Rewards credit card worked examples: the full calculation, step by step

The reliable way to test a rewards credit card is to run one household's real numbers through five steps: eligible spend → points earned → value per point → value you will actually redeem → minus the annual fee, interest and other fees. Do the same for a no-fee or low-rate card and compare the two results. In the illustrative example below, a family that pays in full and spends $42,000 a year on cards ends up about $103 a year ahead with a mid-tier points card, about $200 ahead in the first year with a capped cashback offer (about $105 in later years), compared with a no-fee card, but loses money on every rewards card the moment it carries a balance. This pillar guide sets out the method and links to the detailed examples.

All rates, earn rates and point values are illustrative, not offers. This is general information, not financial advice.

Step 1: find your eligible spending

Take 12 months of card and debit statements and list spending you could put on a credit card. Then sort it using the rewards program's terms.

Illustrative household spending	Yearly amount	Earns full points?
Groceries and fuel	$14,000	Yes
Dining, entertainment, shopping	$9,000	Yes
Utilities, phone and internet	$4,500	Often reduced or none on some cards
Insurance premiums	$3,500	Often reduced
Council rates and government payments	$3,000	Often none
Travel bookings	$5,000	Yes, sometimes bonus
Other	$3,000	Yes
Total	$42,000	Full: $31,000; reduced: $8,000; none: $3,000

Assume reduced spending earns half points. Effective full-rate spending = $31,000 + $8,000 × 0.5 = $35,000.

Step 2: points earned

At an illustrative 1 point per dollar: 35,000 points. Check for caps. If the card capped full-rate earning at, say, $3,000 a month ($36,000 a year), this household fits under it. If the cap were lower, reduce the figure.

Step 3: value per point

Points have no fixed value. Pick the redemption you would really make:

Redemption (illustrative)	Value per point
Statement credit or cashback	0.4–0.6c
Gift cards	0.5–0.8c
Transfer to an airline program, then an economy reward seat	0.8–1.5c, depending on route and charges
Upgrades or premium cabin seats	Can be higher, if seats are available and you would pay for them

Use a conservative figure for the decision. The detailed method is in valuing frequent flyer points. Here we use 0.8 cents: 35,000 × 0.008 = $280.

Step 4: what you will actually redeem

Points can expire, programs can devalue, and many people redeem for lower-value options under time pressure. Assume 90% of the value is realised: $280 × 0.9 = $252. Add perks only at the price you would otherwise pay. This household would use no lounge passes and has its own travel insurance, so perks = $0.

Step 5: subtract the costs

Cost line	Illustrative mid-tier card	No-fee card
Annual fee	$149	$0
Foreign transaction fee on $2,000 overseas online spending at 3%	$60 (card charges it)	$60 (also charges it)
Interest (pays in full every month)	$0	$0

Net value of the rewards card: $252 − $149 = $103 better than the no-fee card on the same spending (the overseas fee applies to both, so it cancels out).

If the household instead carried an average $2,500 balance for four months at 20.99%, interest would be about $2,500 × 20.99% × (4 ÷ 12) ≈ $175, and the rewards card would be −$72 compared with a no-fee card that was also paid in full; a low-rate card at, say, 12.99% would cost about $108 in the same scenario. That is the core lesson repeated in every example on this site.

Comparing against cashback

A cashback card might offer, illustratively, 1% back on spending for the first 6 months, capped at $150, then 0.25% ongoing, with an annual fee of $0. For this household:

First 6 months: $21,000 × 1% = $210, capped at $150.
Next 6 months: $21,000 × 0.25% = $52.50 (ignoring any exclusions).
First-year value about $202; later years about $105.

That is roughly level with the points card in year one and similar in later years, with less effort and no expiry risk. The full comparison is in cashback vs points vs a low-rate card.

The detailed worked examples

Valuing frequent flyer points — cents per point after taxes and carrier charges.
Cashback vs points vs a low-rate card — three cards, two spending patterns.
Balance transfer and revert rate — the payment needed to clear debt before the rate jumps.
Minimum repayment warning — reading the table on your statement.
Sign-up bonus points maths — minimum spend, timing and value over several years.
Cash advance costs — fees and interest from day one.

The rewards value vs annual fee calculator does steps 4 and 5, and the checklist covers what to read before applying.

Frequently asked questions

Should I count spending I could put on the card but currently pay by bank transfer?

Only if you would really move it, and only if the payee accepts cards. Remember that some payees may stop accepting credit cards rather than absorb costs after surcharges end.

Do I need to include GST or tax on rewards?

For personal cardholders, rewards from personal spending are generally not treated as income. If the card is used for business, the treatment can differ; ask the ATO or a tax adviser.

Can I combine two cards to earn more?

Some people use one card for categories with bonus points and another for the rest. Each card adds an annual fee, an account to manage and a limit that lenders count when you apply for other credit.

How often should I redo the calculation?

Each year before the annual fee is charged, and whenever the issuer notifies changes to earn rates, fees or the program.

Sources and where to check

ASIC Moneysmart — choosing a credit card and rewards cards
Reserve Bank of Australia — card payment regulation
Australian Taxation Office — tax questions about business card rewards
National Debt Helpline — free help if card debt is building, 1800 007 007