Wednesday, 23 May 2012

Credit Card Rewards Programs: Always take the gift card

I was recently speaking to an acquaintance that works for a rewards programme of a major credit card provider and he made an interesting statement.  He said that you should always take the store gift card as your credit card reward and never ever take the cash or products

I confess that I had never really thought about it too much.  I had two rewards programmes.  One with a credit card that I wanted anyway (that happened to come with a rewards programme) and the other with a corporate Amex card which my employer gave to me where I was allowed to keep the rewards points.  However after he made that statement (and me figuring he knew what he was talking about) I decided to look into it and it turns out that he was absolutely right.

In terms of efficiency of rewards points (generally) speaking - you get the best 'value for points' in the following order:
  1. Gift cards for Retail / Travel stores
  2. Gift cards relating to staples (e.g. groceries / fuel)
  3. Products mailed to your door
  4. Cash
I think everyone realises that cash is a pretty crumby deal however I had never realised the extent to which the products are over-priced in terms of cash-equivalent rewards points.  For example with my Commonwealth Bank Rewards Card I get the following offers:
  • Cash: 200 points = $1
  • Fuel / groceries; 185 points = $1
  • Retail store: 174 points = $1  (164 points even you order more than $500 worth)
It should be noted that for the retail stores you get a scale benefit.  If you are ordering gift cards which are worth more than $500 then the price drops even further making them by far the best value.  If you then do the simple exercise of price matching some of the goods you can buy the results are quite astounding

Example 1: Apple iPhone 4 16 GB
  • Rewards program cost = 177,600 points. 
  • This is the equivalent of 177,600 / 164 = $1,083 in retail store cards
  • The retail price for this phone in Australia is about $600 - $700 depending on where you buy it from
Example 2: Panasonic Lumix DMC-SZ1 Digital Camera
  • Rewards program cost = 50,100 points
  • This is the equivalent of 50,100 / 164 = $305
  • Retail price is about $200 - $250
The mark up on these products has to be seen to be believed.  I tried this on both my Amex rewards as well as my Commonwealth Bank rewards and the outcome was the same (Amex offered better deals for grocery cards vs retail so look to see what your provider offers). 

The best strategy therefore is to buy the cards that offer you the best value and either buy other things you need with them and use cash to buy the item that you originally wanted OR exchange them with others who want them for cash.

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