Are credit card surcharges worth the points?

When a retailer charges a surcharge for paying with your credit card do you pause and instead pay using EFTPOS (from your savings account)?

Or do you say “that’s ok” and perhaps think “I want the points”?

In this month’s Mens Health magazine (May issue) I’m quoted in an article on how to make good use of your Qantas frequent flyer points. Several of the tips I’ve covered in my earlier article here.

One tip that didn’t fit into the Mens Health article was that paying a credit card surcharge is often not worth the reward points.

Credit card surcharges

Most credit card surcharges are over 1% of the transaction amount. So for every $100 you pay at least an extra $1.

In fact the average surcharge is much higher than 1 per cent. According to a East & Partners’ survey reported by the RBA, “in December 2010, the average surcharge for MasterCard credit cards was 1.8 per cent, for Visa it was 1.9 per cent, for American Express it was 2.9 per cent, and for Diners Club it was 4 per cent.”

Value of a Qantas Frequent Flyer reward point

As I mentioned in my earlier article each Qantas frequent flyer point is only worth about 0.69 cents. That reward therefore is equivalent to about a 0.69% discount.

Deciding if you will pay the surcharge

If you earn 1 reward point per dollar and the credit card surcharge is 1% then you are paying an extra dollar and only earning 69 cents back. By paying with your credit card you just lost 31 cents.

If you earn 2 reward points per dollar then the surcharge needs to be less than 1.38% to make it worth handing over your credit card.

At many retailers you’ll need to be earning 3 reward points per dollar to make the surcharge palatable. Points are usually only that high for retailers aligned with the credit card issuer.

Often when faced with a credit card surcharge you are better off handing over your EFTPOS card and paying from your savings account. (That’s better for most people’s budgeting too.)

Next time you go shopping carry both cards with you.

Author: Matt Hern

Certified Financial Planner professional, Matt Hern has three times been awarded as one of Australia's Top 50 Financial Planners by The Australian Financial Review Smart Investor. He is passionate about guiding you on the right financial choices to achieve what you really want. Matt Hern is an Authorised Representative of Charter Financial Planning Limited AFSL 234665. All information is general advice only.

2 thoughts on “Are credit card surcharges worth the points?”

  1. Thanks for this analysis, Matt. I’m usually pretty good with this, but occasionally still trick myself into paying the surcharge because I think it’s worth the points. Now that you’ve done the numbers, I’ll be less likely to make this foolish mistake!

    I think it’s sometimes even worse than this, because I often use my reward points for discretionary “luxury” purchases, which I wouldn’t necessarily have made under other circumstances. So not only am I worse off by paying the surcharge, I’m not even making smart use of the money I do get in return.

    1. Thanks for sharing your experience Gihan.

      One observation I shared in the Mens Health article is that over the past 2 years it appears that the one of the only stores that has not been heavily discounting is the Qantas Frequent Flyer store.

      I think it’s ok to treat yourself using your reward points but a more value-for-money approach would be to redeem your points for gift cards, which you then use to pay for your treat item when it is on special.

      Happy shopping! 🙂

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