If you repay the balance on your credit card in full every month then you could profit from your spending with a reward credit card.
Many of us love the idea of a freebie and reward credit cards are attractive for this very reason. But they don't offer the best deal when it comes to competitive interest rates on debt. You only need to take a very quick glance at the APR figures to prove it. The absolute cheapest one I can find is the BMW Card at 9.9%, which isn't too bad, but most are more like 15% or 16% which is a far cry from the best out there.
But if you're one of those sensible Fools who pay off their credit card balance in full every month (without fail!) then a reward credit card could offer you a genuine bonus when APRs aren't so crucial.
You just have to be careful that your card doesn't encourage you to spend more than you normally would just to earn a few extra loyalty points. The credit card companies would love you for that but this is a false economy and should be avoided. If you can trust yourself not to go crazy you could earn a whole host of incentives.
The benefits vary considerably from one reward credit card to another and it may take you some time wading through a card company's website or promotional literature to find out everything that's on offer. Some of the benefits can be pretty obscure but they may be ideal for you.
If there are particular stores you shop at regularly, it may be worth your while finding a card that'll give you loyalty points when spending at your favourites. If you're going to be purchasing items from these retailers anyway why not earn yourself a bonus at the same time. The Nectar and Amazon credit cards are good examples of this.
A fairly common reward scheme might give 1 point for every £1 you spend on the credit card. Cards such as Goldfish and MBNA Rewards work like this. If you spend £1,000 on your card you could receive rewards points worth say £5 (this is only an estimate. Your reward points may be more or less valuable).
If you spend £2,000 every month this could amount to rewards worth around £120 by the end of the year which isn't bad for doing absolutely nothing other than spending! And as long as you pay off your balance every month you'll sidestep the higher APR.
Bear in mind that some schemes are more generous than others. I've included a selection of ten reward credit cards below to show you what's available at the moment, but there are other alternatives out there for you to choose if you prefer:
Reward Credit Card Selection
Credit Card Company | Typical APR(variable) | Loyalty Scheme Details |
|---|---|---|
15.9% | 1 loyalty point for every £1 spent at Amazon, 0.5 points for £1 spent elsewhere. £15 Amazon.co.uk gift certificate for every 1,500 points and when first purchase is made | |
14.9% | 5.9% purchase rate on public transport (excludes Transport for London) and offers/discounts including; up to £50 off British Gas home insulation, 10% off Halfords cycles and many more | |
14.9% | 0% interest on football season tickets, reward points at selected retailers | |
16.9% | Return flight on first purchase within 90 days. Additional return flight if you spend £5K or more each year | |
17.9% | BA Miles | |
17.9% | 1 point for every £1 spent. Redeem points online for high street vouchers, travel, leisure, home and electrical products. | |
15.9% | 1 point for every £1 spent. Points can be redeemed for wine, holidays, flights or cash. 2,000 bonus points credited if purchase made within the first 90 days | |
31.5% | Includes annual multi-trip travel insurance, a concierge service and an airport executive lounge priority pass. | |
15.9% | 5,000 Nectar bonus points when you first use the Card and double points for the first 3 months. 1 point for almost every £1 you spend and 2 points for almost every £1 spent on the Nectar Credit Card at Nectar participating sponsors | |
15.9% | Instant discounts provided on holidays, wine, music, DVDs, car insurance etc when paying with the Virgin Money Card |
Reward credit cards are generally a good idea if your spending patterns don't change as a result and you make a point of repaying your monthly balance in full. But loyalty schemes can be restrictive and it is usually that case that you can only collect and spend your reward points at specific places or receive discounts off certain products and services.
A more flexible alternative is provided by cashback credit cards which can earn you a rebate of up to 1.5% of the value of your purchases. Some Cashback credit cards also feature generous introductory offers where the rebate could be as high as 4% for a limited period. But as with reward cards, don't use your cashback card for balance transfers.