It's To Your Credit To Read The Fine Print

It's To Your Credit To Read The Fine Print

Sun Herald

Sunday February 17, 2008

Bina Brown

Reward schemes might sound attractive with their free flights and iPods but the average customer doesn't get much benefit, writes Bina Brown.

IF YOU are a big spender and pay your credit card off in full each month then reward programs can be a good way to pick up "free" flights, big ticket retail items or travel agency vouchers. But nothing is free and the issuers of the reward-earning credit cards are constantly monitoring how the cards are used to ensure they are not the losers.

High interest rates, annual fees, caps on the number of points you can earn in a year and expiry dates on points earned are just some of the ways issuers will make sure they stay ahead of the game.

"Reward schemes are subsidised by the users who benefit the least and can least afford the price," says Denis Orrock, the general manager of InfoChoice.

You have to spend about $20,000 a year on your card to redeem a meaningful reward. When you take into account fees and generally higher rates, chasing rewards if you don't pay off your card in full each month is fool's gold.

"For smart users, rewards schemes can work," Orrock says, "but when you consider around 70 per cent of credit card users do not pay their cards in full each month, the majority would be better placed using a low-rate basic credit card facility."

WHAT'S ON OFFER

Not every credit card has a rewards program but those that do generally give the choice between earning points for flying or redeeming them on a range of chosen gifts including televisions and iPods.

Which card you choose will generally depend on how much you spend each year and what you are hoping to get out of the program.

Roland Beyer of creditcardoffers.com.au says, "It all comes down to what is one point worth. Two points per dollar spent is worth nothing if it takes 100,000 points to get anything and you are paying high interest."

No matter what the reward program, be aware that most cap the number of points you can earn in a year. The Commonwealth Bank Gold Card cap is 100,000 points. Citibank Silver Card holders have a 40,000-point cap, Gold Card holders 60,000 and Platinum Card holders 120,000. It might say one point for each dollar spent but just because you spend $300,000 on your credit card doesn't mean you get the points on the extra spend.

There are a few exceptions, such as the Blue Sky Credit Card from American Express - which has no limit of the number of points you can earn and use, and no expiry - Westpac Attitude, Westpac Platinum, Earth and Velocity.

Consumer advocate Choice worked out that spending $5000 a month would earn about 1427 frequent flyer points, after taking into account the fees.

It concluded that if someone spends about $1000 or less a month on a card (the Australian average is $1100), there's not much value in most reward schemes. It found people would pay more in annual fees than they would earn in rewards.

AT THE PUMP

With petrol prices fast heading towards a record $1.50 a litre, heavy users of petrol might find some benefits in one of the more innovative products available: the BP-Citibank MasterCard.

As well as a 5 per cent discount - paid as a cash rebate - on petrol bought at BP stations there is a 1 per cent cash rebate on all other purchases using the card.

The card may be innovative but it has restrictions. The 5 per cent petrol spend rebate is limited to the first $300 spent in each statement period, after which the rebate drops to 1 per cent. The 1 per cash back on all purchases applies to the first $60,000 spent in any 12-month period.INTEREST RATES

Given that interest rates are on the rise, the best reward for many may be the money saved by paying less in interest. Reward credit cards typically have interest rates of between 18 and 25 per cent, compared with 10 per cent for low-rate cards.

If you are a person who always has a $10,000 balance on your credit card and the interest is being compounded then it would be better to have a low-rate card than a rewards card. You can use the money saved on buying whatever it is you would have bought using points.

St George low interest rate cards have a rewards program through discounts with partners, such as magazine subscriptions with ACP and theme parks on the Gold Coast.

The Virgin Credit Card is another low-rate card with a rewards program - although no redemptions can be made on Virgin Blue flights. Its Mates Rates rewards give instant discounts and two-for-one and cash-back deals with a range of retailers.

THE FINE PRINT

Read the fine print of any contract. It is here that you will learn of any restrictions, such as points expiring within a certain period, points only available for use in minimum blocks or whether bonus points only apply to bonus partners.

The Australian Competition and Consumer Commission advises people to ask for a copy of the terms and conditions before signing up to a scheme, so that they fully understand what they are signing up for and what they can expect from it.

Many promoters periodically make alterations to the terms and conditions of these contracts and notify consumers by sending out a booklet with the new terms. The commission says cardholders should read the booklets to ensure they are up to date on the terms of their contracts.

How much is a point worth?

SYDNEY businessman Roland Bleyer has three credit cards.

With 270,000 reward points on his Commonwealth Bank Gold Card, he is waiting for the annual cap to lift before he accumulates 40,000 points and buys a new LCD television.

"It will be the only reward redeemed in the past 2 1/2 years. It would have been easier and cheaper to buy the TV. Plus they charge high annual fees so it is not a great reward," says Bleyer, who operates online comparison companies creditcardoffers.com.au and creditworld.com.au.

But since he uses the card as a debit card, not a credit card, it has only cost him the annual fees he might have been paying anyway to have the card.

Bleyer's other reward card is American Express Blue Sky which he used for a return trip to Melbourne. In March he and his wife will fly to Thailand for $300 each - the taxes and charges.

"It all comes down to what is one point worth? Two points per dollar spent is worth nothing if it takes 100,000 points to get anything and you're paying high interest," Bleyer says.