Assessing credit card sign-up deals

Credit card sign-up deals can look tempting and can be good value – if you get the right one.

If you’ve ever looked online for a credit card then you’ve no doubt come across adverts that tell you to “sign up now and get one hundred million FREE reward points”. Perhaps the number of points weren’t that many, but you get the idea.

These credit card sign-up offers are utilised by banks and credit providers to attract new customers in the uber-competitive credit card market.

These offers are meant to be a point of difference, luring potential clients into thinking ‘why get card A when I can get card B, which gives me something extra for free?’ Some cards might offer just the one special deal while others might have multiple deals that include:

• bonus rewards and frequent flyer points
• discounted or waived annual fees for the first year
• cash-back offers (a percentage of each purchase goes back into your account)
• low-interest or no-interest rates for a limited time.

Credit card sign-up offers tend to be a point of contention among credit card aficionados. There are those who love to take advantage of such offers and encourage others to do the same, while some argue that they are nothing more than a marketing gimmick designed to lure them into their credit card web.

As we explain below, the worthiness of credit card sign-up deals depends on what’s offered and the type of credit card user you are.

Credit card deals for the points
We’ll start with this one as it’s the most common sign-up offer you’ll come across.

According to a Reserve Bank of Australia (RBA) discussion paper on Consumer Credit Card Choice, almost one in 10 cardholders say sign-up deals (points or cash-back offers) are the most important factor in choosing their main credit card. Reward points, in general, are the second most common choice influencer, with 30 per cent of cardholders listing it as a relevant factor.

To give you an idea of what you can get from certain sign-up offers, some have been offering as many as 400,000 points with certain credit cards, while several more are offering upwards of 100,000.

You don’t automatically get these points, though. You might need to satisfy a few requirements first …

Will you reach the minimum expenditure?
Straight away, you can see that these reward programs aren’t always what they seem, although the providers do list the requirements quite clearly. A common requirement is to reach a minimum expenditure before unlocking the points.

For example, you might be able to earn 100,000 points by signing up to a credit card, but to do so, you may have to spend $1000 or more each month for three months. Many cards will have similar requirements to this, often making you spend a few thousand dollars within the first few months, which is definitely not unreasonable for people who spend a lot on their credit cards.

You have to consider whether you will spend that much. And if you do spend that much, will you actually be able to pay it back before you start accruing interest? There’s no point in receiving bonus points if you end up losing money, which leads us to another consideration …

Are the points gained actually worth it?
The RBA discussion paper reported that only 40 per cent of all cardholders actually make a net financial benefit from their credit card, and a lot of that is due to having reward cards that don’t suit their profile. Also, these points are worthless if you don’t use them. According to an American Express survey in 2016, 27 per cent of Aussie cardholders with reward points hadn’t used them for anything in two years.

Mozo found in 2018 that a big four credit card holder would get just $12 of rewards value by spending $24,000 a year, which is a 96 per cent (yes, 96 per cent!) decrease on $284 of the value of rewards in 2016. This is mainly due to new interchange fee regulations introduced in 2017 that slashed the maximum amount banks could charge each other from merchant services to 0.80 per cent of the transaction. In turn, this reduced the amount that certain banks could allocate to reward programs.

So the reward points offer might not actually be worth it, especially if you end up having to spend more than you otherwise would on your normal card or if you don’t end up using them for anything. The points can also be cancelled out entirely by the annual fee, which we’ll cover below …

Remember: each reward program has differently valued points. What this means is that one Qantas point can be worth a lot more than one bank-branded rewards point. A study by consumer advocate CHOICE found frequent flyer points (e.g. Qantas and Virgin Velocity) represented better value than individual reward programs, worth about one cent each.

On that generalisation, earning 100,000 Velocity Frequent Flyer points is roughly the equivalent of $1000. These points tend to be worth a bit more for such things as flights and seat upgrades (worth up to six cents), while gift cards and products can be worth as little as half a cent per point.

With 100,000 points, you could potentially get:

• Qantas: Sydney/Melbourne/Brisbane to Los Angeles in Qantas Economy (return flights at 96,000 points)
• Virgin: Business class flights to Los Angeles from Sydney/Melbourne/Brisbane (one-way at 95,000 points).

Consider the annual fee
What can really ruin a good-looking sign-up bonus is a high annual fee, or even a fairly low annual fee that still costs more than the benefits of the points. Many reward and frequent flyer cards come with high annual fees precisely because of their points program or the special perks on offer, so you’ll need to be a big spender to accrue enough points to cover the fee.

If you don’t get at least $200 worth of rewards from your spending on a card with an annual fee of $200, you’ll have made a loss on that card. The higher the annual fee, the more your reward points need to be worth.

Low-interest or no interest offers
Another type of offer you might see is the lowered introductory interest rate, which can sometimes be zero per cent for a limited period of time. For example, you might get a card that has a 19.99 per cent interest rate on purchases, but an introductory rate of zero per cent for the first 15 months. These cards can be very useful when used properly, as you can really cut down on your interest payments. But, normally, there are terms and conditions:

• You might need to apply before a certain date.
• It can exclude cash advances.
• The interest rate can revert to a much higher rate once the promotional period is over.

It’s important to keep track of how many months are left on the promotional period so you don’t get caught out. Any outstanding balance at the end will be charged at the revert rate, so you’ll want to be prepared.

Zero per cent balance transfer offers
Technically, these might not be a sign-up offer, but zero per cent balance transfers are available on many different credit cards to help you pay off your existing debts without being charged interest. This is a competitive space due to the mountain of debt the average Australian has on his or her credit card, so you can find zero per cent balance transfers with periods as long as 26 months.

‘Credit card churning’ – a way to make the most of sign-up deals?
There’s a whole subculture of credit card nerds out there (see r/churning on Reddit) who take advantage of these promotional offers by signing up to the best ones, accumulating the points, either selling or using them and then cancelling the card. Rinse, repeat, and make money.

While we’re not encouraging this method, it usually goes something like this:

1. Check your credit score online: a good credit rating will increase your chances of being approved, but applying for and being rejected by too many credit cards in a short space of time can harm your score.
2. Look for the best deals: a combination of high points offers, low annual fees and manageable spending requirements is ideal. Also make sure you read the terms and conditions of the deal.
3. Apply for the card: this can usually be done online, and you’ll probably need proof of a relatively high income for some of these reward cards.
4. Make sure you meet the spending requirements: this part is important because you don’t want to pick a card with spending requirements that are too much for you. If this isn’t an issue, putting your day to day expenses on the card (and paying it off in full!) is a good way to hit your target. If you’re short then buy some gift cards for your favourite shops to use later.
5. Wait for the points: how long this takes will again depend on the card, but it can take up to a few months.
6. Spend them: how you spend them is up to you. Some people sell their points online but we won’t recommend this because:

• There’s a host of issues with selling non-physical points online, one of which is theft.
• Doing so can violate the terms and conditions of your card, so you’ll be in trouble if you get caught.

1. Cancel the card and go back to step 1. If you like the card, you can try asking them to drop the fee or give you some more delicious points!

There’s nothing really wrong with this strategy – the offers are there to attract new customers, and there are lots of them, so you don’t have to feel bad about taking advantage of them. You just have to worry about potentially damaging your credit rating, losing money to deals that aren’t up to scratch and losing time researching and applying for cards.

These offers are usually only available for new customers, so if you’ve recently had a card with a provider, you won’t be able to take advantage of some of their deals.

My two cents’ worth
Sign-up bonuses from credit cards can be nice to receive, as long as the credit card is suitable for you and your lifestyle.

If you’re a shrewd spender who spends $1000–$2000 a month using a credit card, then a high-flying card with a big spending requirement and a bonus offer of 100,000 points or more might not work in your favour, especially if it comes with a high annual fee, too. For big spenders, deals offering relatively few points are probably not worth the time, either.

No sign-up deal is worth the trouble if it leads you into credit card debt. The debt created by spending the $3000–$4000 needed to earn those points can cast a bigger shadow than the airplane you wanted to be on, so you need to be sure of your capacity to take advantage of these deals sensibly. Always be aware of:

• the interest you’ll be charged on purchases
• whether you can comfortably reach the spending requirement (and afford to pay it back)
• the annual fee compared to the value of the points offered.

And do make sure you actually use those points.

William Jolly is a finance journalist, formerly at Canstar and now at savings.com.au. Much of his work is centred on helping to improve the financial literacy of Australians and provide them with resources on how to save more money in their everyday lives.

Do you make the most of any rewards system associated with your credit card?

This is an edited version of an article that first appeared on savings.com.au

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