Credit card rewards are back – but are they any good?

A once prominent feature of the Irish consumer finance landscape, credit card reward schemes enticed new customers by promising a little bit back on purchases with your flexible friend.

Pre-bust a plethora of providers, including American Express and Halifax's Pink credit card, offered cashbacks, but since then the market all but disappeared. Tesco was one of the few mainstays of the market, offering clubcard points on all purchases made with the card, but even this is now gone, having closed its rewards credit card to new customers as of May 10th.

However, while the market for rewards is hardly overcrowded, change is afoot; last year Permanent TSB launched its Explore account, which offers rewards to holders of the current account, while earlier this month AIB became the latest bank to enter the rewards scheme fray, promising cashbacks and discounts on a range of offers, in a bid to entice – and retain – customers. And both Bank of Ireland and KBC Bank also offer reward incentives on their credit cards.

Unlike traditional rewards schemes, which give you a cashback based on the amount you spend with a retailer or service provider, the new schemes tend to give you rewards based on specific offers.

But if the concept – of getting money back on money you spend – is attractive, how is the reality? We take a look and see if a rewards card is really worth your while.

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Who is offering rewards schemes?

New kid on the block is AIB, which offers rewards via its Everyday Rewards scheme on either your debit or credit Visa card, and it promises that you'll get your cashback into your account within five days of the transaction.

The bank also offers rewards on its platinum visa card account, or 0.5 per cent back on spends over €5,000 in the 12 months following the opening of such an account.

Bank of Ireland also operates a scheme in conjunction with Supervalu. You can earn your points – to spend predominantly in Supervalu – based on purchases anywhere, while KBC Bank offers a 1 per cent cash reward on grocery and online purchases.

Launched 12 months ago, Permanent TSB also has a rewards scheme linked with its Explore current account, which offers cashbacks and other rewards. The current account comes with a host of other rewards with its partners, such as Sky, SSE Airtricity and Topaz, with cashbacks of up to 5 per cent of the value of the relevant bill paid, as well as weekly discount offers.

How do they work?

Unlike traditional rewards schemes, which give you a cashback based on the amount you spend with a retailer or service provider, the new schemes tend to give you rewards based on specific offers.

Permanent TSB was one of the first to launch when it brought its Explore product to the market last year.

According to Lorraine Peters, head of current accounts with PTSB, some 30,000 people have since signed up to the new account, and the bank continues to add about 3,000 new accounts each month – mostly those in the 25-35 age group – while attrition rates “are lower than what we normally would have seen”, Ms Peters says.

But the account has failed to entice many existing customers off the bank’s old free banking platform, with Peters noting just that there has been “some migration of customers”.

The bank teamed up with Visa for the scheme, which allows you a cashback of 10 cent on each purchase with your debit card – the bank hopes to launch a credit card version soon – as well as a host of discounts on direct debits and special offers. These offers are emailed to customers on a Friday, and are tailored by Visa, which arranges the deals, to match your personal spending habits.

Since its launch, the bank says that 58 per cent of offers are being redeemed. Some of the most popular offers have been a recurring €5 off a €25 spend in Lidl; €5 off at Boots when you spend €30; and €5 back when you spend €40 at Topaz.

It's a little bit like the Groupon model, but Peters notes that it differs in two ways: 1) the offers are personalised to your own spending habits, and; 2) you don't have to download and present a voucher. Using your Visa card is simply enough to redeem the offer.

But PTSB is not the only bank Visa has linked up with. AIB offers a similar rewards programme, where you will be sent specific offers, which can then be redeemed for a cashback.

The offers are initially generic, but will in time be more tailored to customers.

“As the programme evolves, offers will be matched to customers’ own shopping preferences and purchase history so that they get offers that are most relevant to them,” a spokesman says.

Its first offer was €10 back on a minimum €35 spend in Lidl, and its list of participating retailers is similar to that offered by PTSB, at about 70, including clothing retailers such as H&M, Elvery Sports, as well as Topaz, Enterprise Rent a Car, Boots, Butlers Chocolate and Eason. Recent deals include €5 back on your next purchase of €20 or more at Eason, and 5 per cent back on your next purchase at Schuh.

If you're opting for a credit card or bank account on the basis of the rewards it offers, you'll need to check out the restrictions to ensure that it's the right card for you.

Since AIB’s product launch, PTSB has experienced a “halo effect”, with traffic up by 116 per cent and a 200 per cent increase in registrations since.

KBC Bank offers a more traditional cashback, scheme whereby you can earn 1 per cent back on eligible purchases. However the maximum reward that can be credited is €10 on each monthly statement.

Watch out for restrictions

If you’re opting for a credit card or bank account on the basis of the rewards it offers, you’ll need to check out the restrictions to ensure that it’s the right card for you.

With AIB for example, a host of payments on your card, such as cash advances, bank charges, payments to the Revenue Commissioners and payments in excess of the limit on the account are deemed not to be “eligible transactions” and therefore won’t earn you any rewards.

With KBC Bank, cashback is restricted to 1 per cent cashback on “grocery and online purchases”, which, when you read the terms and conditions, means grocery stores, supermarkets and specialty food stores.

“Purchases made at a merchant that does not process transactions under these codes will not qualify and you will not receive the reward,” the bank says.

So shopping till you drop in Dundrum won’t entitle you to a cashback.

How much will you get?

A rewards card is only as good as the rewards you can collect – so how good are they?

There are two main selling points of PTSB’s current account: 1) you’ll get 10 cent back every time you use your card, and; 2) you’ll be offered a selection of reductions and discounts that can bump up your bank balance. If you watch TV with Sky, for example, you can earn 5 per cent back on your monthly bill; 2 per cent with Airtricity on your electricity; and 5 per cent back on your mobile phone plan with iD. You’ll also get 2 cent off per litre of fuel with Topaz.

This means that based on average bills, you could stand to earn about €10 back a month.

However, the restrictions of the account do make it less attractive. First of all you have to pay for it, at €4 a month, which means that any rewards you do make, may be subsumed by this charge. In the above example, your €10 would shrink to €6 once these charges are added.

According to the bank, the typical customer earns €9 – or 5 net once the charges are subtracted.

For example, if you were to use your card to pay for something once a day that’s an average of €3 cashback each month – which still leaves you €1 short of the amount needed to keep your account open. And even if you were to use it twice a day, you still wouldn’t earn back €6 a month, as the bank only allows cashbacks of up to 5 a month.

While you can make up the difference perhaps with its range of discounts and offers, you may find that these aren’t relevant to you, if you get your electricity from Bord Gáis, for example, or your TV from Virgin.

KBC Bank’s scheme is more straightforward, but is limited to €10 a month and, as mentioned, to particular purchases. To earn this €10, you’ll have to spend €1,000 on your card on your groceries and other online purchases over the course of a month.

What about AIB? Its scheme works a little differently than others in that it’s primarily based on offers. Its launch offer, of €10 back at Lidl on a €35 spend will be an attraction for some, but the bank needs to keep up the offers in order to make it worth the cardholders’ time.

At Bank of Ireland, the card may be of limited value unless you shop in Supervalu, as that it is the only retailer where your cashback can be spent. When you open the card you’ll get 250 points to start with, plus two points for every €1 spent in the supermarket chain (with your Supervalu rewards card), and one point for every €10 spent elsewhere. For every 250 points you collect, you will get €2.50 in money back vouchers.

As well as shopping in Supervalu, you can also convert these points into other reward schemes, such as Aer Lingus’ Avios scheme, to help save on flights, while you can also use 250 points to cut €3 off your electricity bill with Electric Ireland.

And, of course, taking out a number of cards to benefit from each of the schemes isn't really an option, thanks to the Government stamp duty of €30 per card.

So, if you spend €500 in a month in Supervalu, you will build up 1,000 points which equals €10, or just 50 points if you spend €500 somewhere else. If you’re a Supervalu fan you’ll build up the rewards quite quickly.

Could you do better without one?

In the context of PTSB's current account, for example, you may end up doing better by looking for a free current account, such as those offered by KBC, Ulster Bank and AIB, provided you keep a minimum balance each month. This is particularly true perhaps if you aren't, or don't intend to be, a customer of their partners.

With the other schemes, the attractions may entice you to spend more than you would have otherwise done – ie you’ll spend more to get up to the minimum spend needed to be entitled to the money-back voucher – so the real savings may be limited.

And remember, with credit cards there is always the danger that you opt to make a purchase with your credit card to earn points but then forget, or find yourself unable to repay, thereby quickly building up a credit card debt. With typical APRs of about 20 per cent it’s an expensive form of credit for consumers, so consider what your needs are before you get swayed by reward cards.

And, of course, taking out a number of cards to benefit from each of the schemes isn’t really an option, thanks to the Government stamp duty of €30 per card.