Flight test for credit cards

Banking researcher Canstar has crunched the numbers on credit card flight rewards programmes, and found that earning a return flight from Auckland to Sydney means putting a minimum $36,200 on the plastic.

But not all credit cards rewards schemes are created equal, and in some cases the spending necessary to get that return flight is well over $130,000.

Naturally, it takes less to get a return flight to Wellington, but even there a cardholder needs to spend between $10,533.33 and $49,375.

On any of the rewards cards on the market, earning a return flight to Los Angeles takes fairly heroic shopping, starting at $138,732.

As with domestic flights, the range is large. On several cards it would take more than half a million dollars to earn enough rewards points for a return ticket.

New Zealanders love these rewards schemes, and Canstar's research shows that two-thirds of the credit cards on the market offer them, but the range of returns indicates that getting the best value involves shopping around.

The banking research house provides star ratings (five stars being the highest) on banking products, aimed at giving the public a starting point to shop around for their financial products.

There is no reason why a credit card has to be supplied by the same bank that looks after the holder's transaction banking and mortgage, but anecdotal evidence suggests that not enough people shop around to create a truly competitive market.

Separating these facilities can be wise on other fronts as well: terms and conditions allow banks to move money between accounts without the account holder's permission in some circumstances.

When it comes to rewards schemes, the trick is finding the rewards programme that delivers the best outcome. Broadly speaking, rewards schemes involve redeeming points for flights, goods or cash equivalents such as vouchers or charitable gifts.

Once you know what kind of rewards you want, it becomes easier to work out the scheme that offers the best value, and although that is relatively easy for flights and cash equivalents, it is harder when it comes to redeeming goods.

Rewards schemes do not make sense for everyone, however.

"Points accrued on your rewards card can be powerful for some but poison for others," said Derek Bonnar of Canstar.

The idea of getting something for nothing is highly attractive, and for some, like those running all their spending across their cards, especially those running their mortgage through their cards, it can provide some very welcome rewards.

"You don't need to be a mathematical genius to understand that the more you use your credit card the more rewards points you will accumulate," Bonnar said.

"The catch is that you've got to pay your balance in full each month, otherwise the card's annual fee plus interest will erode any value you are getting out of the deal."

In such cases, it might be worth looking at switching to a low interest credit card until the debts can be paid off.

"If you are a big spender or an everyday spender who uses the card constantly to accumulate points, you will benefit from worthwhile rewards," Bonnar said.

"However, if you spend under $24,000 a year, or can't pay off your balance every month, chasing high flying rewards may be futile."

A major trap many consumers fall into is needlessly spending more simply to earn added points.

Clever ways to maximise points earned is to look out for additional rewards benefits such as specials, enhanced earn rates or bonus points for shopping with a card's business partners.

Sunday Star Times