Rewards credit cards promise free flights or shopping vouchers – providing you exceed a minimum spend. But how easy is this?
The lure of free flights to such exotic destinations as Marrakech or St Petersburg is what drives many of us, including myself, to opt for rewards credit cards.
As the name implies, these cards earn you frequent flyer points, vouchers and more every time you spend on them.
Many are offered by American Express, which includes British Airways cards, while Virgin Atlantic also has two Mastercards. There’s even a rewards card for Nectar points.
In my case, I got an American Express Preferred Rewards Gold Card, which allows you to earn one membership point per £1 spent and can be converted into BA Avios or Virgin Atlantic Flying Club miles.
The big draw for me was the 20,000-point welcome bonus – a generous one by anyone’s standards. The catch is I’ll need to spend £2,000 on the card in the first three months of getting it to qualify.
How hard would it be to get me ‘free’ miles? I decided to find out.
The £2,000 challenge
Firstly, I want to stress that I’m not necessarily recommending reward credit cards.
In many ways, they’re a bad financial proposition: the interest rates are steep – 22.9% on the Gold Card, and that’s modest compared to others on the market.
What’s more, they frequently come with monthly or annual fees ( £140 a year in my case, but this was waived for the first year).
Hence my challenge: if I don’t manage to spend £2,000 in three months I’ll miss out on my points bonus and be left with an expensive credit card which, after one year, will charge a fee that would pay for a return flight by itself (albeit not as far as Marrakech).
There are fee-free rewards cards, but with the points-per-pound-spent far lower and a BA flight to Paris costing 8000 Avios, they require a huge amount of spending and patience to get you anywhere.
Rewards card welcome bonuses are a fast-track to rewards, but as I found out, they’re only useful if you genuinely need to spend the money on one-off expensive purchases.
What you can’t use your card for
The average annual income in the UK is £26,780, before tax, according to the ONS. After tax, over three months you’d bring in around £5,400.
Looks easy right?
The problem is there are plenty of things you can’t pay for by credit card. Mortgages and rent are almost always paid for by direct debit.
Council Tax can sometimes be paid by credit card – this depends on the council – but rarely by American Express.
Energy bills, broadband and mobile phone can often be paid by credit card, but you’ll often need to opt out of direct debits which many providers prefer or even require.
Frustratingly, American Express still has limited acceptance at smaller retailers, restaurants and pubs.
You should never have to pay extra to pay by card in the UK, as this was made illegal at the start of this year.
On receiving my card, I sat down at my laptop and made several easy changes.
Firstly, I set my Gold Card as my default card for Amazon, Netflix, Spotify, Uber and some other online services.
This takes minutes and means you don’t even have to think about whether you’re spending on the right card. However, in my case it probably only amounts to £50 a month – £150 in total.
I then linked my Oyster Card to my Gold Card – that adds around £20 a week, so £260 in total.
If applicable, you could use your card to pay for a train season ticket instead, or if you drive, to pay for fuel and insurance.
I usually shop at supermarkets, so I put the Gold Card at the front of my wallet. Now, my living situation is hardly typical, so for the purposes of this article we’ll look at what the average household spends – £58 a week on food and non-alcoholic drinks – adding up to £754 over three months.
Adding up these essentials, we’re only talking around £1,160 in spending, well short of the £2,000 target.
To spare you from suspense, I did hit the £2,000 target over three months and thus earn my free flights.
Yet I only achieved this by making several big-ticket purchases. Crucially, these were purchases which I had needed to make for a while, so I wasn’t just squandering money.
These included flight bookings, a new TV and a season ticket at a Premier League football club.
However, one-off purchases need not be so frivolous as mine. A train season ticket could cost thousands of pounds, as could a new car or car repairs.
The point is that these are purchases you plan for months before they happen. You also need to know you can afford to pay them off straight away – if not, get a 0% interest purchase credit card.
Rewards card cheats and hacks
There are also some ‘tricks’ to get closer to your welcome bonus. Neither of these will prevent you getting the bonus: all the card provider cares about is you spending the money.
Firstly, get a supplementary card for your partner to spend on, whilst adding to your total.
There’s no fee for your first American Express supplementary card, although bear in mind you’re responsible for the bill.
Secondly, offer to book flights for friends and family (providing they’ll pay you back!). There’s nothing wrong with having one name on the ticket and another on the receipt.
Be cautious about using this tactic for hotels or train tickets, however, as you’ll often be expected to present the payment card when checking in.
Alternatives to a minimum spend
If you don’t think you can manage a large minimum spend then you’ve got a couple of options.
Virgin Atlantic offers two reward Mastercards which are more widely accepted and will give you a welcome bonus for a £1 minimum spend, although the bonuses are smaller.
Both the British Airways American Express and American Express Rewards Credit Card have no fees and you only need to spend £1,000 to get the welcome bonuses on each.
Or you could just get a cashback credit card, where you could earn up to £100 in cash on your spending.