Reward cards boom: what are the risks?

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New research has revealed that the number of reward cards in use in the UK has shot up almost a third in the last year. Now an incredible 48% of all Brits are using reward cards to generate cashback, shopping vouchers and free travel. That's almost £3 billion in free money.

On the one hand it's a brilliant demonstration of how we have educated ourselves to take advantage of the best deals. However, on the other hand, it raises a number of risks.


The survey, by American Express Credit Cards, found that ownership of reward cards was 32% up from last year. Not only that, but we have changed our behaviour in order to ensure we get full value from the cards, with almost half of rewards credit card holders (48%) more likely to deliberately shop at particular shops and buy specific products to earn rewards.

Those with reward cards are also likely to spend 150% more on plastic than those with normal credit cards - to maximise the benefits from the cards.

Using points

Almost half (46%) of rewards credit card holders revealed they are more likely to use their points now than a year ago, with 86% redeeming their points at least once a year compared to 78% in 2011. They are gaining more financially too: on average, rewards cardholders estimate their rewards are worth on average £123 a year up from £116 in 2011.

Julie Hay, Head of Credit Cards at American Express, said: "Previously, rewards credit cardholders were most likely to redeem their rewards for occasional treats (27% in 2011). While this remains popular with a quarter of reward cardholders, the research also shows rewards are being used to boost everyday spending power (29%) and help towards everyday living costs (20%)."

We are also favouring cashback cards over those offering retail vouchers. Cashback was the preferred reward of 38% of people - up from 35% last year. Meanwhile the popularity of vouchers fell from 37% to 33%.

The risks

However, while there are clearly thousands of people taking advantage of these cards, they need to be alive to the risks of using the cards to ensure that this spending remains savvy and doesn't tip over into the realms of an expensive mistake. There are two major risks to beware of:

1) Spending more than you can afford to pay off in full every month

The reward cards tend to be set up so that the generous rewards are accompanied by high interest rates.

Take Amex, who did the survey. The cashback they offer is a generous 5% in the first three months (on spending of up to £2,000). However, on the flip side it has a representative 18.5% APR, which is variable. You only have to find yourself unable to repay the sum in full one month, and you could easily have wiped out everything you gained from having a reward card.

2) Spending more overall because you psychologically think of it as earning you money

The fact we change our spending patterns because of the cards may be a sign of savvy spending. Alternatively, it could ring alarm bells.

If you end up shopping in more expensive stores, or buying things you wouldn't otherwise consider, then clearly it is wasting your cash. Likewise, if you ever justify buying something with the excuse that you'll get 5% back, then there's a real risk that the card is costing you money.

For the right people, used in the right way, reward cards are a brilliant addition to your wallet. For the wrong people, used in the wrong way, they could end up costing you hundreds of pounds in the long-term.

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