Woman pulling credit card out of wallet

Credit card reward schemes

Flights, shopping vouchers, cash, exclusive member benefits – credit card reward schemes promise a lot. But you could be left with sweet nothing.

We reviewed 25 credit cards with reward schemes to see how they stacked up for different types of spenders: a light spender who puts $5000 a year on their card; a moderate spender charging $12,500 to their card; and a big spender charging $25,000 a year.

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Reward for effort

Flight rewards

Of the 22 cards offering flight rewards, only 4 delivered any return for our light spender, even after they had spent $10,000 over 2 years (see our table of credit card rates and fees). Annual fees meant the rest of the cards in the pack left our low spender with a negative return.

American Express’ Airpoints Card returned the most bang for buck. With no annual fee, all our spenders were able to rack up rewards with the card. That said, spending $25,000 a year for 2 years only earns you enough for a $500 flight, so you won’t be skipping across the Tasman anytime soon.

The least generous card was Westpac’s Hotpoints World Mastercard. Spending $5000 in a year earnt enough for a $75 travel voucher. But after deducting the card’s $390 annual fee, you’re in the red. Even charging $50,000 over two years won’t leave you with rewards.

Shopping rewards

Westpac’s Hotpoints World Mastercard also delivered the worst value for shopping rewards. After annual card fees, you’d be left $363 in the red if you spent $25,000 over two years. Doubling your spending only returns a modest $53.

Diner’s Club Credit Card left our higher spenders with nothing to show for their efforts.

The Warehouse Purple Money Visa provided better – though still meagre – value. An annual spend of $5000 would give you $35 in rewards. However, it does come with a catch – you can only spend your rewards at The Warehouse.

Cashback rewards

Two banks, ANZ and BNZ, offer rewards in the form of cashback: a credit on your account each year.

For our low spender, cashback rewards weren’t rewarding. After card fees, spending $10,000 over two years with BNZ’s Advantage Classic card would leave you $13 in deficit.

With ANZ’s Cashback Visa Platinum, you’d be $200 worse off. To break even with this card, you’d have to spend at least $25,000 over the 2-year period.

Returns for higher spenders were better: $50,000 spent over 2 years would give you $250 cashback with ANZ’s Platinum card and $487 with BNZ’s Platinum offering.

How to get the best deal

If rewards aren’t paying off for you, you’re better off switching to a credit card that won’t cost you in the long run.

Cards with no – or low – annual fees are the best option if you’re paying off your card in full each month and you don’t rate the rewards offered. Among the main banks, ASB and Kiwibank offer no-fee credit cards.

If you’re not paying off your balance, your first move should be to stop spending on your card. Median interest rates on credit cards are 19.95%, which means for every dollar you borrow, you’re paying back nearly $1.20.

Shopping around for a balance transfer deal is worth it if you’ve got debt on your card and are struggling to keep up payments. Balance transfers let you transfer debt from one credit card to another with a lower interest rate.

To make the most of these offers, you’ll need to pay off your debt as soon as you can. Current offers include BNZ’s Low Rate Mastercard. You won’t pay interest on transferred debt for a year, but if you’ve still got money owing after that, the rate rises to 13.45%. Any new purchases also accrue interest.

ASB’s Visa Light offers a balance transfer deal of 0% for 6 months and 13.5% after that.

Balance transfer deals and fee waivers for new customers are also offered with other lower-rate cards.

Cash advance trap

Use a credit card to buy something and you’ll get 44 to 55 days’ free credit (depending on the card). But use it to withdraw money and you’ll be paying interest from that day. Not only that, you’ll usually pay a much higher interest rate and be stung with a cash advance fee. It’s a very expensive way to get money.

We say

  • Credit card reward schemes only benefit big spenders. If you’re shopping for a scheme that’s going to earn its keep, consider how much you spend and the card fees. Steep fees can quickly wipe out any rewards earned.

  • Switch to a card with no or low annual fees if your reward scheme isn’t delivering the goods. You could also consider ditching your credit card and relying on a debit card instead.

  • If you’ve got debt on your card, don’t even bother with rewards schemes. Interest charges on unpaid debt will outweigh the value of any rewards.

Our rewards calculator

Enter your annual credit card spend to calculate your net rewards value for flights, shopping vouchers and cash-back.

Fringe benefits

Most cards offer discounts and other benefits on top of the main rewards. Countdown’s Onecard Visa comes with the AA Smartfuel rewards programme, which earns discounts on petrol at BP and Caltex. However, consider whether you already fill up at those stations, or if you’ll go out of your way to get the discount. Also look at it alongside your normal spending at Countdown and what that earns you in discount vouchers, and the annual fee. Some flight reward cards give “status points” alongside Airpoints. Status points offer perks for frequent flyers, but you have to be a high spender for the rewards to stack up. On Kiwibank’s Air New Zealand Platinum Mastercard, you get one status point for every $200 spent – so to get 450 status points, to reach Silver Airpoints Status, you’d need to spend at least $90,000 in a year.

Get out of debt faster

New Zealanders’ credit card debt has climbed steadily over the past decade. By January this year, we owed more than $4.2 billion on personal credit cards. That’s nearly $1200 for every person aged 20 or over.

Our latest survey found 7 out of 10 Kiwis have a credit card, but nearly 30% of them didn’t pay off their card in full each month. If you’ve got debt on your card:

  • Work out a budget. Track what you spend and focus on paying off debt. The Commission for Financial Capability’s sorted.org.nz has calculators to help with budgeting.

  • Switch to a lower-rate card. You may not even need to change banks. Check the balance transfer deals available. Switching to a card with a lower interest rate will help you pay off your debt faster.

  • Pay more than the minimum. If you can’t pay in full each month, pay more than the minimum required so you can ditch your debt as soon as possible.

  • Beware rewards. There’s no point paying for a card with rewards: these schemes don’t reward you if you’ve got debt on your card.

By Tessa Johnstone
Investigative Writer