Credit cards are a great way to notch up frequent flyer points on the money you spend every day, but is it worth paying a credit card surcharge just to earn those points, or are you better off reverting to ‘savings or cheque’, or even cash, when it costs more to pay with plastic?
In short, that depends on how high the surcharge and how many points you’ll get in return – here’s where it makes sense, and where it doesn’t.
A blanket surcharge on all credit card payments
Let’s say you’re staying at an Australian hotel with a predictable 1.5% credit card surcharge, but where you can earn 1.5 Qantas or Virgin Australia Velocity points per dollar using an AMEX – such as ANZ Frequent Flyer Black, CBA Diamond, NAB Rewards Premium or Westpac Altitude Black.
You’re effectively then ‘buying’ frequent flyer points for one cent each, and even when redeeming them for a Sydney-Melbourne flight, the numbers are firmly in your favour to pay the surcharge.
On that short hop with Qantas, you can squeeze around 1.61 cents of value per point in economy or 4.49 cents per point in business class, while with Virgin Australia it’s a slightly-higher 1.85c/point down the back and 4.91c/point up the front.
In short: You’d be paying 1.5c in the dollar to earn points with a total potential value of around 6.73c with Qantas or 7.36c with Virgin Australia, which far exceeds the cost of earning those points.
Credit cards with lower earning rates may not present the same value, as those that amass only 0.5 points per dollar logically have a ‘cost per point’ of 3c when a 1.5% surcharge is effected, so unless you’re redeeming points for business class flights, best switch to EFTPOS.
3% AMEX surcharge, none for Visa or MasterCard
If you’re a ‘points pro’, you’ll likely be armed with one those AMEX cards above to earn 1.5 points per dollar wherever it’s accepted, and have that paired with a ‘backup’ Visa or MasterCard for at least one point per dollar everywhere else.
When a merchant accepts both cards but charges an extra 3% for American Express, every extra point earned over and above what your Visa or MasterCard could deliver is really costing you 6c a pop.
In this case, paying the 3% surcharge only makes sense if you have a specific use for your points in mind which would squeeze more than six cents per point in value, or if you’re getting close to having enough points for your desired flight or upgrade and need that little bit extra to get over the line.
Also keep in mind that what you’re buying could in fact be available from a competing business that may have no American Express surcharge, in which case be prepared to walk and buy that item elsewhere.
Different surcharge rates for different card types
Vodafone’s credit card surcharges, for example, vary depending on which card you use: there’s a 1.1% fee for Visa and MasterCard payments and a higher 2.37% fee for American Express.
Assuming you earn one point per dollar on Visa or MasterCard payments, that’s 1.1c per point earned. With an AMEX that nets 1.5 points on the same spend, you’re looking at a higher 1.58c per point.
Rydges Hotels in Australia provide a similar example, with a 1.5% fee for Visa and MasterCard transactions and a 3.5% surcharge for American Express.
There your points will cost 1.5c each on the same Visa or MasterCard used with Vodafone, or 2.33c per point with a similar AMEX card.
The verdict: Unless you’re using points to fly on economy routes where ‘real’ fares are already relatively cheap, there’s merit in taking either road in this case.
If your opportunities to earn frequent flyer points are relatively limited, you may wish to pay the higher surcharge to squeeze the most points from your transactions – but if your frequent flyer balance already sits in the six or seven figures, the cash saving might bring you the best personal value.
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