It’s that time of year again. Mindful of the impending big Christmas shop, people start counting up credit card reward points in the hope of turning them into vouchers and cash. But they could find that their loyalty hasn’t paid off.
Reward credit cards can be a useful alterative to debit cards because they offer a little something extra on each spend, such as points. However, not all cards are as rewarding as they seem. In fact, shoppers could be earning very little each time they use their card if the rewards are limited to where the money is spent. In addition, some cards charge considerably higher interest rates than those that offer no rewards at all, so consumers could be paying over the odds for a few points here and there.
Ever since the EU interchange fee ruling last year, cards with rewards have become far less rewarding, and providers have had to assess how they can recoup their costs. While they could add card fees, one of the easiest options is to limit the rewards they are prepared to offer by, for instance, cutting down on points.
One of the providers to change its scheme is Tesco Bank. It dropped the points offered on non-Tesco spending from one point per £4 to one point per £8. This means that £100 now earns just 12.5 points instead of 25 points. Thankfully they’ve maintained the offer for their loyal Tesco shoppers, who can still earn 125 points per £100, and they continue to offer a card with a low rate of 5.9 per cent APR.
Shoppers who have managed to accumulate a decent number of Clubcard points with Tesco can exchange these and get four times the voucher value with certain partners. For example, a £2.50 voucher could turn into a £10 voucher for Pizza Express, £3.50 could become a Cineworld or Odeon cinema ticket, and a £10 Clubcard voucher could become a £20 Red Letter Day voucher.
There are plenty of alternative cards around offering points too, but some customers could be paying the price for these incentives. Cards from Burtons, Evans, Dorothy Perkins, Outfit and Wallis charge 29.9 per cent APR on purchases. These specific cards may pay two points for every £1 spent in store, but elsewhere they pay just one point on £1. In addition, consumers need to rack up 500 points to get a £5 voucher, which could mean spending up to £500 on the card at an interest rate that is much more than the 1 per cent they might gain in vouchers.
Meanwhile, Debenhams and House of Fraser pay three points for every £1 spent in store, but elsewhere they only pay one point for every £2, meaning customers would need to spend £1,000 away from those stores to qualify for 500 points to get a £5 voucher.
Frequent flyers can use their credit card to accumulate flyer miles but, once again, depending on use, customers have to spend significant sums to build up enough air miles for a flight. For example, TSB offers an Avios Amex and MasterCard, but the points vary considerably depending on which card you choose. Using the Amex card will net one point per £1, while customers will need to spend £5 to earn just one point using the MasterCard. This means that shoppers would need to spend £400 more on the MasterCard to earn the same 100 points that they would have earned on the Amex. It does however offer a very appealing 5 per cent cashback which could compensate for the fewer points per spend.
Clearly it’s becoming increasingly important for shoppers to be savvy about how they make purchases and where they spend their cash to rack up the most rewards. If they don’t repay their debt on time and are charged interest then the few points they did earn become pointless.
Rachel Springall is a Finance Expert at Moneyfacts.co.uk
Comments