Our readers (both of them) occasionally write in and ask us whether there is such a thing as a free credit card. The answer is yes (we recently wrote an article on the topic) - there are actually a surprising number of credit cards that can be considered cost-neutral, depending on your credit behaviours. They usually fall into one of two categories:
- Cards with a $0 annual fee and an interest free period - as long as you pay your card balance in full, avoid cash advances and other fees, you theoretically could never pay any money to the bank. If the card has a rewards program, they can be considered 'profitable', as you're earning value in the form of redeemable points.
- Cards with an interest free period, an annual fee and a cash back rewards program - as long as you earn enough points to cover the annual fee with cash back, you can consider these cards cost-neutral.
The Commonwealth Awards falls into the second category. It offers 55 days interest free, a moderate $89 annual fee ($59 for qualifying customers) and a rewards program (Commonwealth Awards) with a cash back redemption option. The cash back ratio is 200 points per dollar, meaning you'll need to earn around 17,800 points annually to cover the $89 annual fee.
After a relaunch in October 2009, the CBA Awards now comes with two cards - the standard MasterCard and an additional American Express (at no extra cost and linked to the same account), which allows you to earn reward points faster (1.5 points per $1 spent, instead of 1 point per $1 on the MasterCard).
Commonwealth Awards also offers other redemption options - Qantas Frequent Flyer (which will cost an additional $10 per year) and TravelPlus, a travel agency which permits you to redeem your points on flights, car hire, accommodation etc.
There is also a good range of bonus partners including Sanity, Hoyts, Adairs, Bob Jane T-Marts and the major Gold Coast theme parks where your card earns two or more points per dollar spent.
Currently, Commonwealth Bank are also offering a 5.99% balance transfer rate for five months.
Additional cards are $15 each (or 2,400 rewards points).
On the downside, the purchase rate (20.49%) and cash rate (21.49%) are both high for a mid-range card.
Bottom-line: Like most of the 'free' credit cards, the Commonwealth Awards will be perfect for people who intend to pay their balance in full each month. For others, there are cards with lower interest rates.
