Credit card spending can earn you rewards. Photo/Getty Images
The world has changed over the past three years, and so have credit card rewards. Something about the pandemic has killed off much of the excitement I used to hear about Airpoints (AKA Flight Rewards)
credit card. No one traveled to use their points.
Credit card spending is now experiencing a resurgence after two and a half years of the Covid-19 crisis. New Zealanders’ credit cards are even starting to practice overseas now that most of the world’s borders are open. With this growing usage and the Christmas/Summer holidays starting to loom, spenders are starting to think about rewards and/or if they have the best card for them.
Before I get to rewards, I should point out that for anyone paying interest on their balance, the best card is usually a low-rate Visa or Mastercard. If you pay interest, you pay for your own rewards.
Many people pay off their card in full and are eligible for rewards. According to Canstar research, 54% of credit cardholders use their cards for everyday spending in order to get the rewards.
Some of these rewards are much better than others. What really matters is the reward ratio. It’s how many points you get per dollar spent and how that translates into actual, spendable dollars.
It is also important to deduct the annual fee from the rewards. American Express, for example, offers one of the highest reward ratios, but has a fee of $195, which may require a lot of expense to recoup.
I realize that people are tribal and maybe just want airline rewards, or are married to their existing bank’s cash back program. I guess if a cashback card gives you more in your pocket than a flight rewards card after deducting the annual fee, you can spend that money on flights and be better off.
This year, amazingly, I paid for every fill-up but one with points from my Visa card.
Everyone is different, of course, and my gas mileage dropped dramatically for multiple reasons. My people carrier ended prematurely last year and was replaced with a used hybrid. The effects of the pandemic, combined with too much work, mean that I go out less. And a conscious effort to cycle more often means dramatically lower fuel consumption than in the past.
There are a few pitfalls when it comes to credit card rewards giveaways. First, you have to spend money to accumulate points. Then, unless you’re budgeting to the last penny, it’s a human who doesn’t spend any more on credit cards than we do on cash or Eftpos/debit.
A lot of academic research shows that we spend more on credit than with cash or Eftpos/debit cards.
The other psychological pitfall of cash-back cards in particular, but also airline rewards, is that humans tend to see rewards as found money, and therefore treat each other instead of viewing that money as part of of the overall budget. Even with airline rewards, the temptation is to use them to access the lounge or upgrade, which you might not have taken if you had to shell out the cash.
Even if you’d rather eat dirt than go from cash back to flight rewards or vice versa, shopping around for a better card in the same category can pay off.
Canstar calculates the figures for the best airline rewards and rewards cards each year. The survey recognizes that the best card for each individual differs.
That said, the winning cards for an annual spend of ANZ Cashback Visa for up to $60,000 cash back, and BNZ Advantage Visa Platinum on top of that. For airline rewards, American Express won in all spend categories.
For the record, SBS Visa, Airpoints Low Fee Visa and Airpoints Platinum Visa from Kiwibank and Airpoints Platinum Mastercard from Westpac all received honorable mentions in various categories.
Finally, in low rate credit cards, ANZ’s low rate Visa card won the latest Canstar awards, followed by ASB Bank’s Visa Light, BNZ Cards and Co-operative Bank also winning a mention.