Credit-card reward schemes have been getting ever skimpier over the past year, as increasing numbers of lenders have trimmed back their benefits or even axed them altogether. Last year alone, Royal Bank of Scotland, Halifax and Egg all withdrew their cash-back credit cards, while Barclaycard severed its tie with the Nectar points plan towards the end of last summer.
The cutback in reward schemes has been driven by the increased demand for interest-free offers. With 0 per cent cards now attracting the largest numbers of new customers, lenders have been competing to offer ever-longer interest-free periods - often at the cost of all other types of rewards. But for the diligent credit-card user, who pays off their balance in full each month, credit-card reward schemes are still in demand.
"You end up with people having four or five cards in their wallets, which they are transferring their balance across," says Patrick Muir, of Morgan Stanley's consumer banking group. "But the card at the front of the wallet tends to be the one that gives something back."
Although there are still a handful of reward cards left on the market, new research from Morgan Stanley reveals that there is now an increasing gap between the value of rewards available. Its survey of 4,000 cardholders found that the average reward claimed over the past three months by customers of its cash-back card had a monetary value of £72, while the average value of rewards redeemed by American Express Nectar Card holders over the same period was just £45.
Most cards now provide a very small level of reward when converted into monetary terms. Although the best cash-back cards pay as much as 2 per cent back on purchases, borrowers may need to spend thousands of pounds on their card before they will benefit from this kind of handout. Such is the case with American Express's Platinum Card, which pays 2 per cent on all transactions for the rest of the year, once you have spent more than £7,500 on your card. If you spend less than £3,000 on your card in a year, you will get just 0.5 per cent cash-back.
The Platinum card has a typical APR of 8.9 per cent and works well for big spenders. Most other cash-back cards pay 1 or 2 per cent on purchases for a limited period, before dropping back to 0.5 per cent. Morgan Stanley's offers 2 per cent until August, then drops back to 1 per cent. With the exception of Amex, interest rates on cash-back cards are usually not that competitive.
If it's a points card you're after, it becomes harder to compare the monetary value of the rewards. Amex's Nectar Card gives four points for every pound spent in a shop that participates in the Nectar programme. Elsewhere, you will just earn one point per pound spent. Around 200 Nectar points roughly equates to £1 -worth of rewards, which works out the same level of benefit as a 0.5 per cent cash-back card.
The best card for you depends on your spending habits. If you're a regular M&S or John Lewis customer, both of these stores offer excellent combined credit and reward cards. Both pay one point for every pound spent in store, and one point for every £2 spent elsewhere. Every 500 points is worth £5 back in vouchers. Egg-card users get big discounts at certain internet shops, while Airmiles card holders get one airmile for every £20 spent. Ten airmiles is roughly equivalent to £1.
Robert Kenny, of moneysupermarket.com, the comparison website, concludes: "Unless you spend an enormous amount, the value of most existing loyalty programmes is not very good."