From The Australian, Wealth:
Ed Charles | August 22, 2007
THERE is a trade off on credit cards between ones that charge an annual fee and offer rewards, travel insurance and other benefits, and cards that cost little or nothing and are cheap to use abroad.
The equation isn’t an easy one to work out.
Harry Senlitonga, financial analyst with financial information company Cannex, says the company has analysed when it becomes worth upgrading to gold and platinum cards.
Cannex’s database contains 106 reward programs and 270 credit cards.
With the average annual fee of a platinum card being $217, reward points alone don’t necessarily justify the upgrade of a card.
But Cannex found frequent overseas travel can make these products worthwhile.
Many platinum cards, in addition to extensive travel insurance, offer free concierge services, which can be a soft benefit difficult to quantify in financial terms.
They can help book hotels, theatre tickets and restaurant tables when abroad, plushelp out with small emergencies, he says.
Many people will chase reward points when abroad, especially bonus deals that offer additional points with partners.
The reality is that even bonus points rarely pay for the transaction cost of using a card abroad. Senlitonga says that for points alone it isn’t worth using a credit card.
“Just as a guideline, when you spend around $15,000 on a card you may get rewards of close to $100,” he says.
“Some cards will give you less and some will give you more.”
Platinum cards pay a little better, accumulating $100.51 worth of points on average for every $10,000 spent.
Infochoice general manager Denis Orrock says points should not be the driving force for any transaction.
“But there are people who chase points and there is a very small proportion of the population that works the points system well,” Orrock says. “For the majority, it just becomes all too hard.”
There are plenty of discounts that make better sense than trying to earn extra reward points. For instance, many airlines offer discounts with car rental and hotel partners.
The reality is that $15,000 spent overseas on a reward points credit card will cost from 1.5 per cent to 3 per cent of the total transaction. The equation is a no-brainer.
When shopping abroad, the card that costs the least is the Wizard Clear Advantage Credit Card (see Put that trip on the cards).
“The Wizard Clear Advantage is targeted to someone who travels overseas. It has no foreign currency conversion fee. But it doesn’t come with a rewards program. There is a trade off,” Senlitonga says.
However, there is an advantage of using some of the premium gold and platinum rewards cards to pay for trips, as they offer a mix of purchase and travel insurance, Senlitonga says.
American Express and all four major banks offer good travel cover on their platinum and gold cards.
To invoke cover, the traveller must pay for either a whole ticket or a portion of a ticket on a card. For the American Express Platinum it is at least $100 of the trip spent on the card.
On ANZ, the transport must be pre-booked, Commonwealth 90 per cent of the ticket price paid, NAB Gold at least half of the pre-paid costs bought and Westpac wants the full fare paid.
Each card is similar in the levels of cover offered. The main difference are the ones that offer excess on rental vehicles or not.
Using these cards for travel insurance makes good sense as it costs nothing but the annual fee, and they do provide good levels of cover.
The American Express Platinum doesn’t provide vehicle rental excess cover.
But the ANZ Gold and Frequent Flyer Platinum offers $2000 of cover, NAB Gold $2000 of cover, the Commonwealth Gold and Platinum Cards $2250 and the Westpac Gold/Platinum card up to $5000 of cover.
Rental vehicle excess insurance can cost 16.80 ($27) a day in Europe with a company such as Europcar.
The cost of paying for $1000 of car rental, enough to hire a smart European car for a week, is $25 or 2.5 per cent of the total on an Australian credit card, making the transaction worthwhile.
The other aspect to look for is purchase protection insurance to cover any expensive souvenirs for theft or breakage.
“If you are going away to Turkey to buy that big rug, you want to buy it with a card that has pretty comprehensive purchase insurance,” Infochoice’s Orrock says.
“The big cards, like Amex, usually have pretty comprehensive insurance policies attached. Some of those cards will allow you to access some fairly comprehensive travel insurance as well.”
Orrock advises anybody going away for a significant amount of time to ask detailed questions about levels of insurance cover, and for extra security get answers in writing.
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