Is the reward worth the fee? asks Barbara Drury. If you are beginning to feel that your rewards card is not as rewarding as it used to be, you could be right.
It now takes an average spend of $20,766 to earn a $100 Myer gift card. Money for nothing never looked like such hard work.
Compare this with the halcyon days of 2003 when it took spending of just $12,400 to earn a $100 shopping voucher, according to the Reserve Bank. No wonder consumers are not happy.
"We're seeing banks slash their points earn rate. Sometimes you have to spend double the amount to earn as much as before, especially for frequent flyer rewards", says Mozo director, Kirsty Lamont.
Almost 70 per cent of rewards cardholders surveyed by comparison site Mozo say it takes too long to earn anything worthwhile. A similar number said the annual fee on their card was too high.
The average annual fee for rewards cards is $169, compared with $42 for non-rewards credit cards. Given the average credit card spend is $18,240 a year, few of us are earning enough points to outweigh the annual card fee, let alone splash out on that coffee grinder in the rewards catalogue. A one-way flight to London? At 60,000 points you can forget it, unless you are a very big spender.
Points taken
In the past few months, Commonwealth Bank, Citibank, and most recently ANZ Bank have revalued their reward schemes, and others are expected to follow suit.
The changes differ from bank to bank and card to card, but include reductions to 'earn rates' for popular rewards, including flights, and caps on the number of reward points you can earn.
For example, ANZ has halved the earn rate on its ANZ Rewards card from 1.5 points for every dollar spent to 0.75 points. Citi cut the earn rate for customers buying goods overseas on Platinum cards from 3 points to 1.25 for each dollar spent. It also lifted the transfer points required for each Virgin Australia Velocity point from 2 Citi reward points to 2.5 points.
Offsetting this are fee reductions on some cards.
"What seems to be happening is that these institutions are pre-empting the Reserve Bank announcement about credit card interchange fees", says Canstar credit card analyst, James Slack.
Interchange fees are charges between banks involved in credit card transactions and provide much of the revenue banks use to fund their reward programs. The Reserve Bank has announced plans to reduce and cap interchange fees but said in February it will not release further details before its May board meeting.
Focus on value
Slack says there are still good value cards out there but you need to look beyond points per dollar spent to the redemption rate.
"There's a huge difference in the value of points depending on what you use them for," says Lamont.
The Mozo survey found that shopping gift cards are the most popular reward but Lamont says flights generally offer better value.
As you might expect, rewards tend to be higher on premium cards even after you take their higher fees into account. "Depending how much you spend, you may be better off trading up to a 'Platinum' or 'Black' card", says Slack.
Banks sometimes use caps to push people into upgrading to a premium card. For example, a bank may have standard, gold and platinum cards but only offer rewards on the standard card on the first $3000 you spend each month.
Best of breed
Generally speaking, if you spend more than $2000 a month premium cards may offer better value. If you spend less than that, you may be better off choosing a non-rewards credit card with no annual fee.
There are exceptions though. Lamont says the GE Money GO MasterCard has no annual fee and $139 of gift card value based on the average spend of $1520 a month.
According to Canstar, the top rewards card for someone who spends $2000 a month is the Jetstar Platinum MasterCard. It offers rewards of $331 after a fee of $149. The trade-off? It only offers vouchers.
If you spend $5000 a month the top cards offer rewards of up to $1000 after fees. But even at this level, the return on dollars spent is minuscule. What's more, the value of rewards evaporates quickly if you don't pay your credit card balance in full each month.
The average interest rate for rewards cards is currently around 19.7 per cent a year compared with 14.4 per cent for non-reward cards.
So if you clear your credit card debt each month and can avoid the trap of spending simply to earn points and you simply must have that coffee grinder, go for it. If not, it may be more rewarding to cut up your card.
