So you’re considering getting a credit card but you want a little something for your money? Reward credit cards are a great way to make your spending work for you. But to make the most of the offers available, you need to think about which card would suit you best.
Here I’ll break down the top things to consider when choosing a reward credit card.
Spending habits Tip number one is to consider your existing spending habits. Reward points for some cards are dependent on you spending at specific retailers, but if you don’t shop in them already you are unlikely to reap the full benefits of the card. For example, a Sainsbury’s Nectar credit card will reward you generously for spending at Sainsbury’s stores, but the number of points you can accrue for spending elsewhere is significantly lower. If you are not a Sainsbury’s shopper, then it won’t make sense to take out a reward credit card tied to spend at the supermarket.
Similarly, there may be a tempting reward card with a welcome bonus, but it will require you to spend a minimum amount in the first three months of account opening. If you are not planning to spend that amount on your card, then the welcome award becomes insignificant. Don’t be tempted to spend above your means just to qualify for an introductory bonus, as that way trouble lies in the form of debt and interest charges.
Reward yield Next step is to calculate how much your spending can actually get you. Look at how much you have to spend in order to earn yourself rewards. For example, American Express (NYSE:AXP) makes it easy with its Membership Rewards programme, where every full £1 spent will earn you one membership point.
But not every reward programme is that straightforward. Some cards have a tiered reward point system. Take M&S for example. On some of its reward cards users can earn two points for every £1 spent in store and one point for every £5 spent elsewhere. This links back to your spending habits: if you don’t shop at M&S, is the reward yield for spend at other retailers high enough to tempt you with the offer?
Reward redemption So you’ve been happily spending on your card and accruing points, but what can you do with them? When choosing a reward credit card, always look at what your reward points will actually get you.
Typically, credit card reward schemes will pay out vouchers of some form. These can be vouchers for partners of the reward scheme, such as an Amazon (NASDAQ:AMZN) voucher when you redeem your American Express Membership Rewards points, or vouchers from the scheme itself, such as Clubcard vouchers.
It is worth looking at how and where you can spend these vouchers and how many reward points you will need in order to qualify for them. Basically, work out what your reward points are worth in real money.
Also consider the frequency at which you will receive your vouchers. Take the popular Tesco (LON:TSCO) Clubcard scheme: vouchers are issued four times throughout the year, meaning you need to wait three months in order to benefit from your reward points. However, some cards will credit you with your reward points in a monthly statement. It’s worth considering when and in what form you will receive your rewards.
Verdict Reward cards can be useful to have in your wallet; if used cleverly, they can make a positive impact on your lifestyle.
The main takeaways are to consider how you will use your credit card and whether the reward scheme you are considering fits in with this.
Also, do not be tempted to spend above your means in order to accrue points. Interest charges on debt you cannot repay will quickly wipe out any benefits you have received from the reward scheme.
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