How Rewards Credit Cards Are Devaluing and How This Could Affect You

Did you know that your rewards credit card could be seriously losing value? Since there were some changes to the way the Reserve Bank of Australia (RBA) caps certain fees back in 2017, credit providers have been responding in different ways, primarily devaluing their rewards membership programs.

A cap has been put on the fee between the merchant's bank and the customer's (your) bank; this is known as the interchange fee. And since interchange fees were reduced, the average net* value of rewards credit cards has dropped by a massive 96 per cent, according to News.com.au.

Lending comparison site Mozo said, "It [interchange fees] was basically a nice profit margin that was built into the system for them," said Mozo Product Data Manager Peter Marshall. "That's been capped so it's reduced the income stream. We've seen a range of responses to that - there's reduced points earning, lower caps on how much you can earn, but also higher annual fees on some cards".

For the Latitude Infinity Rewards card, its points redemption rate of 1%^ means you would need to spend $5,000 to reach 5,000 rewards points, enough to get you a $50 gift card from a number of coveted retailers including David Jones, JB Hi-Fi and iTunes. To put that into perspective, a CommBank Rewards credit card requires 11,300 points and a NAB Rewards Classic Card 9,620 points, spending $11,300 and $12,826 respectively to claim a gift card of the same $50 value.

How our rewards compare to the big 4

According to News.com.au Finance Editor Frank Chung, "A Big Four credit card holder will get just $12 of value out of their rewards program if they spend $24,000 in a year, with many customers unlikely to be getting enough bang for their buck to justify the annual fee."

To compare, of the 21 rewards credit cards in Finder's comparison table, 19 of these (as of 18/02/19) have an annual fee of approximately $60-306 more than the Latitude Infinity Rewards card's $69 annual fee. So even if you have a discount over the first year (in which some of these are already more than the Latitude Infinity Rewards annual fee), you'll soon be stung with the full, hefty annual fee.

Chung continued, commenting that rewards programs are now, "virtually worthless", while Mozo Director Kirsty Lamont said, "The take out for customers is that it's likely your rewards card is much less rewarding than it was 12 months ago. In some cases you could actually be paying more in annual fees than you earn in rewards each year".

To justify Latitude Infinity Rewards card's annual fee of $69 (considerably low within its field), you'd need to spend $7,000 over the entire year, mostly on everyday items, to claim back, for example, a $70 David Jones or Myer gift card.

It's worth checking your spending habits against the changes to see which rewards card is right for you, or even if a rewards credit card is worth the effort.

Find out more about the Latitude Infinity Rewards card features here.

^Does not include cash transactions, cash equivalent transactions, extended interest free promotional purchases, balance transfers, insurance premiums and interest, fees and charges.

*As defined by Mozo.com.au on News.com.au, 'Net' value is the rewards value minus the annual fee. It was derived by calculating how many points could be earned based on the typical spend, then calculating how many Sydney to Melbourne return flights could be redeemed.