Quite simply, reward credit cards give you something back for spending on the card. The rewards on offer can vary from loyalty points to save you money in your favourite store to air miles to put towards your next holiday.
They’re great for full payers. And to really max out the rewards, put all your every day spending on your reward credit card rather than use a debit card to buy groceries, petrol and other day-to-day shopping.
But before you go any further, you need to think carefully about whether you can afford to use a reward credit card. Lenders and retailers don’t offer these rewards out of the goodness of their hearts. Instead they want to encourage you to spend more and if the amount you spend is high enough that you can’t afford to pay off your balance in full every month, you’ll get stung by a high interest rate.
In comparison to the average credit card interest rate of 17.32%, reward credit cards can charge rates as high as 50%. Therefore reward cards are only suitable for those of you who are absolutely certain you can pay off your credit card balance in full every single month. If you can’t, the interest you’ll have to pay will far outweigh any of the rewards you’ve received.
Loyalty scheme cards
Loyalty cards are issued by retailers and give you points every time you spend in that particular store. But they are not credit cards – they are just a way of encouraging you to come back to the store. They can’t be used to make a payment and you can often only redeem the points in the retailer’s own stores. In return, the retailer can track the sort of shopping and spending you do.
However, many loyalty cards can be used alongside their store-branded credit card so you could earn double or triple the number of points you’d earn from just using their loyalty card alone. For instance, if you pay for your groceries with a Sainsbury’s credit card and hand over your Nectar loyalty card at the till, you’ll earn points on both of them.
Many of the schemes also have a number of partners so you earn points every time you shop at these places too and can use them to get money off different purchases.
You can use your points to get money off your shopping by simply having your points deducted from the card. Other schemes send out money vouchers to use to pay for future purchases. In most cases you can only use them to get money off when shopping in the retailer’s own stores but this isn’t always the case.
Some allow you to convert them into discounts off holiday and travel. For example, the Tesco Clubcard scheme allows you to convert the points into discount vouchers for all sorts of other things such as cinema tickets and activities. And you usually get more spending power through these vouchers as the schemes multiply their face value by two to three times.
Some store cards come with loyalty schemes too. These act like credit cardswhich can only be used in the branches of the store handing them out. Be warned – store cards usually have interest rates of 30% and the credit limit is often quite low.
Reward credit cards
Some retailers also offer credit cards that have a reward scheme built into them and they also let you earn points as you spend. These points can later be redeemed instore. To assess whether these cards are any good, you need to think about how many points you earn in relation to how much you’re spending, as well as what these points are worth. Typically you will earn one point for every £1 you spend instore and one point for every £2 you spend elsewhere.
One hundred points may then equate to a £1 reward voucher which you can spend instore, so you’d need to spend a lot before you’ve even earned £1 back. The more you spend, the more beneficial these schemes will be.
It’s worth keeping an eye out for promotions that allow you to turbo-charge your points. For example, you might be offered 500 extra points for spending more than £30 on children’s clothes by a certain date. Just be sure you’re not buying items you don’t actually need.
Good for: Boosting your rewards. Reward credit cards often have special deals to reward your loyalty and you can usually earn points more quickly than via other cards.
Bad for: Choice. You are limited in where you shop and redeem the vouchers if you want to maximise the rewards you receive. So only go for one from your favourite store where you shop regularly.
Get free flights
Other reward credit cards allow you to earn points to spend on flights – great for those saving for a holiday. Again, assess exactly how many points you earn before deciding which card to go for. One of the biggest schemes is Avios which used to be known as Air Miles. These points can be collected through several credit cards and can be redeemed on flights with British Airways or for other things such as days out, hotels and car hire.
The number of Avios points you’ll earn is not the same across all the credit cards linked to the scheme, so do check first. Often you’ll get around one point per £1 spent but this isn’t always the case. It’s worth looking at any introductory offers as they often give you a bumper number of Avios points in the first month or so.
Watch out for: Be aware that some reward cards will charge you an annual fee – you need to assess whether you think this is worth it or not. You should also not be tempted to spend more on these cards than you can pay back each month.
Avios points expire after three years and you must collect, spend or purchase at least one Avios point during that time. Parents who can only go away in school holidays often complain that it’s almost impossible to use them during these peak times.
Several airlines have copied Avios by also offering miles towards free or discounted flights for spending with their credit card. They also usually boost the number of miles you earn simply for taking out the card and using it in the early days. The best ones are nearly always offered through American Express which isn’t accepted in as many places as MasterCard and Visa credit cards so don’t rely on having just this card with you in case you’re caught out.
There are also ‘frequent flyer’ programmes where you sign up to the airline’s club and earn miles every time you fly with them. Sometimes these can be built up in conjunction with the airline’s own brand credit card which is a good way to double your miles.
Alternatively, you can get flights, money off trips, free days out or discounted holidays by using reward vouchers with a variety of loyalty schemes. The conversion rate on vouchers is usually good for those looking for flights and cheap travel.
There are two ways to use voucher-based cards. Either choose a card that actually gives travel miles or one that lets you convert your points into money-off vouchers against a range of holidays.
Good for: Holidaymakers. You can often reach your target quite quickly.
Bad for: Choice. The number of flights offered using these schemes is limited and you may not be able to fly exactly when you want to.
Finally, some credit cards will also allow you to earn a percentage of the amount you spend as cashback. These can be handy if you simply want to have the cash rather than earn reward points in a particular store or for a particular flight. You can read more about these in our cashback credit cardssection.