Cashback vs. Points: Which Rewards System is Best?
In New Zealand’s competitive credit card market, consumers are often faced with a choice between cashback and points-based reward systems. Both options offer enticing benefits, but determining which is best depends on your spending habits, lifestyle, and financial goals. This article will explore the pros and cons of each system, helping Kiwi consumers make an informed decision.
Understanding Cashback Rewards
Cashback rewards are straightforward: you receive a percentage of your spending back as cash. For example, the ANZ CashBack Visa offers $1 cashback for every $150 spent on eligible purchases. This simplicity is one of the main advantages of cashback systems.
Pros of Cashback:
- Simplicity: Easy to understand and calculate the value of rewards.
- Flexibility: Cash can be used for anything, not limited to specific redemption options.
- Immediate Value: Often credited directly to your account annually or monthly.
Cons of Cashback:
- Lower Perceived Value: Typically offer lower returns compared to some points systems.
- Spending Thresholds: May require reaching certain spending levels to maximise benefits.
Understanding Points-Based Rewards
Points systems, such as Airpoints or Flybuys, allow cardholders to accumulate points for purchases, which can then be redeemed for various rewards including flights, merchandise, or gift cards.
Pros of Points:
- Potential for Higher Value: When used strategically, points can offer more value than cashback.
- Variety of Redemption Options: From travel to merchandise, points offer diverse choices.
- Bonus Point Opportunities: Many cards offer sign-up bonuses or promotional periods with increased earning rates.
Cons of Points:
- Complexity: Understanding point values and redemption options can be confusing.
- Expiry and Devaluation: Points may expire or lose value over time.
- Limited Flexibility: Redemption options are restricted to partner businesses or specific categories.
Comparing the Two Systems
To illustrate the difference, let’s consider a scenario using data from New Zealand credit cards:
Suppose you spend $24,000 annually on your credit card:
- Cashback Example (ANZ CashBack Visa):
- Earn rate: $1 per $150 spent
- Annual cashback: $160
- Annual fee: $40
- Net benefit: $120 cash
- Points Example (ASB Visa Rewards):
- Earn rate: 1 True Rewards Dollar per $150 spent
- Annual points earned: 160 True Rewards Dollars
- Annual fee: $40
- Net benefit: 120 True Rewards Dollars (redeemable at partner stores)
While the numerical value appears similar, the key difference lies in how you can use the rewards. Cash offers ultimate flexibility, while points might provide higher value if redeemed strategically.
Factors to Consider
When choosing between cashback and points, consider:
- Spending Habits: High spenders may benefit more from points systems with tiered rewards.
- Redemption Preferences: If you travel frequently, a points system tied to airlines might be more beneficial.
- Annual Fees: Ensure the rewards outweigh any associated fees. For example, you’d need to spend at least $6,000 annually on the ANZ CashBack Visa to break even on the $40 annual fee.
- Interest Rates: Rewards cards often have higher interest rates. If you carry a balance, the interest will likely negate any rewards earned.
The New Zealand Context
In the Kiwi market, some unique factors come into play:
- Airpoints Dominance: Given Air New Zealand’s monopoly on domestic routes, Airpoints can be particularly valuable for frequent domestic travellers.
- Limited Market: With a smaller population, New Zealand credit card rewards may not be as lucrative as those in larger markets like the US or UK.
- Flybuys Integration: The integration of Flybuys with New World’s Clubcard offers an interesting hybrid model, allowing shoppers to choose between points or Airpoints Dollars.
Expert Opinions
Christopher Walsh, founder of MoneyHub, cautions that many credit card rewards are “high on fees and low on value”. He advises that rewards cards only work if you can repay 100% of the balance each month, emphasising that the best credit card for many New Zealanders might be no credit card at all.
There’s no one-size-fits-all answer to whether cashback or points are better. For those who prefer simplicity and flexibility, cashback systems like the ANZ CashBack Visa might be the best choice. For frequent travellers or those who enjoy maximising value through strategic redemptions, a points system could be more rewarding.
Ultimately, the best system is one that aligns with your spending habits and lifestyle without encouraging overspending. Remember, the value of any rewards system is quickly negated if you’re paying interest on your balance.
Before choosing a rewards credit card, carefully calculate the potential benefits against the costs, considering your typical annual spend and ability to pay off the balance in full each month. And don’t forget to explore other options – sometimes, a low-interest card or no credit card at all might be the most financially prudent choice for your situation.