Never do this with your credit card points at the checkout

A number of credit cards will allow you to spend your reward points at the checkout when shopping in store or online, but before you do, it’s important to work out if you are getting the most bang for your buck.

If you frequently use your credit card to buy things, you may have earned a nice little haul of rewards points. Once you have them, of course, then comes the question of how to actually redeem them. If you’re careful about your points, you’ll want to know you’re getting the most bang for your rewards buck.

Credit card rewards programs will give you a number of options for how to use your reward points, and one of these will likely involve deals with partner retailers. Once you’ve built up a certain number of points, you can spend these at the checkout, and get said item at a discount or even for free.

This may not always present the best value, though, and in some cases, saving the points for other uses like converting them to frequent flyer miles might represent more value for your money overall. Allow us to explain.

Wait, getting things for free is good, right?

There are a number of credit card rewards programs in Australia that will allow you to spend points in online shops. For example, both the Qantas and Velocity frequent flyer programs will allow you to spend points in the companies’ respective online stores, while Flybuys points can be spent at a variety of partner retailers. Other providers, including American Express, also allow cardholders to spend reward points using Paypal.

While this may appear tempting, it’s worth keeping in mind how much value you’re actually getting for your points when you spend them at the checkout, and whether they could be better spent elsewhere. Likewise, it’s important to keep in mind that if you’re spending points at the checkout, you are not likely to be earning points for the purchase, so you’ll lose out on any points you would have earned if you’d made the purchase without spending points.

If you’re trying to work out whether spending points at the checkout is actually going to give you good value, consider the exchange rate for points, and what else you could potentially buy for them. In a broader sense, it’s also important to remember that credit cards come with annual fees, and that if you don’t pay off your balance in full each statement period, you will also be charged interest, both things that can potentially cancel out the value you’d get from earning points.

What could you get for your points?

When spending your points at the checkout, consider the value you’re actually getting out of it, and what you could do instead. First, let’s consider the example of Flybuys points. Say you have 70,000 shiny Flybuys points sitting in your account – you might decide to spend these at the checkout, or convert them to frequent flyer miles, but the return you’d get would be very different.

At the current rate of exchange, 2,000 Flybuys points convert to $10 worth of Flybuys dollars, which you can use at the checkout at retailers like Coles, Officeworks or Target, amongst others. Based on the current rate of exchange, your 70,000 Flybuys points would convert to around $350 to spend at the checkout.

Now consider the alternative. At the current rate of exchange, 1,000 flybuys points converts to 500 Velocity points, which can be used with Virgin’s frequent flyer program.Your 70,000 Flybuys points could instead convert to 35,000 Velocity points – at the time of writing, Virgin says that this could get you a return economy airfare from Brisbane to Fiji.

In this hypothetical example, you could either get $350 to spend at the checkout at a partner retailer, or a return economy flight to Fiji. At the time of writing, the price of a return flight from Brisbane to Fiji started from around $700. One of these deals might strike you as better than the other, and this is a good reason to be wary of spending your points at the checkout.

Let’s consider another example – at the time of writing, American Express says that you can use 1,000 membership reward points to get $7 when paying for a purchase at the checkout with Paypal. On the other hand, at the time of writing, American Express says that one membership reward point will get you one Qantas Point, as long as you transfer a minimum of 500 points at a time.

Say you have 70,000 American Express points. This would convert to roughly $490 to spend at the checkout when online shopping using Paypal. Alternatively, at the current exchange rates, it would convert to 70,000 Qantas Points. At the time of writing, Qantas says that a return trip from Brisbane to Denpasar, flying economy on its budget carrier Jetstar, would cost you a total of 36,000 Qantas points. This amount of points would almost be enough to cover two return fares.

Is it better to save reward points for frequent flyer miles?

The examples above both show that you can potentially get more value for your credit card reward points if you spend them on frequent flyer miles than if you spend them at the checkout, but this may not be the case in every instance, and it’s also important to remember that it comes with a number of caveats.

If you are able to earn a large enough number of points, then putting them towards frequent flyer miles may potentially represent better value for you, but building up reward points means spending money, and it is never worth spending money on a credit card just to get the rewards.

If you typically spend a large amount on your credit card, and are able to manage it responsibly and pay off the balance each statement period without accruing interest, then a rewards credit card may be a way to earn perks, like points that can be converted to frequent flyer miles.

If you only spend modestly on your credit card, or don’t use it that often, then the perks that come with a rewards card may not be worth the higher fees and interest rates that these cards typically come with, and a more basic card may be more suitable for your needs.

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