I posted a poll on the Somersoft forum asking about what rewards programs people prefer.
In the discussion that followed, someone wrote:
Sometimes we offer to pay cash for larger things, and get a discount rather than them taking the card
… to which I responded:
And that’s the key really – when you take into account the charges added to cover credit card costs for the retailer – especially for larger ticket items – plus the costs of maintaining the rewards program, and the hidden costs in redeeming some of these rewards, it’s often better to just negotiate a cash discount – you can come out significantly better off. Again, it all comes down to cost-benefit analysis.
It’s interesting – now there are 3 camps of rewards programs users.
There are the frequent flyers (like me) who will actually make use of frequent flyer miles and so just want a simple rewards program which maximises the number of miles you can earn (Qantas ANZ VISA was good in that it automatically transferred points to your FF account at the end of each month – no effort on your part). Some of the people in this category will sometimes spend large amounts of money on their credit cards just to try and maximise their points for their next flight – not really taking into account the cost of doing so – especially if there are discount tickets to be had if you are a little more organised (but less organised than you need to be to get the FF flights that you want – it’s an artform !!)
Then there are those who don’t fly much or don’t think they will ever get enough points for a flight, who go for the small ticket rewards – the vouchers and cheap digital cameras and such. These people can sometimes fail to do their cost-benefit analysis on things such as the rewards program fees, and may find that they actually spend more on fees and loss of discounts that they may have been better off without the rewards – especially if they had a no-frills credit card without the higher interest rates.
Finally there are those who just think the whole rewards thing is a load of baloney and you are much better off shopping around, and negotiating a better price to pay cash. These bargain hunters are most likely going to be the best off financially in general I suspect.
My spending patterns are still such that I think I can actually get something out of a frequent flyer linked credit or charge card, so I’m still intending to go that way – but I really think I will have to start looking at the cash option for those larger items – especially where more and more retailers are charging 2% or so extra for accepting credit cards.