Some credit cards are linked to reward programs that earn you points for every dollar you spend. There are credit cards linked to existing reward programs, such as Qantas Frequent Flyer, as well as custom reward programs set up by credit card providers, such as the Commonwealth Bank Awards program.
When you earn enough points on a rewards card, you can exchange or redeem them for things like plane tickets, hotel stays, jewellery, household goods, gift cards and even cash.
The points you earn from using a rewards credit card and the points you need to get a particular reward vary a lot, so it is important to consider these factors before choosing this type of card. Depending on your circumstances, it may be more affordable to choose a card without rewards.
Case Study: Serena’s Smart Rewards Card Strategy
Serena uses her current credit card for most purchases and pays off the balance in full every month but doesn’t really get any other benefits from it, so she decides to look at getting a credit card that also earns reward points. Before choosing a card, she takes the following steps:
With these details, Serena chooses a credit card that earns her one frequent flyer point for every $1 spent and comes with complimentary international travel insurance.
Case Study: Thien’s Reward Card Risk
Thien regularly spends around $3000 per month on his credit card and usually pays the balance in full each month. His bank offers him a rewards card based on these details and he decides it could be a good way to get more value out of using credit.
His new card earns 2 points per $1 spent towards a custom rewards program set up by his bank. It also has a purchase rate of 20.99% p.a. and an annual fee of $100. Thien works out he could earn 72,000 points per year based on his current spending habits.