What is the difference between a low-rate credit card and a rewards credit card?

With so many credit cards on the market, it’s hard to know how they differ and which one is right for you. For instance, the humble low-rate card often gets overlooked for the ‘fancier’ rewards card. However, when you read the fine print, the low-rate card can offer more rewards – financial ones.

How? Glad you asked.

What is a rewards card?

These cards can be very tempting, although they are all designed with a common goal - to get you to spend.

The mechanics of a points-based rewards card is quite simple - the more you spend, the more points you generate. These points are used to purchase ‘rewards’ ranging from flights to kitchen appliances. Sometimes you may even get travel insurance and extra points for certain types of purchases.

Sounds good doesn’t it. But what’s the catch?

To get those juicy points there are often a set of terms you must meet which can include the following.

  • A minimum monthly spend ranging from $1000 - $5000+.
  • An annual fee in the hundreds of dollars.
  • High-interest rates often above 20% p.a.

When you break down your yearly credit card expenditure, sometimes the annual fee alone is more than the rewards earned. Then there is the high-interest rate applied to your outstanding balance.

An investigation conducted by CHOICE, the independent consumer advocacy group, reviewed 63 rewards credit cards and found that cardholders would need to spend at least $2000 a month to get any return, while those who spent $1000 a month or less would pay more in annual fees than they got back in rewards.

Needless to say, this type of credit card can sneak up and cost you a lot of money.

Ok, what is a low-rate card?

The low-rate Defence Bank Foundation Visa Credit card is a no-fuss, no-frills card offering a low annual interest rate that’s way below the national average. There’s also a special six-month introductory rate which is lower again, a low annual fee and an interest-free period. While this card does not offer points to buy things like flights or a toaster, it could save you much more on balances owed by avoiding the ongoing accumulation of interest and fees.

Thinking a low-rate card may be the way to go?

If you’re looking for a simple card for online purchases, hotel security deposits, or to have tucked away for a rainy day, then a low-rate card is the way to go.

You can also switch providers and transfer your existing credit card balance to a Defence Bank Foundation Credit Card so you can get out of debt quicker with the lower rate.

Find out more about the low-rate Defence Bank Foundation Credit Card.

Important note: This information is of a general nature and is not intended to be relied on by you as advice in any particular matter. You should contact us at Defence Bank to discuss how this information may apply to your circumstances.

Also in:
All articles