Credit Cards

Overview

Credit cards are issued by a financial institution and supported by a card processing network such as Visa, Mastercard or American Express which are the most common in New Zealand. Debit cards use the exact same networks except they are directly linked to your bank account so as soon as you make a purchase, it is deducted from your account. Credit cards are a form of unsecured debt that must be paid back after a certain interest free period such as 55 days. Because there are many intermediary parties involved, credit cards are more costly to process payments through than say debit cards. The order of cost goes cash, EFTPOS, debit cards, credit cards.

Rules for Using Credit Cards

Basically, if you are going to use a credit card, you must always pay the full balance off every month to avoid any interest or fees. As soon as you miss a payment you should cut up the card, pay it off and never touch them again. Because of this fact, the various interest rates for purchases, cash advances and balance transfers are actually irrelevant. Additionally, if the card has an annual fee, you must spend a minimum amount per year on the card for the rewards to eclipse the cost of the annual fee, if you don't expect to easily achieve this every year, stay away.

Rewards and Benefits

So the only reason anyone would use a credit card is if they can get some kind of reward or benefit from it. This comes in many forms but can essentially be boiled down to some rate of "cash back". Usually, this rate is no more than 2% at the absolute highest in New Zealand. When you think about it, that's like getting a meagre 2% discount on everything you spend. If you spend $20,000 per year on the card that means you're likely to get back just $400, or another way of thinking about it is like getting a $20 voucher for every $1000 you spend.

For example, a card might offer you $1 cash back for every $150 you spend, that's a 0.67% cashback rate. If the card has a $50 annual fee, you would need to spend $7462.67 to break even. That same $20,000 total spending gets you $84 for the year after paying the annual fee. Another thing to consider is that if you increase your spending by just 0.42% in this case due to it being on a credit card, you would not have gained anything.

Another type of reward is automatic travel insurance when you make a qualifying purchase such as buying plane tickets or booking a hotel. This could be worth between $400 and $1000 per year depending on how much you travel. If we take this alone and apply it to that same $20,000 of spending it works out to be between a 2% and 5% cash back rate. Although some years you might not travel and this will bring down the average. So clearly these additional benefits are much more significant than the reward points or cash back.

All NZ Credit Cards

In this table I've listed all the relevant details about each credit card available in New Zealand not considering any interest rates, penalty fees or interest free days because again I'm assuming that if you ever pay any of these you are not responsible enough with a credit card and you shouldn't use them. Additionally, I'm not going to consider any cards that have no rewards or benefits as the slightly faster fraud protection service you may get does not seem worth the hassle.