An annual fee is a price, and like any price, the only question that matters is what it buys. A rewards card earns its keep when the points it generates exceed the fee. This includes the value of the points you earn, plus the perks you would otherwise have paid for. Run that equation once a year, and the answer is usually clear. Here is how to run it, with example figures you can swap for any card in your wallet.
The break even equation
The equation has three parts. These include the fee you pay, the points you earn, and the value each point returns when redeemed. The first two come straight off your statement. The third is where estimates can become unrealistic, so anchor it to reality. Points are worth 1-2 cents each in most redemptions. The valuations tracked in our rewards points valuations guide give a sensible central estimate. The guide puts Velocity Points at 1.7 cents and Qantas Points at 1.6 cents as of the December 2025 update. Value them at your own redemption returns, not at the aspirational top end of a marketing page.
The equation is then a one-liner. An annual fee versus points earned multiplied by value per point, plus perks used. At 1.7 cents a point, a $295 fee needs about 17,400 points a year to break even on points alone. Which is roughly $1,450 per month on the card, at 1 point per dollar. Value the points conservatively at 1 cent, and the same fee requires about 29,500 points, which is closer to $2,460 a month. If your real monthly spend cannot reach the threshold for your card’s fee, the fee is not sized for you, whatever the sign-up bonus is. The sign-up bonus is the introductory points offer unlocked by meeting a minimum spend.
Two example cards show the break even maths
Two illustrative cards make the method concrete. An entry card has a $95 fee and earns 0.5 points per dollar, and a premium card has a $295 fee and earns 1 point per dollar. The table below shows both with $24,000 in annual spending and points valued at 1.7 cents. Card fees and earn rates constantly drift, so the method matters more than any named product. The figures are illustrations rather than current offers, so check the current numbers and swap in your own card’s numbers. Our comparisons of Qantas points-earning credit cards and Velocity points-earning credit cards can help you do that.
| Card | Annual fee | Earn rate | Points on $24,000 | Value at 1.7 cents | Net position before perks |
| Entry card | $95 | 0.5 points per $1 | 12,000 | About $204 | About $109 ahead |
| Premium card | $295 | 1 point per $1 | 24,000 | About $408 | About $113 ahead |
At that spending level, the two cards land within a few dollars of each other, which is the real lesson. The extra $200 in fees buys an extra 12,000 points worth about $204. So the premium card only pulls ahead as spending rises above the example, and falls behind below it. The other quiet variable is the quality of redemption. The same 24,000 points redeemed for gift cards or merchandise at the bottom of the value range can drag a profitable card into the red. That is why the value side of the equation deserves as much attention as the earn side.
Perks count, but only the ones you use
Premium fees usually bundle benefits. This includes lounge passes, travel credits, complimentary insurance, and companion offers. They belong in the equation at the price you would truly have paid for them, not the brochure value:
- A travel credit you spend on a flight you were booking anyway is worth its face value
- Lounge passes you never redeem are worth zero
- Travel insurance counts if it replaces a policy you would otherwise buy, and only after you have checked its cover matches your trips
Two timing distortions deserve care. Sign-up bonuses make almost any fee look brilliant in year one. So judge a card on its second year, when the bonus is gone, and the fee recurs. And fees are charged on an anniversary, which makes that anniversary the natural annual review date. Run the review as a list:
- Tally the points earned over the year
- Value them at what your own redemptions return
- Add the perks you used, at the prices you would otherwise have paid
- Compare the total to the fee that is about to land
- Warning: value the points at your real redemption rate, not the advertised best case, because that is where the equation most often flatters the card
Waivers, retention offers and the graceful exit
When the equation fails, you have more options than paying up. Cardholders who call to close an account are sometimes offered a retention deal, fee waiver, fee reduction or bonus points. It costs nothing to ask before you cancel. Treat any offer as a bonus rather than a plan. Banks extend these offers at their own discretion, so no outcome is guaranteed. A strategy should not depend on securing one each year. Downgrading to a lower-fee card in the same family is sometimes available too, and avoids a full exit.
If the answer is still to leave, exit in the right order. Points sitting in a bank rewards program are generally forfeited when the account closes. Transfer the points to an airline program or redeem them first. If possible, time the transfer around current bonuses or limited-time uplifts. Close the card before the next fee lands. Where each currency can be spent is mapped in our overview of Qantas and Velocity partners. It should inform which program receives the balance on the way out.
Rewards economics will tighten under the 2026 RBA reforms
The Reserve Bank’s March 2026 payments reforms will cut the interchange cap on consumer credit cards from 0.8 to 0.3 per cent. The changes start from 1 October 2026. Interchange is a major source of revenue for rewards programs. Commentators and the Reserve Bank of Australia (RBA) have acknowledged that rewards programs are likely to tighten as revenue falls. The 2017 round of interchange cuts was followed by exactly that pattern of trimmed earn rates. None of this means abandoning rewards cards. It means the break-even equation is not a set-and-forget calculation. A card that clears its fee today may sit at break-even after the next round of program changes. So put the anniversary review on the calendar and re-run the fee against the points value plus perks each year at current rates.
Frequently asked questions
Fees, rates and figures quoted are correct at the time of publication and should be verified directly with each provider before acting on them.
This article is general in nature and does not constitute personal financial advice. Consider your own financial situation before applying for any credit product. Point Hacks may receive a commission from card issuers for applications made through this site.
