When Should You Pay A Credit Card Surcharge To Earn Points?

Filed Under: Advice, Qantas

For years, airlines around the world made huge profits by charging customers exorbitant fees in order to pay for flights with a credit card. People had different reasons for wanting to use credit cards, though for many of us it’s all about earning points/miles. This was particularly prevalent in Australia, where airlines were charging as much as $8.50 to pay by credit card, even if the fare was just $50.

That is a 17% surcharge.

Fortunately, many airlines around the world no longer charge fees to pay by credit card, as both customers realise the airlines cost of providing this convenience was not nearly as high as the fees they were charging to do so, and various government regulatory bodies rule that any credit card payment fees must match the cost to the company/airline in providing this service.

For example, in Europe, EU regulations now prohibit credit card surcharges for Visa and Mastercard payments, and UK legislation extends this to American Express payments as well.

But in Australia credit card surcharges are still allowed. Local coffee shops and restaurants used to regularly charge a 3% surcharge for payments by American Express, which were both the most:

  • costly payments for retailers to accept and process, as well as
  • lucrative for customers to pay with, in terms of points earn

Fortunately, the Reserve Bank of Australia has now ruled that credit card surcharges must match the cost to the retailer of providing this service.

For Australia’s two biggest airlines, Qantas and Virgin Australia, this has meant they have set the following payment fees, regardless of the cost of the ticket:

  • Payment by bank transfer/POLI (where available): 0% (i.e. no fee)
  • Payment by debit or prepaid cards: 0.6% (capped at $11)
  • Payment by credit and charge cards: 1.23% (capped at $11)

So if you come to a payment screen such as this, with these three options, should you pay the credit card fee in order to earn the points?

Determining the value of a mile or point

Let’s say you have a credit card that earns one Qantas point per AUD spent, with no additional earn for bookings made through the Qantas website. And to keep calculations simple, let’s say you are buying a Qantas flight for AUD$1,000.

If you pay by bank transfer/POLI, then there is no additional payment fee, but you will not earn any points. If you choose to pay with a credit card, you will pay an additional $11 (which is the cap, if there was no cap it would be $12.30, being 1.23% of $1,000). You will also earn 1,011 Qantas points for your troubles (points are usually also earned on payment fees).

So are those 1,011 Qantas points worth the $11 you have to pay to acquire them, versus no fees and no points with a bank transfer?

Everyone values their points differently, but its very important to give them a value, so you can use them in ways that match, or ideally exceed their value.

I’m asked the question of ‘what is a frequent flyer point worth?’ by friends and family all the time and my short answer is ‘it depends on how you plan to use them.’ The best value tends to be for long-haul premium award seat redemptions, the worst tends to be for gift cards, or in an online gift shop.

I’ve written about some of the best uses of Qantas points here. I personally believe that the value of a redemption is the price you would be willing to pay for it in cash, not the arbitrary amount an airline may set as a retail price for that same product. So if I was to redeem, say 100,000 Qantas points + $500 in fees and surcharges, for a flight I would have been otherwise willing to pay AU$2,500 for, then I would value those points at 2 cents each, as I saved $2,000 by using 100,000 points.

If the airline set a retail price of $5,000 for that same flight, I would not value the points at twice as much, because I would not be willing to pay that $5,000 amount.

But that’s really a discussion for another time!

Based on what I have redeemed Qantas points for in the past, I would currently value them at around AU1.3c each.

Using my $1,000 fare example from above, those 1,011 points would be worth around AU$13.14 (1,011 x 1.3c). So when determining whether to pay the $11 surcharge in order to earn $13.14 of points, I would elect to pay the surcharge, because I’m coming out in front.

If the card you used awarded two points per dollar spent with Qantas then you would be receiving twice the value ($26.28) for using the card, so that would be a no-brainer.

If I was points rich and cash poor (i.e. had more Qantas points than I knew what to do with), I would just pay by bank transfer/POLI and forego the points.

If the card I wanted to pay with only earned 0.5 Qantas points per $ spent (so half as much as my example above), then I would only earn $6.57 worth of Qantas points for my $11 surcharge, so for me, this is not worth the extra cost.

Bottom line

Everyone values their points differently based on the perceived value they obtain from redeeming them, and I would welcome your valuation of Qantas points, or any other points, in the comments below. It’s more important that you are valuing your points, than if my valuation differs from your valuation.

Fortunately credit card surcharges have been phased out in many parts of the world (just as physical cash slowly is too), and even in Australia where they were terrible, they have now been reduced to reasonable levels. Once you have valuations of the value of the points you could earn set in your head, you can easily make this snap decision about whether to pay a credit card surcharge in order to earn points, when the bill or payment screen arrives.

One last consideration might be if the credit card offers any sort of travel insurance with the purchase, which could also make it worthwhile to use a credit card. This isn’t common with credit cards in Australia, but some US credit cards offer good travel insurance, which could be valuable.

When do you pay a credit card surcharge?

  1. Firstly, the RBA rule, imo, is the most unfortunately thing that had happened to the Australian frequent flyer world in the last few years. This has resulted all of the non-Amex cards to cut point earn. The worst hit is Citiprestige Visa card, still with a hefty A$700 annual fee, the point earn has gone from a once lucrative 1.33 KF ppd to a mear 0.4 KF ppd. That’s a massive 70% devaluation.

    It did limit the amount of fee airline can charge, but it can never beat the Chinese brain. Our local Chinese eatery has changed from 3% surcharge to raise the price on every item, but offered 3% discount if you pay cash.

    I didn’t mind whether airline charged me 10% surcharge or not at all, as I can avoid that by simply purchase my tickets via Amex online travel, which waives Amex fee.

    Anyway, the other factor you need to consider, not just for the point earn, is that many credit card requires you to pay for the airticket using their card to activate the travel insurance. That in itself could be well worth >$100

  2. Don’t forget the travel protection benefits of certain cards which would be a no-brainer for me.

  3. Hey James,

    For Qantas the fees vary depending on international or domestic/ trans-Tasman fares

    You mention $11 being the cap, but a $1000 fare is more like an international fare where the cap becomes $70

  4. @Michael Kao that 3% discount for cash can be taken as a surcharge, if you find it wrong then contact the ACCC, they might be able to help you there

  5. I was just having a similar debate with myself… was it worth a 2.75%charge to get points for my child’s college tuition?? It would’ve been AA points, Chase Sapphire Reserve or Marriott. Any thoughts?

  6. Most premium credit cards in Canada come with travel insurance including trip cancellation and interruption, flight delays and cancellations, lost and delayed baggage, so I’m willing to pay premium to pay by that credit card. Besides, in the event airlines go bankrupt, which in Canada it can happen overnight without much warning (jetsgo, Canada 3000, etc), so I feel my purchases by credit cards are much more protected, than gift cards, PayPal, etc. I’d pay to carriers like Alitalia only with my credit card.

    Those 2 points are much more important than the opportunity to earn points with credit cards.

  7. Isn’t the use of a credit card also useful to defer payment? If you play well enough with billing cycles, you should come out ahead most of the times.

  8. Value of Qantas points?

    I’d put these as less than American Airlines points. AA lets you hold an award reservation, change it relatively easily at little cost (depending on when) and the award availability is quite good. Qantas charges for changes, does not let you hold a reservation and availability is quite poor.

    That’s to say AUD 1.3c for Qantas points valuation sounds fair. USD 1.3c valuation (AA equivalent) sounds overvalued to me.

  9. Qantas points are quite difficult to spend; redeeming on QF or EK the fuel surcharges/taxes become prohibitive; availability is limited. The better value is on CX, AA, IB, making stitching together RTW itineraries easier and more affordable.
    It only makes sense, from my perspective, to use them for J or F tickets ( and 2 cents AUD is reasonable); economy or domestic the return is much, much lower.
    The way in which the banks behaved over CC surcharges was completely scandalous; unfortunately the current Royal Commission into Banks and Financial Institutions has unearthed behaviours and scandals so egregious that those surcharges pale into insignificance. Expect to see a few bankers go to jail, and many , many more lose their sinecures and jobs. Looking forward to it ; it couldn’t happen to a more miserable bunch of bastards.

  10. Another thing some credit cards get you 1 or 2 checked bags free and for others in group. That alone can save many $$

    I am not sure if this applies in OZ

  11. Thankfully credit card surcharges are still fairly rare here in the US, with the exception of tax payments and gas stations (mostly on the West Coast). It’s really a pretty simple math exercise – does the value of the rewards earned exceed the fee or not.

    In the odd circumstance where I have to purchase flights on a foreign airline website that charges CC fees (and yes, I have had to do that a couple of times), I’ll usually suck up the fee because I place a higher value on the travel insurance than the cost of the fee. Granted the insurance benefits seem to be specific to US-issued cards.

  12. It is a very simple calculation – How much can you redeem the points for vs how much is the fee?
    The monetary value of the points is not relevant.
    For example, if you earn 3 points per dollar and can redeem for a 50% bonus, that means 4.5 points per dollar and if the transaction requires you to pay 2.25% then it would certainly make sense to charge. It depends if the value of points outweighs the fee.

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