Chances are you have a debit card in your wallet. In fact, according to the Reserve Bank of Australia, there are currently 40.4 million debit cards on issue, or around 1.6 for every Australian. 44% of transactions in 2019 were made using debit cards compared to 19% for credit and charge cards.
Debit cards have clearly become the payment method of choice, particularly for younger Australians. But would you be better off channelling your spend through a credit card?
Banks and other institutions make bigger profits off credit cards than debit cards due to the higher fees charged to customers, higher interchange fees charged to businesses and the typically high rates of interest charged on outstanding balances. Because of this, they can offer significant incentives to sign up for credit cards and to continue holding them, particularly in the subcategory of rewards credit cards which I’ll mostly be focussing on.
Let’s start with the big caveats: rewards credit cards aren’t for everyone, and if you think it’s even remotely possible that you won’t be able to repay in full each month, then you shouldn’t get one. The cards with higher value rewards also tend to have higher fees and interest rates, so you’ll need to find a credit card that is suitable to your individual needs and weigh up the potential costs and benefits. If you won’t get out more than you’re putting in, you’ll just be boosting the profits of the credit card provider as well as helping fund the benefits other cardholders are taking better advantage of.
A credit card with low fees or interest rates may be more suitable, so make sure you do your research and seek financial advice if necessary.
But if you’re willing to dump the debit card and control a credit card, here are some of the benefits you can expect to receive:
The cornerstone of rewards credit cards are the points you’ll receive for most transactions you make. Some cards directly earn Velocity or Qantas points, while others will be linked to a credit card issuer’s separate reward system.
But what is a point worth? Since each card and program is different, it can be confusing to find out exactly.
An easy way to get an indication of the value is to find out how many points are earnt per dollar spent on the credit card, then see how many points you’ll need to redeem for a gift card from a major retailer. For example, if you get 2 points per dollar spent and a $50 gift card is 10,000 points, then you’re essentially getting 1% of your money back (albeit in the limited form of a gift card). You may get more or less value depending on the redemption options available and the option you choose.
Traditionally, flights have been one of the best uses of points in terms of value, however this has been turned on its head during the COVID-19 pandemic. Qantas is expected to resume international flights from next year while Virgin will remain focussed on the domestic market, but many will likely not feel comfortable flying at all for the foreseeable future. It’s therefore worthwhile researching the expiry of the points you’ll be earning if you intend on redeeming points for flights. The points from Australia’s two main frequent flyer programs do not expire as long as you earn or redeem points at least once during a set period, which is every 18 months for Qantas and every 24 months for Velocity.
One of the added perks of rewards credit cards are the range of different insurances that can be included. Travel insurance is one of the most common types of insurance offered, but the amount and type of coverage differs credit card to credit card. Be sure to check the terms and conditions before relying on it for a trip. However, if the coverage is adequate for your situation, you could potentially save hundreds of dollars compared to taking out travel insurance separately.
Other examples of insurances that may be offered include:
- Price protection – if you purchase something and its prices changes significantly within a set period, you may be able to receive a refund of the difference
- Refund protection – if a retailer refuses to refund your purchase, the credit card provider may provide a refund instead
- Purchase protection – if a recent purchase breaks or is stolen, you may be able to claim the cost of a replacement
- Smartphone screen – if you break your screen, you may be able to receive a refund of the cost of repair
- Extended warranty – the existing warranty provided by the product manufacturer is extended for a specified amount of time
In all cases, you’ll want to read the fine print to see the limits, conditions and excess for each insurance.
Credit card providers will typically offer exclusive discounts to cardholders, but these can vary considerably depending on a number of factors like the type of card you hold, how much money you spend and your location.
The discounts on offer can include things like credit back for spending at a local retailer or restaurant, discounts off hotels and flights, and free or discounted entry to attractions.
While you might not save a fortune all at once and some of the discounts might not be relevant to you, the savings can quickly add up, especially if you are able to plan a trip or a purchase around a particularly generous offer. But remember, don’t spend just for the sake of getting a discount!
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.