Reward programs attached to credit cards are sophisticated loyalty programs which reward card holders who use the card as their preferred payment option. There are several different types of rewards programs but they all work on the same premise that the more you use the greater the rewards.
Common types of rewards programs
Frequent Flyer Rewards:
Card users earns points towards their preferred airline Frequent Flyer program based on how much they spend on their card. Frequent Flyer rewards can also include travel insurance, concierge services etc.
General Rewards:
Points are awarded per spend and can be redeemed on products provided by the general reward partners. On offer could be appliances, shopping vouchers, hot air balloon rides, magazine subscriptions, the list is endless.
Cash-Back Rewards:
Card users receive credits to their card based on a percentage of the amount spent on the card.
Instant Rewards:
Mostly there are no points needed for an instant reward. The card user receives instant benefits for using the card at participating merchants. This could mean an automatic discount, a 2-for-1 offer, buy 4 items and get the 5th free etc.
Choosing a credit card reward program
When choosing a rewards program, it is important that you find a program that complements your credit card usage behaviour.
If you use your credit card frequently and pay off your entire bill each month, a traditional or points-based rewards program might be worth looking at.
Make sure to identify the types of rewards you are interested in (such as flights, toasters, shopping vouchers) then use the CANSTAR rewards star ratings to find the program that offers the best return for what you spend each year.
Ask yourself the following:
- Does this rewards program suit my credit card usage habits?
- Does the rewards program offer rewards that I am interested in?
- Are there any costs associated with being a member of the rewards program?
- How many points do I earn for every $1 I spend and what are these points worth?
- Can I get bonus points and where?
- What is the life of my rewards points?
- How much do I have to spend to get the rewards that I want?
- How do I know what rewards are available?
- How do I go about redeeming my rewards?
If you are unable to pay off your entire balance for more than 2 months each year then a cash-back or instant rewards program might be more suitable for you. For each month that you can’t pay off your balance you will incur interest charges which reduce the value you could gain from having a points-based rewards program.
Point currency and reward return
A reward program is only valuable if it returns a greater value to you than it cost you to be a member. When deciding about a rewards program, you should always try to establish if you will be able to extract value from the program.
CANSTAR has introduced two concepts to compare rewards programs. You can use these concepts to quickly compare the value of the rewards programs you are interested in. These concepts are point currency and reward return.
Point Currency
Point currency captures the spending value of your reward points. Point currency is simply how many points you need to convert to get $1 of a reward. This allows you to compare rewards programs at the lowest common denominator.
For example, if you need 7,000 points to redeem a $50 gift card, the point currency is 140 points for each $1. The point currency is like a conversion rate so when comparing point currencies the lower the number the better.
Important: conversion rates for rewards points varies from one reward to the next so if you’re interested in another reward, you should recalculate the point currency. You can also use the point currency to determine which reward is giving you a better deal.
Reward Return
Reward return tells you the return you should get from a rewards program based on your annual credit card spend. Reward return simply tells you that if you earn X points each year you can expect $Y worth of a particular reward. You can then compare this amount against the cost of the rewards program to see if you’re paying too much for your rewards program.
