Value vs. Annual Fees

If you pay an annual fee on your credit card, you expect something of equal or greater value in return. Otherwise, it’s really not worth your while keeping the card. So, where does that value come from? Aside from granting you access to credit, credit cards typically create value in the four following ways.

• Rewards: For many cardholders, rewards provide the most tangible source of value.

How does it work? When you use your card, you earn points on your spending. After you’ve built up a sufficient number of points, you can redeem them for rewards valuable to you.
Valuable or not valuable? For rewards to be valuable, the rewards you receive must have a higher dollar value than the annual fees you pay out. This relies heavily on whether you earn enough points each year, and what you choose to redeem your points on. Both factors may be affected by the travel restrictions put in place over the past year.

• Intro offers: Designed to entice new cardholders to sign up, introductory offers can seriously boost a card’s value. 

How does it work? An intro offer may provide you with bonus rewards points, a reduced annual fee, or the opportunity to save on interest via a balance transfer or reduced purchase rate over an introductory period.
Valuable or not valuable? Whether an intro offer provides value depends on how you use it. With bonus points, you need to be able to afford the minimum spend requirements to validate the offer, and then pay that spending off before it accrues interest. As long as you manage that, bonus points can be very valuable indeed. With a reduced annual fee, the card’s overall value is greater, for the first year at least. With balance transfer and purchase offers, you can save on interest as long as you pay off your balance within the intro period.

• Travel credit: Travel credit is often offered on higher end cards to balance out their high annual fee. 

How does it work? Travel credit provides cardholders with a dollar amount that can be used to reduce the cost of booking travel. As an example, a Velocity card may offer $250 travel credit each year to cardholders, which can be used to book travel with Virgin.
Valuable or not valuable? Travel credit is another tangible source of value. But, it does require you to travel to benefit from it. If you’re not able to travel, you will forfeit your travel credit, reducing the value on your card.

• Extras: Credit card extras come in many forms, with the range – and value – of extras on offer depending on the tier of the card. 

How does it work? As a cardholder, you may have access to a range of extras, such as airport lounge passes, hotel upgrades, airport transfers and insurance covers.
Valuable or not valuable? Again, the value each extra can offer depends on whether you use it. If your card provides you with travel extras you cannot use, then its value drops significantly. On the other hand, your card may create value by providing you with non-travel extras, such as access to streaming services and online gym memberships.

How to Calculate Dollar Value on Rewards, Intro Offers and Extras

Now you know where to look for value on your card, let’s get into how you can determine the precise dollar value on offer.

Rewards
When it comes to working out your card’s value with regards to the rewards you earn, there are two important factors to consider. Firstly, how many you points you can earn on your spending, and secondly, what those points equate to when you redeem them.

To put a value on your earn, you will have to take into consideration your card’s earn rate, and whether you are limited by points caps or points shaping. Look at how much you spent on your card last year, and how many points you earned. It may also be helpful to look at your spend and points earn for the previous year to see how it compares.

Now, work out what value those points provide when redeemed. In the table that follows, you can find info provided by Points Hacks detailing what each point or mile is ‘worth’ in cents. The table also provides crucial factors that may affect the value of points earned within each program, with regards to their availability and how they can be used.

Airline Programs

Hotel Programs

Other

source: https://www.pointhacks.com.au/rewards-points-valuations/

Intro Offers
Want to work out how much an introductory offer is worth? The way you do this will depend on the type of intro offer.

• Bonus Points Offer: Find out what the bonus points on offer equate to in a reward. You can use the above calculation to find the reward with the highest value. Consider the dollar value of the reward you’d choose, and weigh that against factors such as the card’s annual fee, its ability to earn points, and the various other extras on offer.
• Annual Fee Offer: With this offer, you can easily see how much value you are getting. If the card’s standard annual fee is $300, and the offer reduces it to $150 for the first year, you benefit from $150 in value. Bear in mind, this not only helps you save, it can also create value elsewhere in the card, making each point you earn more valuable in the first year.
• Balance Transfer Offer: To work out the value of this type of offer, start by calculating how much you’d pay out in interest if you didn’t transfer your balance. Let’s say you have a balance of $5,000 on your card, accumulating interest at a rate of 20% p.a. Paying it off over 18 months at $320 per month, you’d pay $729 in interest. By switching to a card with a 18-month 0% balance transfer offer, you’d pay $42 less per month, to save $729 overall.
• Purchase Offer: Again, the value of this offer would depend on how much you spend over the intro period. As an example, let’s say you used your card with a 19% p.a. purchase rate to buy a sofa set for $8,000. You could pay that purchase off over a year, paying back $750 per month, with an interest cost of $681. Alternatively, putting that purchase on a card with a 12-month 0% purchase offer, you’d pay off $667 each month, to save $681 overall.

Extras

Calculating the value of the extras provided on your card can be tricky, as the extras on offer may not be available to buy, or they may not have an exact dollar value. A good example of this would be the concierge service often offered on higher end cards. This concierge service is not something you can buy, so how do you know how much it’s actually worth?

Where you can, find out the dollar value of each extra offered on your card. If your card provides overseas travel insurance, check out similar policies to find out how much you’d pay for standalone cover. If your card offers Priority Pass membership, check out the dollar value for that membership tier online. 

How to Boost your Card’s Value

Okay, so now we know how to work out the value your card offers, let’s check out some of the ways you can create even more value as you use it day to day.

• Channel your spend

As we always say, rewards cards reward spending. To get more from your rewards card, you need to channel every dollar you can through it. Yes, spend within your means, but no, don’t spend simply to earn rewards. Adding an additional cardholder to your account could boost your points earn, but remember, you still have to pay back that additional cardholder spending.

• Know where to use your card

Sometimes it’s not just about how much you spend on your card, but where you choose to use it. When you use your card with partner retailers and service providers, you can double dip on the points you earn. Take time to find out which partners you can earn a bonus earn rate with, and keep an eye out for any changes within the program. 

Knowing that their members wouldn’t be earning as many points on travel during the pandemic, Qantas Frequent Flyer launched its ‘Points Club’ in 2020 to allow members to earn more points on the ground.

Qantas Loyalty CEO Olivia Wirth said in a statement that around two thirds of Qantas Points were earned on non-flying activity, so the “potential to build large points balances on the ground is huge”.

“Last year, one member earned close to three million points on the ground alone,” she said. “That’s enough points for 25 Sydney to Auckland return Classic Flights in Business, or a month’s stay at The Langham hotel in Melbourne.”

In a similar move, Velocity recently expanded its on-the-ground points earning opportunities. With its new partnership with 7-Eleven in place, Velocity now provides members up to 2 Velocity Points per dollar spent on fuel and snacks, and a bonus 711 Velocity Points on their first purchase at a 7-Eleven store.

• Create a buying strategy

Getting more value from your card means understanding how it works and what it has to offer. If you have a rewards card, that means knowing where you can get bonus points with partner retailers, and how to get the most value from your spending and your points. As we’ve covered all that in the sections above, you can put it into practise by creating a buying strategy.

Let’s say you have a trip to the Gold Coast planned for an upcoming bucks or hens. 

• You have a nice collection of Qantas Points saved up, so you use them to cover the cost of your flight with Jetstar. 
• You’ve been collecting Expedia points for a while, so you decide to use them to save on your accommodation. 
• You know the cost of car rental has gone up since COVID, so you use your Qantas card to book with a program partner to benefit from an upgrade and double points. 

• Climb the status ladder

If you spend more on your card, you can earn more points. Obviously, this gives you more points to play with when it comes time to choose your rewards. But, it can have other benefits too. As you earn more points, you can climb the ladder to earn a higher status.

Qantas and Virgin both offer tiered status to their members, with some awesome benefits to be had. As a higher tier member, you can benefit from a higher earn rate, giving you even more points to play with. You could also benefit from perks as you travel, such as priority check-in and boarding, additional checked bags, lounge access, seat upgrades and more.

• Take advantage of incentives

Another way to boost your balance is by taking advantage of incentive offers. Back in January, Virgin announced it was giving away 20 million Velocity Points. All members needed to do to benefit from a share in the pot was register their details on the Velocity app by a certain date.

In April, Qantas Frequent Flyer offered members the chance to win a share of up to 5 million Qantas Points, simply by making a lunch order on Uber Eats. 

Also in April, Qantas made every seat on every flight between Australia to New Zealand available with frequent flyer points. Usually, there’s only a limited number of Classic Flight Reward seats set aside on any flight, so this made it much easier for members to use their points for travel.

Upcoming, Qantas could offer Qantas Points and other incentives such as travel vouchers and credits to Aussies who get the coronavirus vaccine.

“As a large company that relies on travel to put our people and planes back to work, we’re obviously motivated to help with the national vaccine effort,” Qantas customer officer Stephanie Tully said.

“We’re still thinking through how this would work, but the incentive could be Qantas Points, Qantas or Jetstar flight vouchers, or status credits for frequent flyers.”

• Opt for high value rewards

We covered how to calculate the value of rewards in the previous section. Now it’s time to put that into action. If you want to get more value from your rewards card, you need to choose the rewards with the highest possible value. 

Within the example of Jordie’s points redemption, it simply wouldn’t make sense for him to redeem his points for a gift card or coffee maker. The return on points would be just too low compared to what he could get by redeeming his points on a flight.

• Take advantage of loopholes

Again, this comes down to knowing your card and paying attention to any changes that come into effect. Let’s look at Velocity as an example.

Velocity Gold and Platinum frequent flyers who booked one Virgin Australia flight between December 7, 2020 and March 28, 2021 were granted an extension of their status until September 30, 2022.

Right now, the accounts of those members will show a status expiry in late March 2022. However, in late September 2021, a quirk in the system will reset their accounts with a new expiry in September 2022. 

This essentially allows Velocity to reset eligible accounts to start a new membership year come September, to represent the remaining 12 months of their 18-month extension.

However, that reset means there’s really no need to earn status points between now and September. That means members are free to redeem their points on points-based travel bookings, on which status credits aren’t earned.

Why does this matter? With Velocity redemptions put on hold for much of last year, many of its members are now sitting on large stacks of points. Reward bookings on Velocity’s partner airlines remain suspended, while Virgin flights to New Zealand are also on hold, so the best way to redeem those points is on domestic travel.

Members can offload some of their points on travel, getting good value on their redemptions, without having to worry about booking flights and paying in cash money to earn status. See, loophole.

• Transfer points to more valuable programs

As you can see from the table above, some frequent flyer programs offer more value than others. With the right transfer deal, you may be able to transfer the points you’ve earned on one program to a more valuable partner program, to get more from that chunk of points when you redeem.

6 Definitive Ways to Reduce Value

Want to know what not to do? Here are the highlights.

• Paying a surcharge on your purchase. When you pay a surcharge for using your card, that instantly reduces the value of the points you receive on the transaction. This is something to be especially aware of with travel bookings and government payments.
• Choosing a card that caps your points. While points caps in themselves aren’t bad, they can limit the points you earn if you always spend over your capped limit. They same applies for points shaping, where you earn a lower number of points per dollar after reaching a certain threshold.
• Paying for points. Unless you are just a few points short of the number required for your chosen reward, it’s generally not a good idea to purchase points. Purchasing points rarely provides good value, although special deals may help to even that out somewhat.
• Spending with a bonus points partner just to earn points. If you buy something from a bonus partner but could buy it much cheaper elsewhere, you’ll find the points you earn on the transaction are not as valuable as they seem on paper.
• Paying out in interest. Rewards cards have high interest rates. If you carry a balance, it will significantly reduce the value of the points you earn.
• Letting points expire. You worked hard for those points, you don’t want to let them go to waste. Keep a close eye on your points balance and redeem your points before they expire. Even if you can’t redeem them for higher value travel rewards, you can at least get something for them, even if it means donating them to charity.

Photo source: Getty Images