Back in July 2017, the Reserve Bank introduced new regulations putting a cap on interchange fees (the fees charged for processing credit card transactions). That meant, instead of potentially making a profit on those fees – as the RBA suspected they were – banks could only charge the actual cost of processing the transaction.

The result? Without those fees to fund their rewards programs, banks began to wind back their rewards card offerings. We saw a reduction in earn rates and caps on the number of points cardholders could earn. How much of a difference did that make to the various rewards programs on offer?

According to a recent study carried out by consumer group, CHOICE, the value of frequent flyer points has decreased significantly over the past few years. In 2015, CHOICE found that points used for seat upgrades were worth as much as 14 cents. Fast forward to 2018, and the best-value upgrades the group could find were worth less than half that.

As for points redeemed for flights, in 2015, points were worth around 1.5 cents on domestic flights, and 0.7–0.8 cents on international flights. Now, points redeemed for flights are worth closer to 1 cent for domestic and 0.7 cents for international. While these changes may not sound like much – fractions of a cent – they can really add up. Or not, which is the point.

The psychology behind rewards

So, why do we continue to use rewards cards if they don’t really reward us? According to psychologist Dr Rachel Grieve of the University of Tasmania, we chase rewards because we like the way it feels. Even when the rewards are tiny, the psychological effect on the brain is big. Why? Rewards apparently change the chemicals in our brain, making us less “rational”.

When we receive rewards, our brain chemistry changes, with different neurotransmitters released in response to gaining rewards. As these are often pleasurable in nature – getting rewarded feels good, after all – we are more likely to engage in the behaviour that got us the reward, which works to reinforce the cycle, to then begin again.

Even if the rewards we get are small, we continue to seek them out. Our brains tell us to do so. With that in mind, it’s not surprising we stick with our rewards cards even when they’re not as rewarding as they once were. But, while we may be slaves to our pleasure-centres, that doesn’t mean we can’t chase rewards that give us more.

If your rewards card is no longer rewarding you, perhaps it’s time for a change. By choosing the right rewards card for your spending – and knowing how to use that card correctly – you can maximise your points earn to really make the most of your card. So, what’s first on the agenda?

Different cards suit different spenders

While it may sound obvious, not every card suits every spender.

According to a research paper published by the Reserve Bank of Australia in October 2018, only 40% of Australian cardholders receive more back from their card in rewards and interest-free periods than they pay out in annual fees and interest. The research revealed that these cardholders tended to be those with higher incomes that spent more on their cards.

Of the 60% that remained, about half broke even, while the other half paid more for their card than they got in return. These were cardholders that were shown to choose cards that didn’t suit their spending patterns. For example, choosing a rewards card with a high purchase rate, then carrying a balance to pay more in interest than they got back in rewards.

Finally, the paper found that half of the respondents who made a net loss held high-cost cards, but had not considered switching to a lower-cost card. This should be a no-brainer. If your card doesn’t suit the way you use it – whether it’s a rewards card or not – it’s time to look for another card.

Don’t know what to look for? We can help.

In this article, we’re going to look at how you can find the right card for you, how you can maximise your points-earning potential, and how you can make the most of your points once you’ve got them.

Begin with a bang

While card providers may have wound back their rewards programs, that doesn’t make them any less competitive in the way they tempt and tantalise new cardholders. One of the main ways they do this is with bonus credit card rewards points offers.

Providing new cardholders with a chunk of ‘bonus’ points, introductory offers can offer an easy way to boost your points balance when you apply for a new card. With tens of thousands of points on offer, they can provide serious value, but it pays to read the small print.

Bonus points are rarely handed out for free. To be eligible, cardholders generally have to meet a minimum spend criteria. This could mean spending a certain amount on the card within the first few months, or spending a certain amount each month over a given period of time.

As long as you plan on spending that amount on your card anyway – and you can afford to pay it back before it starts accruing interest – these bonus points offers can provide a great way to enhance your points earning, in the first year at least.

Check your earn rate

When comparing rewards cards, one of the first things you will look at is each card’s earn rate. This is the number of points you earn for each dollar you spend on the card. Some cards offer one earn rate across the board, while other cards structure their earn rate using a tiered system.

The key is to find the card that gives you the highest number of points for the spending you do most. Unfortunately though, it’s not as simple as choosing the card with the highest earn rate. Cards with higher earn rates also tend to have higher annual fees – and in some cases, higher income requirements for eligibility – so, instead, it’s about finding balance.

Rewards vs. annual fees

If you really want to find a rewards card that rewards you, you need to start by thinking about how much you will spend on the card. This will tell you how many points you will earn, so you can work out the value of those points in comparison to the annual fee you’re paying out.

While many cardholders simply choose a rewards card – any rewards card – because they want to earn rewards, it pays to do some sums beforehand. If you want to find a rewards card that rewards your spending, follow these simple steps:

• Calculate how much you will spend each year on the card.
• Use that figure to work out how many points you will earn in a year.
• Check out the rewards program to find out what you could redeem those points for.
• Determine the monetary value of that reward.
• Compare that to card’s annual fee.

If you get back less in rewards than you pay out in annual fees, you may want to continue your search until you find one that offers more value. Alternatively, you could consider ways in which you can use your card more to increase your annual spend. More on that later.

Save on annual fees

Now we know that the higher the annual fee, the more you have to earn in rewards to make the card worthwhile. If you can’t – or don’t want to – increase your credit card spend to earn more points, you may want to look at reducing that annual fee.

While there aren’t many of them on the market, there are rewards cards that charge no annual fees. These can be a great option for low-spending cardholders who want to earn rewards. However, as with any rewards card, you will need to clear your balance before it starts accruing interest to ensure you get full value from the rewards on offer.

Alternatively, choosing a rewards card with a reduced annual fee introductory offer could help you get more from your points earn. Just be aware of what the annual fee reverts to in subsequent years, and make sure the card still offers a good return at that cost.

Avoid interest

According to a survey released in October 2018 over in the United States, only 41% of respondents said they paid their rewards cards in full every month. Of those that didn’t, 20% said they paid in full most of the time, 35% said they paid in full less than half of the time, and worryingly, 10% said they never made a complete payment.

We’re just going to say it. There’s no point having a rewards card if you carry a balance. Why? As soon as you start paying interest on your balance, the value of your rewards drops. It can be difficult enough seeing a return on your rewards card without paying interest on a revolving balance at the same time.

Figures from the Canstar database show the average purchase rate on rewards cards in Australia is 19.5% p.a. If you’ve got a revolving balance on your card accruing interest at a rate of 19.5% p.a., it’s very unlikely you will enjoy any real value from your rewards program.

Switching to a balance transfer card or low rate card could provide a better option. You can then aggressively pay down that balance, save on interest and get out of debt sooner. Rewards cards can come later.

Features or rewards?

While we’re talking value, it’s worth considering the value of any features offered on your credit card. Sure, your rewards need to offer more value than your annual fee, but features can also help you get more out of your card.

If you’re a frequent traveller, you may find value in features such as credit card travel insurance, airport lounge access and travel credit. As long as you need – and will use – these features, they can help balance out your card’s annual fee.

Is prestige for you?

Fancy having a black card in your wallet? Want to pamper yourself with platinum perks? Platinum and black cards – also known as prestige cards – are known for their extravagant extras, providing cardholders with features that make life a little more pleasing.

These cards can also offer a higher earn rate and higher points caps, allowing cardholders to earn more back on their spending. Sounds good, right? Of course, there is a trade-off here. While these cards offer a higher points-earning potential, they generally have a much larger annual fee.

Aside from meeting the eligibility criteria, if you want a card like this, you will have to think about whether the points you will earn are worth more than that higher annual fee.

Rewarding your spend

It’s easy enough to group all rewards cards together under one ‘rewards’ banner, but there are, in fact, many different types of rewards cards. There are supermarket rewards cards and travel rewards cards, there are everyday rewards cards and business rewards cards.

Want to enjoy a truly rewarding spend? Choose a card that fits your spending pattern.

Supermarket cards

Everybody eats. Unless you eat out every night, you need to buy that food from somewhere. Odds are you have a regular supermarket you shop at, whether that’s Coles, Woolies or Aldi. While Aldi famously doesn’t offer a loyalty program, Coles and Woolies do.

If you tend to shop at one or the other, you may choose a rewards card linked to the supermarket’s loyalty program. These cards tend to offer a higher earn rate for cardholders, with bonus offers and other shopping incentives thrown into the mix as well. By choosing other products, such as insurance, from these providers, you could earn even more points.

You can also link your Woolies or Coles supermarket card to Qantas or Velocity respectively, and start wracking up points by converting them over.

Alternatively, there are non-branded supermarket credit cards that offer a higher earn on supermarket shopping. If you spend big at the supermarket, this type of card could offer you the best rate of return on your shopping.

Department store cards

These cards aren’t as prominent here in Australia, especially with Amex and David Jones winding down their co-branded partnership. We’re yet to see another card similar, but the Amex Platinum Edge offers a higher points earn at supermarkets.

Travel rewards cards

Also known as frequent flyer cards, travel rewards cards work well for frequent travellers. Often affiliated with frequent flyer programs, such as Qantas and Velocity, these cards let cardholders rack up points to use on travel.

These cards can offer bonus points when spending with the airline or its partners, and cardholders can often earn even more as they climb the ‘status’ ladder. While these cards can be particularly appealing – who doesn’t want a free holiday, after all – there are ways to get more value from them. We’ll get back to that in a bit.

Restaurant rewards cards

These cards are not specifically branded as restaurant rewards cards. Instead, they offer more points on restaurant spending. So, if you tend to dine out a lot, you could earn more points per dollar on each meal you cover with your card.

Everyday rewards cards

While the above cards typically focus on one type of spending above all others, there are plenty of other options that reward everyday spending. These tend to be the cards that offer one earn rate across the board, allowing cardholders to earn points on all their card spending, no matter where they shop.

Business rewards cards

If you have a large business spend, a business rewards card could help you get something back. With this option, check the cost of adding additional cardholders to the account, and be aware of any points cap in place. You could use the points you earn to reward your employees – or you could keep them all to yourself.

What you won’t get rewards points on

Knowing what purchases you won’t earn rewards points on is pretty important, especially as these change from card to card. You may want to check the small print on your card to find out what spending is excluded from points-earning.

Depending on the card, you may not earn points on cash advances, BPAY payments, gambling transactions, foreign currencies, and government spending, such as ATO payments.

Rating your rewards card

Now you know what to look for, it’s time to compare your options.

Here at CreditCard.com.au, we use various rating systems to ensure we rate each card fairly. When you’re comparing rewards cards, you can use your own system to find the card that best suits you. Here are some of the important factors to keep in mind as you compare your options.

• Earn rate: Check the number of points you will earn per dollar. Try to choose a card that offers the most points for the spending you do most.
• Value of points: Calculate the value of the points you earn when redeemed for rewards. You can check this by looking at the rewards program store, usually found online.
• Rewards available: Find out what rewards you can redeem your points for, for example, flights, merchandise and gift cards. Make sure the rewards on offer are rewards you actually want.
• Points cap: Some rewards cards cap the number of points you can earn each statement period, or annually. If you want to spend big, make sure the points cap allows you to earn points on all your spending.
• Points shaping: Similar to the points cap, some rewards cards reduce the number of points you earn per dollar when you reach a certain spending threshold. This can affect the value of the card.
• Annual fee: Weigh up the value of the points you earn in a year against the annual fee.

How to boost your points

As long as you have a card that rewards the spending you do most, you’re one step ahead of the game. But, there are ways you can boost your points-earning potential, so you can get the most out of your card.

Rewards cards generally reward big spenders. But, of course, that spend needs to be paid off. There’s no point spending more than you can afford simply to earn points. As we’ve already said, any interest you pay out would be far more than the rewards you get back.

If you can’t afford to be a big spender, you may still be able to maximise your spending by using your card more. Whether it’s your morning coffee or your next overseas trip, using your card could let you earn more points day-to-day, which should add up over time.

Find out if you can earn bonus points for using the card at partner retailers. If possible, use your card to pay your bills and service subscriptions, your tax payments, and even your rent. Add family members to the account so they can earn points on their spending too.

Getting the most from your points

When it comes time to redeem your points, you will notice that the value of each point earned is not equal across the board. You could redeem a certain number of points for a seat upgrade to enjoy thousands of dollars of value, and for the same number of points, get a gift card worth a few hundred dollars.

While the value of each item will vary according to the rewards program you are part of, you will usually find most cards follow a similar pattern as this – for frequent flyer cards, anyway.

• Seat upgrades usually provide the best value
• Flights tend to be the next best value
• Products and gift vouchers tend to provide the least value

Going back to the CHOICE evaluation of the value of frequent flyer points, the group found that in terms of seat upgrades, Qantas Points redeemed for upgrades are worth an average of 4.8 cents for domestic flights and 2.4 cents for international. Velocity Points redeemed for upgrades are worth an average 6.2 cents for domestic flights and 5.4 cents for international.

Next up, flights. Qantas Points redeemed for the cheapest economy fares are worth on average 0.9 cents, and offer similar value for domestic and international flights. With Velocity, Points are worth on average one cent if used for domestic flights, compare to 0.7 cents for international.

Last on the list, products and gift cards generally offer the least value. In both the Qantas and Virgin stores, points redeemed for products or gift vouchers are on average worth around half a cent.

By paying close attention to what your rewards program has to offer, you may be able to find discounts and deals from time-to-time. For example, you may get a great deal on a flight, or there may be a sale on certain types of merchandise, such as Apple products or kitchen appliances. Signing up for your rewards newsletter could help keep you in-the-loop.

Overall, rewards cards can take some time to get the hang of. It’s true, they’re not as rewarding as they once were, but that doesn’t mean you can’t still find value in a rewards card that rewards you. You simply need to tips the scales in your favour. But, if you’ve been paying attention, you now know exactly how to do that.

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