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Which Credit Card Loyalty Scheme is Right for Me?

20th June 2011

According to the latest research done by Sainsbury's Credit Cards, around 8.65 million people are thinking of getting a new credit card over the next 12 months. 28% of these say that a loyalty reward scheme is the determining factor in their decision of which card to choose. 10% of those who are shopping around for a new card are planning to switch cards since their existing one offers no rewards, while 8% say that they're searching for another because their current provider has reduced or removed the card's rewards. In addition, 9% say that they're looking for cards that are offering add-on features like travel insurance.

Loyalty programs are fast becoming popular. In fact, in the same research, findings show that there was an increase from last year's 30.8% to this year's 34.4% of credit cards in the UK that have included this type of incentive as part of their features. Of these credit cards, 14 are offering cashback. 11 of these are offering cashback of 1% or less and two of these require annual fees.

So what do these figures imply? They simply show that loyalty schemes have become increasingly popular with consumers when it comes to selecting a credit card. In addition, when comparing different cards, people are now more conscious about the quality of these schemes. With hundreds of rewards programs out there, deciding which one best matches your needs is extremely difficult. Keep on reading to see the different types of rewards programs and whom they would suit best.

  1. Reward points

    This is the most common loyalty scheme in the market. Most credit card companies give x points for every pound that you spend using your card. You can redeem these points towards purchases at selected stores or by selecting the items that you want from their present catalogue. Examples of rewards may include electronic equipment, travel and accommodation, furniture, discount vouchers, and so on.

    Depending on the loyalty scheme, you have to attain a certain number of points before you can start redeeming. Also, there may be a specific timeframe before your points expire, meaning you must use them before they become invalid for use.

  2. Cashback scheme
    This scheme wherein you get x% back in the form of rebates is very popular among UK cardholders. However, you will only reap the benefits of a cash-back scheme if you manage to fully pay your outstanding balance monthly. If you're part of the 60% of UK credit card users who carry over a portion of their credit card balance onto the next month's statement, then this won't be in your best interests. This is because the interest that you'll be charged on your unpaid balance will surely be greater than the rebates.
  3. Free miles
    Designed for frequent flyers and travel enthusiasts, this credit card rewards scheme offers its users the chance to earn airline miles with every purchase made using their credit card. With this scheme, travelers can save a lot of money on airfare, which usually represents the biggest chunk of travel expense. Some cards are also offering other travel-related benefits such as insurance, discounts on accommodation and restaurants, worldwide emergency assistance, and so on.
  4. Merchant-based rewards

    Some credit cards offer very specific rewards and are usually co-branded with a partner establishment. Many cards offer discounts in restaurants that are owned by a particular company or in a certain group of hotels. Other offer promos when the card is used for purchases in specified stores.

    This loyalty scheme would be best suited for those people who are committed to particular brands and bind themselves to certain stores or to specific products and/or services. If you have an affinity for making repeat purchases from an establishment that has partnered itself with a credit card, then applying for that card would be beneficial to you.

Remember, to get the most out of reward credit cards, you have to keep your spending habits in check. Do not be tempted to spend more than what you can afford just to get the points that you need for that iPad or for a trip to Hawaii for two. Otherwise, you might find yourself spiraling into credit card debt that's difficult to get out of.