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Reward credit cards that become ‘pointless’

Reward credit cards that become ‘pointless’

Category: Credit cards
25/10/2016

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

If you regularly use cards to pay at the till – an ever-growing trend, particularly with the rise of contactless – you may have considered opening a reward credit card to earn points every time you spend. However, not all of these cards are as rewarding as they may seem…

Something for nothing?

A points scheme can be useful for those who want to gain a little extra by turning the points earned into vouchers or other rewards, but it may be easier said than done. These rewards can often take a long time and a significant spend to add up to anything worthwhile, not to mention the fact that some of these cards will charge higher rates of interest on purchases than could be achieved elsewhere, so if you're not careful, the interest could outweigh any benefits.

In fact, our latest research highlights the need to make the most of points schemes, or run the risk of wasting your cash on unnecessary interest and getting very little reward. As the table below shows, some cards let you earn very few points depending on spend, while others charge interest of up to 29.9% APR, all of which should be taken into account.

Selection of points cards Max points earned on £100*
Min points earned on £100* Purchase APR
Barclaycard Freedom Rewards Visa 200 points (Two points per £1 at selected Freedom partners and UK supermarkets/petrol stations) 100 points (One point per £1 elsewhere) 21.9%
Debenhams MasterCard 300 points (Three points per £1 in store) 50 points (One point per £2 elsewhere) 24.9%
Evans MasterCard 200 points (Two points per £1 in store/Arcadia stores) 100 points (One point per £1 elsewhere) 29.9%
M&S Bank MasterCard 100 points (One point per £1 at M&S) 20 points (One point per £5 elsewhere) 18.9%
Sainsbury's Bank Nectar Low Rate Credit Card MasterCard 200 points (Two points per £1 at Sainsbury's stores/petrol stations) 20 points (One point per £5 elsewhere) 9.9%
Tesco Bank Clubcard Credit Card with Low APR MasterCard 125 points (Five points for every £4 at Tesco stores/petrol stations) 12.5 points (One point per £8 elsewhere) 5.9%
TSB Avios Amex/MasterCard 100 points (One point for almost every £1 using Amex) 20 points (One point per £5 using MasterCard) 17.9%
*Points earned do not include introductory offers/points.

"The reason most shoppers take out a credit card with a points or reward scheme in the first place is so they can earn something back each time they spend," said Rachel Springall, finance expert at Moneyfacts. "Sadly, some cards will build up hardly any points depending on how they are used, so some shoppers may rightly feel their credit card has become a bit pointless."

Changing times

At one time, reward cards could enable you to rack up a healthy level of points that could be put to fantastic use, but many will have noticed such deals – and the standard of rewards offered by them – dwindling in recent months. Much of this can be explained by the EU interchange fee ruling of last year, which has had a dramatic impact.

Since last October, a cap has been placed on interchange fees – the fees charged between banks for processing card payments – which means there's now a maximum amount that credit card providers can charge. Prior to the ruling, providers could charge as much as 1.85% per transaction, but now they can charge a maximum of 0.3%, and it's understandably denting profitability. Providers are now looking for ways to get back some of that profit, and unfortunately, consumers are paying the price.

"Since the EU interchange fee ruling last year, cards with rewards have become far less fruitful, and providers have had to assess how they can recoup their costs," explained Rachel. "They could add card fees, but one of the easiest options is to limit the rewards that they are prepared to offer, by for instance cutting down on points. Findings show this is exactly what many have done."

One provider to have changed its scheme recently is Tesco Bank. It's dropped the points offered on non-Tesco spending from 1 point per £4 to 1 point per £8, which means £100 spent anywhere other than a Tesco store now earns just 12.5 points instead of 25 points. "Thankfully they've maintained the offer for 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% APR," added Rachel.

Paying the price

However, you may want to be particularly wary of high street shop offerings. These cards allow you to rack up points that can be turned into vouchers for said shop, but our findings show that some customers could be paying the price for these incentives.

As an example, cards from Burtons, Evans, Dorothy Perkins, Outfit and Wallis charge a whopping 29.9% APR on purchases, so you'd need to be careful that any interest charges don't outweigh the benefits of the points (ideally, you'd want to repay the balance in full every single month). It could take a while to earn anything from them, too: these specific cards may pay 2 points for every £1 spent in store, but elsewhere they pay just 1 point on every £1. In addition, you'll 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 certainly far more than the 1% you may gain in vouchers.

Similarly, Debenhams and House of Fraser might pay 3 points to every £1 spent in store, but elsewhere they only pay 1 point to every £2, meaning customers would need to spend £1,000 away from those stores to qualify for 500 points and get a £5 voucher.

And what about air miles? "Frequent flyers can use their credit card to accumulate flyer miles, but once again, depending on use, customers might have to spend significant sums to build up enough air miles for a flight," said Rachel. "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 1 point per £1, while customers will need to spend £5 to earn just 1 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% cashback, which could compensate for the fewer points per spend.

"All in all, it seems that shoppers will have to be savvy in how they spend if they want to make the most of their reward scheme, and they must make sure to repay their debt on time so the interest doesn't erode any benefits gained."

What next?

Still want a rewarding credit card? If you're savvy with your spending they could still pay off, so check out the top reward cards to get started, and don't overlook cashback credit cards, either

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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