The Credit Card Loyalty Scheme Rip-Off

Financial experts warned UK credit cardholders today that credit cards, which offer loyalty schemes, may not be that great.

According to online comparison site MoneySaving Expert.com, credit card issuers on average earn 1% from retailers for every purchase made using a credit card. However, card companies failed to pass this income onto their customers.

The website, which looked at 80 reward schemes as part of their research, has launched an online calculator that will help consumers asses loyalty schemes.

Some cards, such as Nectar for example, pay only 0.54p for every point earned. Other poor performers include Airmiles at 7.9p and Tesco clubcard at 4p (only if points are redeemed against items from the Tesco Clubcard Deals Brochure.

Surprisingly, one of the card’s that offered one of the best loyalty schemes was the BAA Worldcard, which pays an impressive £7.95 for every £100 spent on the card. Another top earner was the GM card, which offered customers the opportunity to earn a £2,500 reduction off the price of a new car.

While most cards fail to offer customers a decent cash back rate, some do offer above average. American Express Platinum card offers a cash back rate of 2% on spending over £7,500. Although the card would have to be used in place of cash in order to earn the cash back rate, failing to clear the card’s balance each month would result in the interest charged on the balance wiping out any cash back earned.

Financial experts advise customers to clear their credit card balance each month in order to enjoy the benefits of the card’s loyalty scheme.

Creator of MoneySavingExpert.com, Martin Lewis, said: “ Only ever choose a card based on its reward scheme if you always pay the debt off in full each month, to avoid interest payments.

“ Those who do pay off in full each month should spend everything on the cards, forgetting debit cards and cash, as they don’t pay you to spend.”

The website recommended that those who spend less than £7,500 a year on credit cards, consider the Egg Money and Conran cards as they offer 1% cash back on spending up to £2,000.

Alisdair Milton
24th May 2006

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