"A huge wake-up call": Big banks' $24,000 rip-off on credit card rewards
If you have a credit card with any of the Big Four banks, you will get just $12 of value out of your rewards program if you spend $24,000 in a year.
New analysis by financial comparison website Mozo shows the average net value of rewards credit cards offered by the major banks has fallen 96 per cent in the past two years, following the Reserve Bank’s interchange fee regulation.
In 2016, a customer spending $24,000 a year received an average of $284 in rewards. But today, you would need to spend $60,000 to receive the same value.
“If you spend less than that the figure’s going to be worse, if you spend more it’s not going to be so bad, so it really depends,” Mozo product data manager Peter Marshall said.
“The main point is it’s more important than ever for people to know what value they’re getting out of their rewards versus how much they’re paying to keep that card, and reassess whether they’re getting the benefits that justify it.”
Mozo’s calculations were based on typical credit card spend of $2000 a month, per RBA data, with introductory bonus points and annual fee waiver offers excluded. The net value was derived from the rewards value minus the annual fee.
Last year, the RBA introduced changes that reduced the fees banks could charge each other to process credit card transactions. As those fees were used to fund credit card rewards programs, the rewards program has suffered.
“It was basically a nice profit margin that was built into the system for them,” Mr Marshall said. “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.”
Out of the Big Four banks, Commonwealth Bank cardholders were the worst off, with a customer on the typical spend now $58 in the red under the changes. Westpac customers were the winners with a net value of $48.
“Our results are a huge wake-up call for cardholders to start questioning whether their rewards card is worth it after all,” Mozo director Kirsty Lamont said in a statement.
“They are now having to spend two-and-a-half times more to earn the same amount of net rewards value they would have received two years ago on the typical annual spend. No longer a card exclusively for big spenders, [American Express] cards generally offer better value for the typical spender.”