Value Of Gold Drops

Sydney Morning Herald

Wednesday August 1, 2007

By John Kavanagh

When it comes to credit card reward programs, go for platinum.

A perennial problem for consumers is using the wrong credit card. Banks report that even though they have developed card ranges that cater to everyone from high-rollers who want to earn lots of reward points to people who need a low rate because they maintain a credit balance from one month to the next, it can be very hard to match the customer with the right card.

One banker likened the fondness for cards with reward programs, even among those who never spend enough to make the rewards worthwhile, to a person buying clothes that are too small. The shopper knows the clothes don't fit but thinks that buying them will provide an incentive to lose some weight.

For instance, someone who spends relatively little on a credit card and maintains a balance that accrues interest may choose a card with a reward program, even though it offers them no real benefit.

The banking industry research group Cannex has identified another anomalous credit card consumption pattern in its latest research on reward programs. It found that consumers have a fondness for gold cards that exceeds their real value.

Cannex discovered only small differences in the value delivered by gold rewards compared to standard rewards.

Gold used to be the top card in issuers' portfolios but that role has been taken by platinum cards, which offer unlimited points accumulation.

According to Cannex, in most cases the rewards on standard and gold cards are the same and the programs offer the same amount of points per dollar spent.

The one clear advantage of gold over standard is that the user can accumulate more points.

Most reward programs available with standard cards have a 50,000 point cap. The average gold card offers a program with a higher cap - usually another 50,000 points.

In its review of 270 cards with points-based rewards schemes, Cannex found that the average fee for a standard card was $34 a year, $88 for gold and $217 for platinum.

Assuming the cardholder pays the account in full each month and accrues no interest charges, a net benefit starts to flow from the rewards program once enough points have been earned to cover the cost of the annual fee.

A cardholder who spends $10,000 or less a year will only make a net gain on rewards from a standard card. Real benefits accrue from a gold card only when spending exceeds $10,000 a year and from a platinum card only when spending exceeds $20,000 a year.

A gold card only becomes a better option than a standard card when spending hits about $50,000 a year. Even then, it is not worth a great deal more.

Anyone who is getting into that sort of annual spend should be looking at a platinum card.

Because there are no caps on points that accrue to platinum cards, they are the obvious choice for anyone spending big money on a card.

Harry Senlitonga, a Cannex analyst, says the other advantage of platinum cards is that they usually give more points for each dollar spent.

He says the trade-off for this benefit is that platinum cards have higher interest rates.

"Consumer need to be sure they are going to pay their monthly credit card bill in full, otherwise high interest charges will wipe out all their points benefits," Senlitonga says.

A Reserve Bank report on bank fees, published earlier this year, highlighted the fact that so-called exception fees on credit cards have risen sharply. Incurring any of these fees would mean wiping out the benefit of large chunks of reward points.

Late payment fees on credit card accounts have risen 55 per cent, from an average $20 in 2001 to $31 last year. Foreign currency conversion fees have risen from an average of 1 per cent of the value of the transaction to 2.4 per cent over the same period.

The cost of withdrawing a cash advance from either another bank's automatic teller machine or an overseas ATM has increased threefold, from 0.4 per cent of the transaction value in 2001 to 1.4 per cent last year.

Cannex gave its five-star ratings for standard cards with frequent flyer programs to American Express for the Qantas Amex Card, Citibank's Silver MasterCard and Silver Visa, Earth Amex, National Australia Bank's Ant Amex with rewards and Gold Ant Amex with rewards and Westpac's Altitude Amex.

In the premium end of the market, it gave five stars to the American Express Platinum Credit Card with Ascent membership rewards, the American Express Qantas Amex Premium Card, the American Express Qantas Amex Ultimate Card, the American Express Rewards Maximiser Gold and Westpac's Altitude Platinum Amex.

The field was wider when it came to general rewards.

For standard cards with general rewards programs, Cannex gave five stars to offerings from AMP Banking, American Express, Citibank, Diners Club, Greater Building Society, Homeloans, HSBC, Resi Mortgage, Suncorp, Westpac and Wizard.

And for premium cards with general rewards programs, it gave five stars to the same group of issuers.

© 2007 Sydney Morning Herald

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