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What are credit card rewards and are they worth it?

What are credit card rewards and are they worth it?

Credit card rewards programs allow you to earn points as you spend money on your credit card. These points can be redeemed on things such as flights, gift cards, products and more. Some also offer cashback on your grocery shop or dollars saved on your petrol. There are different rewards cards depending on what kind of rewards you are interested in, which means it’s worth shopping around for the best deal.

How do credit card rewards work?

Credit cards allow you to spend beyond the amount in your bank account – essentially borrowing money that you then repay later. Rewards credit cards work in the same way, allowing you to make purchases in store and online, but with the added advantage that you earn points on your shopping.

What types of credit card rewards are there?

Rewards credit cards are becoming increasingly common, and there are a few different types to consider when choosing the card that will work best for you. The main categories of rewards credit cards are:

  • Supermarket rewards. Woolworths and Coles both have rewards credit cards associated with them, allowing you to save money on your grocery shop. This type of card is popular with families and people who spend a lot at the supermarket.
  • Airline rewards. Frequent flyer programs often offer rewards cards, meaning that all purchases on your card will accrue points which can be used for flights. This card will work well if you fly often or if you’re planning a big trip.
  • General rewards. These rewards programs are best if you would like to access a larger range of products and services with your rewards points. Most banks offer a general rewards program, and points can be used on cashback, shopping and travel.

How to earn points on rewards credit cards

The easiest way to earn points on a rewards credit card is to spend money. Generally, there will be a regular earning rate on your spending; so every dollar you spend equals one point, for example. Some will also offer you extra points for spending at certain businesses or internationally.

Cards will often offer an incentive for signing up, like bonus points in the first few months if you meet a spending threshold. If you plan on purchasing a big ticket item, it’s a good idea to sign up for the card beforehand so you can receive the bonus points. But beware of spending for the sake of getting points – overspending can put you at risk of paying more in interest.

Disadvantages of rewards credit cards

Before deciding to sign up for a rewards credit card, it’s important to consider if it makes financial sense for you. Rewards credit cards have higher interest rates and annual fees than standard credit cards. This means that if you don’t pay your balance off in full every month, you will be paying a lot more in interest and fees. It’s not worth receiving rewards if their value is outweighed by the interest you are paying, so make sure you’re choosing a card that suits your spending.

Sally Writes 21 Jan 2021