Credit cards: Are rewards credit cards, travel cards and cash-back cards a good idea?
Rewards, travel and cash-back cards
There’s no such thing as a free lunch. Basically, no-one’s going to be putting rewards and inducements your way unless you’re spending enough to make it worth their while to look after you.
If you’re not spending at least $1,000 on your card each month, you’re probably not going to be earning enough to make it worth your while, especially once you factor in the annual fee, which can be quite a lot for a big rewards card. It’s a good idea for starters to work out the value of the rewards you’re likely to collect in a year and compare that to the annual fee. (After a basic card? Click here to read more.)
If you are in the pattern of spending a lot on your card, then there are businesses who want you to use that card with them, and they’re willing to sweeten up the deal to encourage you to come and do your spending with them. That’s when a rewards card comes into its own.
But how do you work out which is best for you? Here are some questions you might want to ask as you go looking for the card that’s right for you.
How much attention am I willing to devote to this?
Reward schemes can be very generous, if you manage to use them to their full potential, but that can also depend on how much time and thought you’re prepared to put in.
In general, if you’re looking to maximise your earning potential, it makes sense to line up your travel reward program with the airline you fly with most often. Same goes for hotels. Basically they will look after you if it looks as though you’re spending enough to make it worthwhile for them. But if that’s the case, then you can look forward to some nice rewards: priority boarding, free checked bags discounts and upgrades, where its seats or hotel rooms.
How quickly will I earn rewards, and how much are they worth?
If a card has high annual fees, but also very good signup bonus offers, then that may be worth a look. A good sign up deal to a card will set you up with immediate status in hotel loyalty programs, fast track through airport security, access to exclusive lounges and concierge services, so you should be checking to see if that’s bundled with your signup offer. Also look out for the bonus points offers. These can kickstart your points balance and help you get closer to your points goal.
Are these the the highest rewards for the categories I spend the most on?
If you want a good rewards card, you should be looking for rates in the range of 2 – 5%.
How complicated is this credit card?
You should be looking for maximum flexibility. How low is the required spending? Does it have award seat availability, spending caps, and loyalty tiers that make it too much of a hassle? How good are your prospects of getting extra points or miles or cash back, and is it easy to get it in the format that works best for you? Will they let you combine points across airline and hotel partners without losing you points to do it? And are there any really unusual or extra great benefits? And is there an expiration date on rewards?
Also, are there too many different sorts of fees on top of interest fees, annual fees and foreign transaction, such as application fees or statement fees? The best travel rewards credit cards don’t charge foreign transaction fees, meaning you can use it when your travelling without incurring extra charges.
Would a cash back card be easier?
Cashback cards can be a great way to minimise weekly costs. Some rewards credit cards allow you to get cashback on your shopping bills, which can help better manage your expenses.
What you get is exactly that: cashback on whatever you buy, and typically between 2% and 5% back. Where it starts to get complicated is when it doesn’t just automatically put that specified amount back into your account. Instead, you might get up to say 4 or 5% for a limited time for a specific category and those will keep changing.
A very important question to ask if you decide to go for cashback is: Do the rates line up with the categories that matter most? For example if you get big cashback on airfares, but a lower rate on online purchases, but most of your spending is online, are you getting as good a deal as you could be?
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