Understanding Credit Cards
If you are new to the miles and points worth, we recommend reading the Pointshogger 101 page before reading this page.
Step 5 of Pointshogger 101 was to choose the right credit card for you. To choose the credit that card best suits your personal needs, it’s important to understand the different options available. When it comes to earning rewards with credit cards, there are essentially 4 types of points currency that you can earn, which are:
- pure cash back
- fixed value
- transferable points
- co-branded / program specific
This page explains the differences between each type of reward options.
Pure Cash Back
These types of credit cards allow cardholders the option to earn pure cash back that is either credited directly onto the monthly statement or a cheque mail to their home. Cash back is a fixed return, which means the return does not fluctuate. To increase your return, you will want to find multiplier bonuses, whereby you earn a higher return on specific purchases.
For example, the Tangerine Money-Back Credit Card is a no annual fee card that gives 2% cash back on a select group of categories (choice of 2 categories, a 3rd choice if you deposit the cash back into your Tangerine Savings Account), but 0.5% cash back on all other purchases. So I would choose 2-3 categories of purchases that I cannot earn at least 2% cash back with another card in my portfolio. I would definitely not use the Tangerine card for anything less than a 2% return.
Additionally, it may make sense to add the Scotia Momentum Visa Infinite Card, an annual fee based card, which gives more cash back bonus on certain spending, such as 4% cash back for every $1 spent on grocery purchases and recurring bill payments. Cardholders can earn 2% cash back for every $1 spent on gas and daily transit, but only 1% cash back for every $1 spent on all other purchases. Depending on how much a person spends per year, it might make sense to combine this card with the Tangerine card mentioned above to net a better overall return annually.
Basically, the best way to maximise cash back rewards is to combine several cards into your portfolio as there is no one overall best cash back card.
Fixed Value Credit Cards
Fixed value credit cards offer the option to earn points at a fixed rate. Basically, the cardholder knows exactly how much they are going to earn for their spending and the points are redeemed at a fixed rate. So it is actually very similar to cash back.
For example, every point earned with the Scotiabank Gold American Express Card is worth 1 cent each. What you want to do is focus spending on multiplier bonuses, such as earning 5 points for every $1 spent on grocery, dining and entertainment purchases.
For fixed programs, the best value when redeeming these points is generally to use on travel purchases. Other reward options can exist, for example, merchandise, however, the value of each point might be less than 1 cent per point.
These types of points are good for flexibility to book paid cheaper flights. For example, if you had 50,000 points, it would give you a $500 credit against a travel expenses. This way, you avoid having to deal with the complicated aspects of loyalty programs (e.g. award availability, blackout dates, etc.).
Conversely, if earned the same 50,000 points (credited to a frequent flyer mileage account with the same earning ratios), you can probably leverage the 50,000 miles for much more than $500. But then you will have to spend more time studying the loyalty program and deal with blackout dates and award availability.
Examples of cards:
- BMO World Elite MasterCard
- BMO eclipse Visa Infinite Card
- Scotiabank Gold American Express Card
- Scotiabank Passport Visa Infinite Card
Transferable Points Credit Cards
Transferable points (also known as hybrid points) allow you to accumulate points into a central pool and gives the flexibility to transfer to different partners, as well as redeeming as cash towards a purchase. In Canada, there are 3 main transferable points program, the American Express Membership Rewards, HSBC Rewards and RBC Avion programs. All 3 of them give cardholders the option to transfer to different airline and hotel programs or redeeming the points at a fixed rate.
As mentioned above, if you are willing to spend time to learn the intricacies of loyalty programs, I suggest only transferring these points whenever you have a specific reward redemption in mind. Otherwise, you are better off keeping them in a transferable state to give you more flexibility. Unless there is a conversion bonus promotion to give a nice boost to account balances.
Basically, the ideal is to keep these points as flexible as possible to take advantage of transfer bonuses or to top up certain accounts for timing a specific reward redemption.
Co-branded Credit Cards
These credit cards allow you to earn points with a specific airline, hotel or other type of loyalty programs (e.g. Scotiabank SCENE Visa card allows you to earn Scene points) directly. These types of miles and points allow you to earn fluctuating value of rewards; in some cases, significant value for First and Business class flights. The downside is that now you have to deal with the frequent flyer or hotel programs and their limitations (i.e. blackout dates, taxes and fuel charges, resort fees, lack of availability, etc.).
These types of credit cards are usually associated with perks such as: free checked bags, free hotel night, priority check-in, lounge access, and companion passes. These types of cards are good to sign up for if you frequently use a specific program. This way, you can take advantage of more of the perks associated with the card to maximise the benefits.
Note that some loyalty programs also have the flexibility to transfer points to another loyalty program. For example, some hotel programs allow members to transfer this points to frequent flyer programs, in which case, watch for transfer bonuses to double dip.