Credit Card Comparison Reward Points Formula

Lpei on 20/06/2016 - 09:57

Okay so I wanted to compare which was the best value credit card rewards points for a friend with a high annual spend.

The problem I faced is that different cards have 3 main variables as far as points systems go

  1. The number of points earned per dollar
  2. The number of points required to buy a $100 gift voucher (as a base point for comparing value)
  3. The annual fee associated with the card

So I put together a little formula so I could easily compare the value of 2 different cards, or more specifically see what annual spend would be required for a card with a higher annual fee but more points to be better value than a card with a lower annual fee but less points.

Note this comparison is purely for reward points value, not FF, and not taking into account other CC perks. I also note this could be improved to cater for cards with max limits on points earned, or sign-on bonuses but I didn't need this so left is a simple as possible

So, the output of this formula is the annual spend $ value at which the cards are equal. If your annual spend is lower than this, then the card with the lower fee is better value for you. If you spend more than this then the card with the higher annual fee is better value for you.

Av = points required to get $100 Voucher on Card A
Ap = points per dollar on Card A
Af = annual fee on Card A
Bv = points required to get $100 Voucher on Card B
Bp = points per dollar on Card B
Bf = annual fee on Card B

x = (Av * Bv * (Bf - Af)) / (100 * (Bp * Av - Ap * Bv))

Eg comparing ANZ Rewards Platinum visa (Card A) with Citibank signature visa (card B)

(signature with full fee - yes I know 99% of ozb have fee free for life inc. me ;))

Av = 22225
Ap = 1
Af = 95
Bv = 17900
Bp = 1.5
Bf = 395

x = (22225 * 17900 * (395 - 95)) / (100 * (1.5 * 22225 - 1 * 17900))
x = $77,310.60 annual spend

So IF you were paying full fee, you annual spend would need to be > $77,310.60 for signature to be better value purely on points value basis.

Hope this helps someone else.

Financial

Comments

  • gaz3342 on 20/06/2016 - 10:59

    Buying vouchers with credit card points is one of the worst ways to redeem.

    You get far more value redeeming for flights / flight upgrades.

  • pei on 20/06/2016 - 11:06
    +1

    Per post - comparison is purely for reward points value, not FF

    If you don't fly much and when you do it is on cheaper airlines that you cannot use point with, then vouchers are better value.

    BTW - the upgrade you get with FF might be $500, and the same # of points may only get you $300 vouchers, but then in reality you are paying $300 for the upgrade, which may or may not be a better 'deal' depending on your priorities

  • ilikeradiohead on 20/06/2016 - 14:40

    I have a friend who calculates it as a value of the transaction. EG if you go to Coles and use your Amex platinum edge, it is an effective 1.5% discount because of the 3x value of the points, whereas if you use it at a pub, an ANZ platinum AMEX might be better because the effective discount may be 1.2% vs 1.0% with the AMEX.

    I haven't bothered figuring this out myself, I just use my platinum edge where I can, and whichever free platinum card I have at the time for non AMEX purchases haha.

    • pei on 20/06/2016 - 14:50

      Agree - Amex will usually provide a better value if there is no surcharge

      • maverick on 20/06/2016 - 22:32

        Often the humble Coles Rewards MasterCard provides better value than many Amex cards when redeeming for $100 gift cards.

        • pei on 22/06/2016 - 10:14

          Agree - Coles Rewards MasterCard was actually the best value points card I could find but unfortunately excludes business purchases which is where most of my friends purchases are from

    • Holysmoke on 20/06/2016 - 20:53
      +1

      My cashback valuation based on gift card redemptions (although I would rather transfer to frequent flyer programmes):
      Amex Plat Edge at Supermarket: 2.25%
      Amex Plat Edge at Petrol: 1.5%
      Amex Plat Edge elsewhere: 0.75%

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