Credit Card Points Systems— What A Joke

We here at Mr Home Budget hear many reasons why people can’t give up their credit cards.

“We need it for security.”
“Credit cards are much easier than cash.”
“You need a credit card in today’s society.”
“We pay it off every month.”

While we could debate each point and make a strong argument as to why they don’t make sense. The one reason which does make me chuckle a bit is, “We get the free loyalty points.” In this article, we will really try and pull this reason apart; take it down and destroy it. If you are someone who loves their loyalty points, you might want to look away now. Because by the time we are finished they won’t mean as much to you.

Let’s look at the top three major banks in Australia. Each one has a credit card with reward points. We are going to look at each, one by one and break them down. We are going to use the example of swapping your rewards points for gift certificates, as gift certificates are the closest thing to getting back cash. Plus we will pick gift certificates which everybody would be interested in like supermarket or petrol gift certificates.

Did you know the average Australian spends around $14,300 a year on credit cards? So we will pretend we are using an example of the average Australian. Also while all these figures are correct as of 7/06/2011, they might change. We will not use the bank’s real names.

 Bank One: You get one point for every dollar you spend on this bank’s credit card.

You could swap 11,040 worth of points for a $50 Caltex voucher. This is equal to 0.004 cents per dollar. This is not even half a cent per dollar spend. So let’s say for example, this card spent the $14,300 average, you would get back a total Caltex voucher for $64.76 (prorata). Now this is the good news. The bad news is this card has an annual fee of $89. You are down $24.24 for the year. In fact you would have to spend a total of $19,651 just to break even on the $89 fee. After this amount, you would then start earning money ... but very slowly.

 Bank Two: Is very much the same. You earn one point for each dollar spent on their MasterCard. But to earn a $100 Coles gift card, you must spend $17,200. Spending the average amount that a normal Australian spends, you would earn $83.10 a year towards the card. But the annual fee is $89. You are still $6 behind the 8 ball.

Bank Three: You receive one point for every dollar spent on your MasterCard. A Westfield Shopping Centre card would cost you 17,950 points. So you would earn $79.66. But there is just one problem; the annual fee is $100. Yes, once again you are in the red to the tune of $20 a year.

So as you can see, none of the reward points really add up. And by the way, this is if we are being sensible with our reward points. In the example, we are using them for things we are probably going to purchase with cash. But it’s easy to get tempted to use these points for trinkets or things like movie tickets. You lose even more money down the drain.

So each year, you are down money by thinking you’re earning so-called “reward points”. But this example assumes you are paying your bill on time. Not incurring any interest, or getting any of the other fees and nasties the banks like to hide in your contract.

Also, there have been studies done which show people spend more on purchases when they pay for things with their credit card. This is due to not having to pay then and there for the item. It’s your brain working on the subconscious level. And guess what, this extra spending is proven to be turbocharged when you are collecting the so-called reward points.

Credit cards are bad in general, but never use the excuse you only have one because the reward program is so good. You have just seen the facts! Cut up your cards today and get rid of them from your life.