Reward accounts: what are they and are they worth it?
Loyalty still pays in shopping and banking
Reward credit cards and loyalty schemes, especially those promising air tickets, are not as high-flying as they used to be. Several banks have grounded their airline cards, and the Avios rewards programme has disappeared, following an EU cap on the card processing fees charged by banks. But whether you are shopping or travelling, customer loyalty can still translate into dosh if you play your cards right.
Air miles are still up for grabs with a select band of reward credit cards, which work with American Express or the more widely-accepted Mastercard. Pounds spent earn points, perhaps with a kick-start bonus on early spending. No-fee cards require a higher spend (for the same rewards) than fee-charging cards which throw in travel perks such as lounge passes.
Always check the points levels needed for different types of free ticket, and likely availability. Retailers’ reward credit cards earn you points in the same way as their shopping loyalty cards, and they often offer introductory deals on balance transfers and purchases too.
Check whether these deals cut it with the best offers in the market, and remember that retailers want your cash – spending in their store earns you from two to ten times the points earned elsewhere.
Despite the EU squeeze, there are still a handful of credit cards around which pay cashback. But watch out for the long-term percentage rate, which could be only a tenth of the headline short-term offer, any fees, and whether the card is tied to a current account that you might not really want. For instance, a £3 a month fee for a card paying 0.5 percent means you have to spend £600 a month to break even.
As with all credit cards, keep them away from ATMs as the cost will scare you, and always pay off the balance every month before the interest bill is triggered – especially if you are on a balance transfer deal. If you can, set up a monthly Direct Debit to ensure you clear the balance on pay day to avoid any interest charges kicking in.
Reward or cashback cards can be a wallet boost for frequent flyers and loyal brand shoppers, but they should not dictate how and where you shop or bank – so before you jump, check what is most valuable to you.
We love our loyalty cards in Britain (more than anywhere except Finland). Some are worth more than others, especially since Sainsbury’s Nectar points halved in value to 0.5p per pound spent compared with the equivalent 1p at Tesco and 4p at Boots.
But Nectar points can be earned at 500+ brands, while Tesco points are worth more in exchange offers.
The rest of the high street has joined the rewards bandwagon with loyalty schemes on offer from the likes of Waterstones, Nandos and Starbucks.
Signing up for a loyalty card can be done in no time at the checkout, and applying for a reward credit card is a breeze online – but be aware of credit checks before you click.
Before making financial decisions always do research, or talk to a financial adviser. Views are those of our mentors and customers and do not constitute financial advice.