Should I pay with a card to earn points even when there’s a surcharge?

Earn points or save money? Here's how to decide.

Every time you pay with a frequent flyer credit card, you can earn frequent flyer points. But is it still worth doing that if you're going to have to pay a surcharge to use the card?

This is a question I get asked a lot. The simple answer is that it depends on the surcharge and the credit card, but in most cases, the surcharge is only worth it to earn points if you have a high-earning card.

Credit card surcharges are becoming less frequent as we move towards a cashless society, but still often pop up. Hotels are one of the more common examples.

Let's demonstrate with an example. Accor (Australia's biggest hotel chain) typically charges a 1.3% surcharge if you pay with a credit card at its Australian locations. My next booking at an Accor hotel will cost me $120.

If I pay for that with a credit card, the total will be $121.56. Effectively, the cost of the points here is what I'm paying for the surcharge. I'll have to pay for the room regardless, but I can't earn the points unless I pay the credit card surcharge.

$1.56 doesn't seem like a lot of money, but whether it represents good value depends on how many points I earn, and that depends on which card I use.

Typically, frequent flyer credit cards in Australia earn anywhere from 1 point per $2 spent to 2 points per $1 spent. So how many points would I earn on this booking? The table below shows the answer for three common scenarios, assuming the 1.3% surcharge and a $120 spend.

More importantly, it shows how much I'm effectively paying per 1,000 points. Redemptions typically require using thousands of points, so that's a more helpful measure.

For a lower-rate card that's earning just 1 point per $2 spent, each 1,000 points is costing me $26. That means when I redeem those points, I have to be getting $26 in value for each 1,000 points I spend purely to break even. I have to get more value than that for the points to actually be worth more than I paid for them.

As our full guide to points value explains, it's certainly possible to get more than $20 in value for each 1,000 points. However, that requires booking either a rewards flight (in business, first or some economy legs) or an upgrade into a higher class.

If you spend your points on a coffee machine or a gift card, you won't get anywhere near that amount of value. So if you're on a low-earning card, it doesn't make sense to pay the surcharge unless you're extremely careful about how you spend your points. That $1.56 might not seem like much, but if you make a low-value redemption you won't get it back.

With higher earn rates, the decision is less stressful. If you're earning 1 point per dollar, each 1,000 points is costing you $12.89 if a surcharge of 1.3% is involved. Virtually any flight booking will get you more value than that.

If you're getting 2 points per $1, you're paying $6.42 for each 1,000 points. That's low enough that most redemptions (though not all) will see you getting more value than you paid for the points.

In Australia, it's illegal for credit card surcharges to be more than the cost which the business incurs in processing that transaction. Our full Finder guide to credit card surcharges has more on what you can expect to pay. But rates around the 1.3–1.5% level are common, so the chart above gives you a useful benchmark to think about. Overseas, the rates might be higher; it's not uncommon to see 3% charges at hotels.

Remember too that surcharge or not, points from standard expenses are never likely to make up the majority of what you earn. Sign-up offers for credit cards, big bonus points offers from supermarkets and earnings from flights remain the most reliable way to earn points.

So when there's a surcharge involved, think carefully. If you've got a clear goal such as saving for a business reward flight redemption, you'll be OK, but don't just casually assume that the surcharge makes the expenditure worth it.

Bonus tip: make sure you know whether a surcharge applies to your hotel before you make your booking. In some cases, paying when you book with a credit card doesn't attract a surcharge, but paying at the hotel itself will, so check the rules carefully.

Note: I updated this guide in July 2022 to reflect changed market conditions.

Angus Kidman's Findings column looks at new developments and research that help you save money, make wise decisions and enjoy your life more.

Picture: Getty Images