Up until about five years ago, I had always thought of rewards credit cards as being a waste of money. As a younger person who first looked at rewards cards in the early 2000s, I came to the conclusion that any “rewards” you received were usually outweighed by the annual fee that a card would attract. This situation wasn’t helped by the fact that I was on a relatively low income at the time, and even if I spent all of my income I still wouldn’t be able to rack up enough reward points to make a rewards card worthwhile.
I had also investigated the “rewards”, and found that if you redeemed your points for rewards (for example, a DVD player) you would waste a ridiculous number of points and “pay” a notional price for the DVD player that was far greater than the real value of the product. Plus you lost your ability to negotiate a discount on the notional price, which was just like rubbing salt into the wound.
Eventually my wife convinced me to take a second look at these cards though, simply because our home loan package, which has a discounted interest rate and an annual package fee, entitled us to their rewards credit cards for free.
We bank with Westpac, one of Australia’s big four banks, and the card that we were entitled to was their Westpac Altitude Black Card.
Given that this is the card that I actually have and use, it is the best one for me to review as an example of a rewards credit card. This is by no means an endorsement of the card itself, but I am hoping that a discussion of its features will act as a good comparison for other rewards credit cards in Australia and how they could be used.
Cost of the card
This card, which is pretty fancy, has no annual package fee as I understand it, but to have it for free we must have Westpac’s “Premier Advantage” home loan package. That home loan package has an annual fee of $395, and entitles you to a 0.7% discount off Westpac’s standard variable home loan rate. The discounted interest rate would be worth the $395 alone, so the credit card comes as a bonus. Still, I like to try to rationalise the real value of the rewards you receive against the annual package fee to ensure that the rewards are more than $395.
Points that you earn
This “card” actually comes with two cards – a MasterCard and an American Express card, both of which are linked to the same account.
Transactions on the MasterCard earn two points for every dollar spent, and transactions on the American Express card earn four points.
Best ways to redeem points
Like all of these types of cards, points can be redeemed in ways that represent good value, and ways that represent terrible value.
The terrible value ways are for things like DVD players, where you get screwed on points per dollar of value, and the “value” attributed to the DVD player is well above real world value as well. If you are smart enough to read personal finance blogs, then there is no way that you can be ignorant enough to redeem reward points in this way. Having said that, one of my fellow partners (aged 42 and having been in the industry for 24 years), who is obviously not smart enough to read personal finance blogs, recently redeemed a stack of points for some Bose headphones. I don’t even want to think about how ignorant that makes him, but he probably spent a gazillion points (that’s a lot of points) for some headphones that were worth $100.
The good examples are for vouchers for department stores, supermarkets and service (i.e. petrol/fuel/gas) stations, and also to redeem the annual package fee which comes back into your bank account as a cash deposit.
Redemptions for the gift vouchers come at a rate of between 18,200 and 19,050 points per $100 of gift voucher, while redemptions for the annual package fee come at a rate of 16,700 points per $100 of fee rebate, up to the maximum of $395 (the annual package fee per annum).
Obviously the annual package fee rebate is the best value, and this is therefore how I redeem my points. It’s clearly not one bit exciting, but depending on what I have going on I can usually earn enough points in a year to get my annual package fee of $395 back, plus another $200-$500 of gift vouchers for department stores.
If you’re serious about improving your financial position, rather than just buying more crap that you don’t need, then you are best to redeem the points for vouchers at stores where you would have otherwise spent cash. One example is Woolworths, which in addition to being a supermarket (not my supermarket of choice of course), also owns service (a.k.a) stations, so you can use their vouchers to purchase petrol/fuel/gas for your car. By doing this, you are reducing a cost that you had already committed to, rather than buying more crap that you would not have otherwise bought.
Having said all of that, I have on occasion redeemed the points at Myer (an Australian department store) so that I could then buy electronics (like a new laptop) when they were on sale. I have been known to have a weakness for electronics every now and then in the past, but in more recent times I like to think that I have put much of that behind me.
Is it worth it?
Given that I can always accrue enough points (without going out of my way to spend just for the sake of points) to offset my annual package fee, and then get more points again for something else, I would say that this particular rewards card is definitely worth it.
If however we didn’t have the self-discipline to use a credit card responsibly, and redeemed points on useless crap, I would say that would become far less worthwhile.
I understand that the other big four banks have similar home loan packages with similar reward cards I would think that it would be worthwhile for anyone with these packages to use a rewards card in this way. I actually can’t understand why anyone with a home loan with one of Australia’s big four banks doesn’t have the equivalent package and credit card arrangement.
For others without such home loan packages (because they are with a smaller bank or credit union), it would really come back to assessing the reward vs the annual fee.
What do you think? Do you have an Australian rewards credit card and how do you get the most out of it? Do you think your card is worthwhile?