The true cost of rewards
Reward schemes sound great on paper: you can earn a 'gift'
simply by spending money on your credit card. But the truth is
these schemes can change without notice and can sometimes cost you
more than the reward is worth.
How reward schemes work
Cards with a reward scheme give you points for every dollar you
spend on your card. Afterwards, you can redeem your reward points
for goods or airline flights. These cards tend to have higher interest rates and fees.
Frequent flyer, loyalty and reward programs are great if you use
your card a lot - but only if you pay the balance off in full
within the interest-free period.
If you carry over a significant balance on your account from
month to month, you'll lose more in interest charges and higher
fees than you gain in rewards. If this sounds like you, switch to a
basic card with a lower interest rate. Find out more about credit card balance
You should try to keep up with any changes to the terms and
conditions of your reward scheme as they can change without notice,
potentially leaving you with less rewards for the same cost.
Airline rewards travel
Some airlines offer their frequent flyers the ability to opt-in
to a prepaid travel money card linked to their frequent flyer
These cards can be a convenient way of keeping your travel money
in one place and earning frequent flyer points, but make sure you
understand all the costs involved and don't end up spending more on
your holiday than you planned. Find out more about prepaid travel
Should you sign up for a
When looking at rewards schemes, ask yourself:
- Will you use your card enough to qualify for the rewards?
- Will you have to make extra purchases you don't need, to earn
- Will the program discourage you from shopping around for the
best priced goods and services?
- Will you be charged a fee to redeem reward points?
- Will you have to redeem reward points within a certain
Case study: Sally calculates the cost of her reward
Sally is wondering whether
she should join a rewards program offered by her credit card
company. She will earn one reward point for every dollar she spends
and can redeem her points for flights, gift cards, movie tickets
and other goods.
Sally decides to work out how much she has to spend to earn
rewards. For example, to earn two adult movie tickets, she has to
spend $4300. These tickets would only cost her $35 if she bought
them at the movies. Since Sally doesn't use her credit card very
often, she decides it is not worth joining the rewards program. It
would take her a long time to earn the reward points and she would
end up spending way more than the reward was worth.
Don't be taken in by the promise of a
'free' reward. You are paying for it with higher interest rates and
Last updated: 20 Jun 2017