Credit card spending can earn you rewards. Photo / Getty Images
Credit card spending can earn you rewards. Photo / Getty Images
Opinion by Diana Clement
Diana Clement is a freelance journalist who has written a column for the Herald since 2004. Before that, she was personal finance editor for the Sunday Business (now The Business) newspaper in London.
The world has changed in the past three years and so too have credit card rewards. Something about the pandemic killed off much of the enthusiasm I used to hear about Airpoints (AKA flight rewards) credit cards. No one was travelling to use their points.
Credit card spending is nowseeing a resurgence after two-and-a-half years of Covid-19 slump. New Zealanders' credit cards are even starting to get a workout overseas now that most of the world's borders are open. With that growing usage, and 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 onto rewards, I need to point out that for anyone who pays interest on their balance, the best card is usually a low-rate Visa or Mastercard. If you're paying interest, you're paying for your own rewards.
Plenty of people pay their card off in full and can benefit from rewards. According to Canstar research, 54 per cent of credit card holders use their cards for everyday spending to get the rewards.
Some of those rewards are way better than others. What really matters is the reward ratio. That's the number of points you get per $1 spent and how that translates into real, spendable dollars.
It's also important to deduct the annual fee off the rewards. American Express, for example, provides one of the highest reward ratios around, but has a $195 fee, which can take a lot of spending to recoup.
I realise that people are tribal and may only want flight rewards, or are wed to their existing bank's cash-back scheme. I figure if a cash-back card gives you more in your pocket than a flight rewards card after the annual fee is deducted you can spend that money on flights and be better off.
This year, astonishingly, I've paid for every single tank of petrol bar one with points from my Visa card.
Everyone is different, of course, and my petrol consumption has fallen dramatically for multiple reasons. My people mover came to an untimely end last year and was replaced with a second-hand hybrid. Effects of the pandemic, combined with too much work, means I'm going out less. And a conscious effort to ride my bicycle more often, means considerably less fuel usage than in the past.
Airpoints are worth collecting again. Photo / Brett Phibbs
There are a few catches when it comes to freebies from credit card rewards. First of all, you have to spend money to build up the points. Then unless you budget to the final cent, it's a human failing to spend more on credit cards than we do in cash or on Eftpos/debit.
There is plenty of academic research showing we spend more on credit than we do with cash or Eftpos/debit cards.
The other psychological trap of cash-back cards in particular, but flight rewards as well, is that humans tend to see rewards as found money, and therefore treat themselves instead of considering that money as part of the overall budget. Even with flight rewards, the temptation is to use them for lounge access or upgrades, that you may not have taken if you had to fork out cash.
Even if you'd rather eat dirt than switch from cash back to flight rewards or vice versa, shopping around for a better card within the same category can pay off.
Canstar crunches the numbers annually on the best flight rewards and rewards cards. The survey acknowledges the best card for each individual differs.
All of that said, the winning cards for an annual spend of ANZ Cashback Visa for cash back up to a $60,000 spend, and BNZ Advantage Visa Platinum over that. For flight rewards, American Express won in every spending category.
For the record, SBS Visa, Kiwibank's Airpoints Low Fee Visa and Airpoints Platinum Visa and Westpac's Airpoints Platinum Mastercard all came in for honourable mentions in various categories.
Finally, on the subject of low-rate credit cards, ANZ's Low Rate Visa card won the last Canstar awards followed by ASB Bank's Visa Light, with BNZ and Co-operative Bank cards also getting a mention.
