There's been a seismic shift in the credit card landscape over the past few years, with every card issuer in Australia overhauling their points-earning plastic – impacting every credit card customer in the country as a result of the Reserve Bank’s adjustments to credit card interchange fees in 2017.
Despite these developments, credit cards can still be a rewarding way to collect frequent flyer points from everyday spending, but there are a few things worth keeping in mind when building your own portfolio of points-earning credit cards.
Choosing your frequent flyer program
When it comes to selecting which frequent flyer account to boost with your credit card spend, it makes sense to consider how you’re already earning points now.
For example, a business traveller regularly flying with Qantas and earning Qantas Points – or, with Virgin Australia and earning Velocity Points – may find the best value in having a credit card attached to that same frequent flyer program, allowing them to build on their existing and regularly-increasing balance of points to unlock their next flight even faster.
But it’s also wise to consider how those points can be spent before they’re earned, to avoid any disappointment when planning a holiday.
On the one hand, Qantas Frequent Flyer has significantly more airline partners than its rival Velocity, but in many cases, Qantas requires more points to book a comparable flight than Velocity, and is also known for levying hefty fees and surcharges on top of the genuine taxes when using points to fly.
Velocity isn’t immune from carrier charges – having hiked fees on Virgin Australia flights as recently as January 2020 – but doesn’t levy these when booking flights with most of its partners: the only exceptions being on Etihad (all flights), and on Delta between Sydney and Los Angeles.
That could make a bigger program like Qantas a good fit for those who don’t have defined travel plans, given its broader network of partners and flights on which those points can be spent, although smaller programs like Velocity may edge ahead when comparing specific itineraries.
An alternative path: bank rewards programs
When you’re not tied to one single frequent flyer program – or you’ll be spending enough on a points-earning credit to amass a meaningful number of points regardless – you could also consider a card that provides access to multiple frequent flyer programs.
Typically, this means first earning points in a bank’s own loyalty system, and later converting these into frequent flyer points with an airline of your choice.
This approach provides the best flexibility as you’re not locked to a single airline or alliance and don’t need to swap credit cards if those needs change, while also enabling savvier spenders to select which frequent flyer scheme to utilise each time there’s a flight to book.
With multiple frequent flyer programs to choose from, you may decide to convert some points to Velocity for one trip, but to instead ship them to the likes of Cathay Pacific Asia Miles or Singapore Airlines KrisFlyer for the next.
However, this comes with two downsides. Firstly, in Australia, cards that earn bank loyalty points usually provide fewer actual frequent flyer points per dollar spent when compared to ‘direct earning’ cards attached to a specific airline: the trade-off being that you retain the flexibility to send those points elsewhere if one airline adjusts the number of points needed to book a flight.
You also need to be mindful of the frequent flyer ‘conversion rates’ used in those bank loyalty programs, which not only affect how many frequent flyer points your bank stash is worth, but can also change over time, making the points you’ve already earned less valuable.
Card issuers usually provide notice of such changes, at least. In 2018, American Express gave cardholders five months’ notice when most of its Membership Rewards conversion rates were amended from 1:1 to a less generous 2:1, giving customers plenty of time to put their points to use, before they lost their value.
(With a 1:1 conversion rate, 100,000 bank points would be worth 100,000 airline frequent flyer points – but with a 2:1 rate, meaning every 2 bank points are worth 1 airline frequent flyer point, those same 100,000 bank points would fetch just 50,000 frequent flyer points.)
Got your points planned? Next, choose your card types
Knowing what kind of points you plan to earn makes it easier to find credit cards to match those goals.
A common approach by savvy frequent flyers is to have both an American Express card and a separate Mastercard or Visa: the aim being to use the AMEX card where it’s accepted to earn points at a higher rate, and the backup Mastercard or Visa everywhere else to continue earning some points.
This strategy makes the most sense when regularly shopping at places where American Express is accepted.
Some businesses may not accept AMEX – or, may levy a surcharge for its use, which may not be worth paying if Mastercard or Visa are accepted without charge, where points can still be earned.
Higher annual fees often mean higher value, but don’t overpay
Most points-earning credit cards in Australia come with annual fees attached: and generally, the more points that a card can earn, the higher the annual fee.
Some cards aim to offset these fees by bundling other perks such as airport lounge access, travel insurance, vouchers for travel bookings or even elite status with hotel chains, sweetening the deal even more so in the first year with a serving of bonus points for new customers who apply and spend a certain amount of money on the card.
However, some cards charge customers this fee without offering anything specific in return, other than the ability to continue earning frequent flyer points when spending.
In these circumstances, it may be possible to get more value out of a higher-fee card if travel perks come as part of the deal, or indeed, considering the merits of a no-fee card that still earns points, albeit likely not as many.
Take note of points tiering and capping
Whether you’re earning frequent flyer points directly with a single airline or making use of a bank’s rewards program, keep an eye out for restrictions known as points tiering and points capping.
Some cards may advertise a high earning rate per dollar spent, but after a certain amount has been charged to the card each month, may reduce this rate until the next monthly statement begins. This is known as points tiering.
As an example, some cards offer one Qantas Point per dollar spent up to $2,500 per month, after which, the rate is cut in half to 0.5 Qantas Points per dollar spent.
This means a customer spending $2,500 would earn 2,500 Qantas Points each month, but that a customer spending double that on the same card – $5,000 monthly – would earn just 3,750 Qantas Points, being 2,500 Qantas Points on the first $2,500 (1 point per $1), and 1,250 Qantas Points on the next $2,500 (0.5 points per $1).
Points tiering is usually preferable to points capping, which is instead a hard limit on the number of points a cardholder can earn every month or over a 12-month period, although some cards may apply both a points cap and a tiered earn rate.
There’s a silver lining to this, however – lower spenders may actually prefer a card which uses capping or tiering (or both), as the annual fees can often be lower, but the number of points earned per dollar spent on a lower-fee card could ultimately be the same as on a higher-fee card.
Compare, say, a card that earns one Qantas Point per $1 spent up to $2,500 per month as above, and a different card that earns one Qantas Point per $1 spent up to $7,500 per month.
A customer spending only $2,000 per month would in this case earn 2,000 Qantas Points from either card, making the annual fee and other inclusions more relevant comparisons than the points cap.