Are credit card loyalty schemes worth your time?

David Jones' American Express cards surprisingly offer the best value.

a woman

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Financial data provider CANSTAR has conducted its yearly review of credit card rewards schemes and made some interesting, albeit not so surprising findings.

CANSTAR assessed three different annual spend levels — $12,000, $24,000 and $60,000 — and three different types of rewards — cash/vouchers, frequent flyer, and general rewards — across 128 different reward programs and 106 credit cards from 41 providers. CANSTAR rated each card using a star system, where 5 stars represents the best value.

An interesting, but perhaps not surprising, outcome from the study was the presence of American Express (NYSE: AXP) cards in the 5-star section of each category. Overall it found that AMEX cards, from a range of providers, gave the best rewards per dollar spent in each of the nine spend/reward combinations.

For the cash and voucher reward category, the David Jones (ASX: DJS) AMEX card provided the greatest benefit for all three spend categories. The card gave a cash return of $179.54 per year on a spend of $12,000, $350.10 per year on a spend of $24,000, and $861.75 per year on a spend of $60,000 (1.4% return). A close second were AMEX cards from ANZ (ASX: ANZ) and Westpac (ASX: WBC), and the Coles Mastercard.

Five-star cards in the frequent flyer category were again dominated by AMEX. A number of cards provided similar returns of 1 point per dollar spent, but favourable extra services and lower annual fees made the David Jones, ANZ, NAB (ASX: NAB), and Westpac AMEX cards the best value.

Similarly in the general rewards category, where points accrued can be used on travel, merchandise, vouchers and/or cash back, American Express cards again dominated. The best value cards were the David Jones, ANZ, Coles, and Westpac versions which offer competitive interest rates, good additional services and have no annual fee.

CANSTAR was quick to point out that while some cards provide excellent value for some individuals, most of the rewards are negated by interest if the card owner does not pay off the each month. With most cards charging between 10% and 20% interest rates, the cash return of the card can quickly be eroded. Additionally, making purchases with the prime purpose of accruing points is a poor choice, and consumers should beware of cards with huge recurring annual fees.

Foolish takeaway

David Jones may be struggling at present to attract customers into its department stores, but it currently offers the best credit card rewards scheme out there. If you spend over $12,000 on your credit card every year, consider moving away from the standard bank card onto a high-rewards card if the numbers stack up in your situation.

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Motley Fool contributor Andrew Mudie does not own shares in any of the companies mentioned.

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