6 Steps to Working Out What a Loyalty Scheme Is Worth

1. Calculating the actual return

Express the reward as a percentage of spending.

Subtract any annual fee, divided by your realistic annual spend.

Account for caps, above which the rate falls or stops.

Account for category restrictions, where the headline rate applies to a fraction of purchases.

The resulting figure is usually low single digits, which is worth having and is not worth distorting behaviour for.

2. Where the return turns negative

Any interest paid on a card balance overwhelms any reward earned, since reward rates are a fraction of interest rates.

Minimum spend requirements that push spending upward.

Buying from a scheme partner at a higher price than elsewhere to earn points.

Purchases made because of a promotion rather than a need.

3. Points and their valuation

Points have no fixed value; it depends entirely on the redemption chosen.

Redemption rates vary widely between options within the same scheme, and the differences are frequently large.

Schemes devalue points unilaterally, so accumulating large balances carries risk.

Expiry rules catch people, particularly where activity is required to keep a balance alive.

4. Supermarket loyalty pricing

Member-only pricing has become common, which is a discount for participation rather than a reward.

The exchange is data about your purchasing, which is worth considering explicitly.

Where a scheme is free and the pricing difference is material, joining is straightforward arithmetic.

5. Stacking

Cashback portals, card rewards and retailer schemes can sometimes combine on one purchase.

Portal payments are slow and occasionally fail to track, so treat them as a bonus rather than counting on them.

Using a cashback link can void a separate promotional code; the terms usually state which takes precedence.

6. The discipline

Pay card balances in full every month by direct debit.

Do not change what you buy to earn rewards.

Final Thoughts

Rewards are worth having on spending you would do anyway and cost money the moment they alter behaviour. Any interest paid on a card balance overwhelms every reward earned.