How loyal should you be to loyalty programs?

Oily raggers love something for nothing. It’s no surprise then that they should be tempted by the various loyalty programs on offer. But how good are these programs? Are they really something for nothing or is there a catch?

Most credit-card companies now offer some kind of “reward” scheme to encourage credit card use. A reader writes, “I have received heaps of stuff using my credit card to accumulate purchasing points. By simply paying my property rates using my credit card I accumulated enough points to ‘buy’ a free telephone (which means I did not have to hire one from the telephone company). I now pay as many expenses as I can using my credit card.”

BJ from Whangarei says, “I pay accounts using my credit card then transfer the exact same amount from the trading account just before it is due. That way I get credit (at least one month) and Reward points. I have earned a free trip to Aussie just by paying our rates account by credit card!”

All this talk of something for nothing got the Oily Rag Research Department staff out doing the sums on credit card rewards. They found as a general rule every $100 worth of credit-card spending earned between 73 and 85 cents of rewards in spending power. They also found that the most efficient way to spend the accumulated points was to redeem them for high-denomination ($100) vouchers.

In other words, you need to do a lot of credit card spending to earn a decent amount of rewards. We also reckon you need to have a pretty good system in place so you don’t miss making the payments on time. Any late payment interest fees would soon wipe out any reward points achieved.

However, the economics of flushing expenses through credits cards to gain reward points may be about to change. A recent settlement between Visa and the Commerce Commission is likely to see retailers passing credit card company charges directly onto those paying by credit card. At the moment they are absorbing these charges, which may be between 1% and 5% of the retail value.

Credit card companies are not the only ones using rewards to attract business. A reader from Temuka writes, “Although I am not a fan of reward schemes (can’t be bothered, really), our daughter is. She has given us (and the rest of the family!) a Fly Buys card each. The cards are linked to her account so when we buy stuff she gets the rewards! She even gets rewards when we pay our monthly telephone account (by direct payment). Last I heard she was on holiday in Australia!”

For our money we reckon getting rewards for spending is going about things the wrong way. The best rewards are to be gained by not spending, or when you do spend, by focusing on getting the very best deal.

If that very best deal happens to have reward points attached, then even better, but gaining rewards should be an after-thought, and not something that influences where you shop or what you buy.

For hundreds of penny-pinching tips, more old-time favourites and other titillating tales of penny pinching gone wrong please contact us at www.oilyrag.co.nz.

Frank and Muriel Newman are the authors of Living off the Smell of an Oily Rag in NZ. Readers can submit their oily rag tips on-line at www.oilyrag.co.nz. The book is available from bookstores and online at www.oilyrag.co.nz.

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