Credit card rewards can be worth an annual fee, but only for people who pay the full statement balance on time and extract more genuine value than the card costs. If you carry debt, change your spending to chase points or leave benefits unused, a low-fee or no-annual-fee card will usually leave you better off.
Rewards card vs low-fee card at a glance
| Factor | Rewards credit card | Low-fee or no-fee card |
|---|---|---|
| Annual cost | Often higher; a separate rewards fee may apply | Usually lower or zero |
| Earning | Points, cashback or airline currency on eligible spend | Usually limited or no rewards |
| Extras | May include insurance, lounge passes, credits or purchase protections | Usually fewer extras |
| Complexity | Earn rates, caps, exclusions, expiry and redemption values | Simpler cost comparison |
| Interest risk | Interest can overwhelm rewards quickly | Still expensive if interest applies |
| Best suited to | Disciplined spenders who use valuable benefits | Light spenders, occasional users and anyone prioritising low cost |
The calculation that matters
Do not compare a large points balance with the annual fee. Points are not dollars, and their value depends on how they are redeemed. Use this annual calculation instead:
Count a benefit at what it saves you, not its advertised retail value. A lounge pass has no value if you would not otherwise pay for lounge access. Travel insurance is worth only the cost of suitable alternative cover you would have bought—and only if the card’s eligibility, activation, age, trip-length, medical and excess conditions fit your journey.
Use a conservative estimate and leave a margin for points devaluation, expired benefits or a change in travel plans. A projected gain of only $10 or $20 is not a compelling reason to take on a more complicated card.
Work out what each point is worth
Find a reward you would genuinely redeem and divide its dollar value by the number of points required. If 20,000 points produce a $100 gift card, each point is worth 0.5 cents. If the same number can be transferred into another loyalty program, account for the transfer ratio, taxes, carrier charges and seat availability before assigning a higher value.
Cashback and statement credits are easiest to value because the return is already expressed in dollars. Merchandise is harder: compare it with the normal Australian street price, not a recommended retail price you would never pay. Airline redemptions can deliver stronger value, but only if suitable reward seats exist when you need them.
Calculate your effective reward rate
Your effective reward rate is the value returned for each dollar of eligible spending:
For example, a card earning two points per dollar with each point worth 0.4 cents returns about 0.8 cents per dollar, or 0.8%, before fees and other costs. Category bonuses can improve the return, while lower earn rates, monthly caps and excluded transactions can reduce it.
Base the calculation on eligible card spending you already make. Rent, government payments, BPAY, cash advances, gambling transactions and some payment processors may earn fewer points or none, depending on the card.
Find your break-even spending
Subtract the value of benefits you will definitely use from the annual card cost. Divide the remaining cost by the effective reward rate.
Suppose a card costs $295 a year, returns an estimated 0.8% on your normal spending and provides $100 of benefits you would otherwise buy. The remaining $195 cost requires about $24,375 of eligible annual spending to break even. Without those benefits, the break-even spend rises to about $36,875.
This is an illustration, not a target. Never spend more simply to cross the line. If your existing budget does not reach break-even, the card is not paying for itself.
Costs that can wipe out the rewards
Purchase interest
Rewards cards commonly carry relatively high interest rates. Even one month of interest on a large balance can exceed months of points. “Interest-free days” generally depend on paying the required balance by the due date and following the card’s terms; they do not mean every purchase is automatically interest free.
Annual and program fees
Check both the standard annual fee and any separate rewards-program fee. A first-year discount can make year one look profitable while the ongoing card is poor value. Put the renewal date in your calendar and reassess using the full fee.
Card surcharges
At the time of writing, Australian merchants may still apply permitted card surcharges. The Reserve Bank of Australia has announced that surcharging on designated debit, prepaid and credit card systems will end from 1 October 2026. Until that change takes effect, a 1% surcharge can erase a reward rate of 0.8%; use a cheaper payment method where practical.
Foreign transaction fees
Around 3% is common on cards that charge for overseas or foreign-currency transactions, although the exact fee varies. That can be far more than the points earned. A rewards card with no foreign transaction fee may be useful for travel, but compare exchange rates, acceptance and other costs too.
Late, cash-advance and payment fees
Late fees are an obvious loss. Cash advances can attract a fee and interest from the transaction date, and usually do not earn rewards. Paying some bills through third-party processors can also add a fee that outweighs the points.
Opportunity cost and overspending
Rewards are funded partly by fees and the economics of card use; they are not free money. Buying an unnecessary $100 item to collect less than $1 in value is still roughly $99 backwards. Compare the card with the best realistic alternative, not with having no card at all.
When premium benefits genuinely help
Benefits can justify a fee more easily than everyday points, but only when they replace planned spending:
- Travel insurance: read the policy, activation rules, exclusions, excesses and trip-duration limits. “Complimentary” does not guarantee suitable cover.
- Airport lounge passes: count only visits you will use, at the amount you would personally have paid.
- Travel or dining credits: confirm eligible providers, minimum spend, booking channel and expiry.
- Purchase protection and extended warranty: useful only when the claim conditions cover your purchase and provide value beyond Australian Consumer Law rights.
- Additional cardholders: check their fee and whether their spending or benefits improve the household result.
A coupon that encourages a purchase you had not planned is not a saving. Value each extra at zero unless you are confident you will use it naturally.
What about sign-up bonus points?
A large welcome bonus can make the first year profitable, provided you meet the minimum spend through normal purchases and satisfy all eligibility rules. Check the spend window, excluded transactions, previous-cardholder restrictions, when the annual fee is charged and how long points take to arrive.
Separate the first-year result from the ongoing result. A card can be attractive during a bonus year and poor value after renewal. Repeatedly applying for cards also creates credit enquiries, adds administration and may affect how a future lender assesses your commitments. Do not treat bonus chasing as risk-free income.
Airline points vs cashback
Cashback is transparent, flexible and unaffected by reward-seat availability. Airline points can sometimes provide higher value on selected flights or cabin classes, but the result is uncertain. Programs can alter transfer rates and redemption prices, points can expire, and taxes or carrier charges may still be payable.
If you travel on fixed dates, prefer straightforward economy bookings or rarely fly, use a conservative airline-points value. If you are flexible and already understand a frequent-flyer program, transferable points may be more useful—but should still be valued against a redemption you can realistically make.
Who is likely to come out ahead?
A rewards card is more likely to work for someone who:
- pays the full statement balance by the due date every month;
- has predictable eligible spending without increasing it;
- redeems points regularly for good-value rewards;
- uses enough included benefits to offset much of the fee; and
- reviews the card when fees, earn rates or benefits change.
A low-fee or no-fee card is usually better for someone who:
- sometimes carries a balance or pays interest;
- uses a credit card only occasionally;
- lets points expire or dislikes complicated programs;
- cannot naturally meet a bonus-spend requirement; or
- wants a simple backup card with minimal ongoing cost.
A practical annual card audit
- Download 12 months of statements and total eligible spending.
- Calculate the cash value of rewards actually redeemed—not points still sitting unused.
- Add only the card benefits that replaced purchases you would have made.
- Subtract annual, program, additional-cardholder, foreign transaction and avoidable payment fees.
- Subtract card surcharges paid while earning those rewards.
- Check whether any interest or late fees were charged.
- Compare the net result with an appropriate low-fee, low-rate or no-fee alternative.
If the result is negative, ask whether the provider has a suitable lower-fee product, use your points before closing where required, and confirm how changing or cancelling affects insurance, instalment plans and recurring payments.
Frequently asked questions
How much should I spend to justify an annual fee?
There is no universal figure. Divide the fee remaining after genuinely useful benefits by your effective reward rate. Include only normal eligible spending and subtract surcharges or other transaction costs.
Is a $0 annual-fee rewards card automatically better?
No. It removes one cost, but the earn rate, redemption value, interest rate, foreign transaction fee and other charges still matter. It may nevertheless suit lighter spenders who pay in full.
Should I keep a card just for travel insurance?
Only if the current policy suits your destinations, travellers, trip length and medical circumstances, and you meet its activation conditions. Compare it with standalone cover rather than assuming the included policy is equivalent.
Do reward points expire?
It depends on the program. Points may expire after a period of inactivity, at a set age, or when you close the card or linked membership. Read the rules and redeem before cancelling if necessary.
Does paying the annual fee improve my credit score?
No. Paying for a premium card does not itself improve your creditworthiness. Lenders consider factors such as repayment conduct, applications, debts, limits, income, expenses and their own lending criteria.
Sources and further reading
Need a second opinion?
Ask Adrian before making the decision.
Tell us what you are choosing between, what matters most to you and what you have already checked.