When applying for a credit card, many people look around for the providers that offer the best reward scheme, such as free air miles. However, while it’s tempting to get extras in return for spending, many reward schemes aren’t as good as they first appear.
Here’s a closer look at credit card reward schemes and the drawbacks to be aware of.
Beware the small print
With any contract, it’s the small print that you need to pay particular attention to and with credit card reward schemes it’s no different. A lucrative reward scheme could mean you end up using your credit card far more than you would otherwise just to be eligible for those delicious rewards.
Many of the rewards come in the form of points
towards air miles or similar, or the promise of a free trip, meal or weekend
when you’ve accrued a high enough tally.
All of this may sound wonderful but double-check
to see if there are any conditions attached. Many customers who have spent a
large amount of cash qualifying for their freebie were horrified to discover
that they’d never be able to use it.
Credit cards often contain clauses which make it
much more difficult to use your rewards such as only offering a very narrow
time slot to take holidays or book flights, or imposing other restrictions.
Customers typically only become aware of these
when they try and make a booking. The conditions of the reward schemes are
typically poorly advertised, and often just tucked quietly into the contract
Paying over the odds
The whole point of rewards - from a customer’s
perspective - is that it’s possible to benefit from something that they would
have bought anyway. By choosing to use your credit card for spending, customers
can accumulate the points needed to qualify for the reward.
Although you might feel like you’re winning,
there’s a very good chance that you’re paying for those points in other ways.
For example, you might be paying a high annual fee which when coupled with
other types of steep costs such as penalties, currency conversion and redemption
charges, you may be forking out more than you thought.
Balance up everything you pay out for your
credit card against cheaper deals in the market. Compare this figure to the
amount you save by receiving the rewards and you’ll be able to work out if
you’re really getting the deal you thought.
Not all rewards are a waste of time
There are some reward schemes which are worthwhile but only if you’re going to use what’s on offer. Cashback schemes often offer the greatest value as there’s no restrictions on how and when you can use your rewards.
However, make sure you check the retailers that
are taking part in the cash back scheme because if they’re not places you shop
at, you’re unlikely to receive any real benefit.
If you have a reward credit card, take a closer
look at the small print to make sure you truly understand what you’re getting
and whether it’s of any practical use.