with an ASB True Rewards Visa. And on Westpac’s Hotpoints MasterCard, a customer would have to spend $9400 before claiming the dustbuster reward.
Gold and platinum cards offered a higher rate of return on spending, but also had higher annual fees, Consumer said.
The organisation was now offering a rewards calculator on the Consumer website to compare net rewards earned with different cards.
“ASB, BNZ and Westpac allow you to convert your reward points into KiwiSaver contributions but only for KiwiSaver accounts held at the bank,” Consumer reported. “If your KiwiSaver is with another provider, you won’t get this option.”
Consumer said credit card companies were often big beneficiaries of the reward schemes.
“As well as encouraging loyalty, reward schemes give companies access to a wealth of data about their customers’ shopping habits, tastes and lifestyle.” – NZME