It’s been a while since I last posted, part of it was because of my busy schedule, but a bigger part of it is that I have had trouble finding a topic to write about. The reason I had trouble finding a topic to write about is because I am personally re-thinking my travel strategy. Which brought me back to when Pointshogger was founded. I have always said that Pointshogger is about “maximising rewards for Canadians“. What does that really mean?
There are two fronts to “maximising” rewards, from optimising earning and redeeming the rewards that you earn. Rewards can include miles, points and cash back. Which leads into today’s topic about whether we should focus our energy on earning cash back instead of miles (the word generally used for airline frequent flyer programs) and points (word generally used for hotels and all other programs).
Advantage of Miles and Points
The advantage of earning miles and points is because those rewards are variable and can be leveraged for even more value than what cash back could have gotten us. Furthermore, we are more likely to splurge on something (usually travel) by leveraging our miles and points for a travel booking that we probably would not have used our hard earned cash to book. For example, we may use our miles to book a First Class flight and use points to book a luxurious hotel room. However, had I only earned cash back, I probably would not have used that cash back to pay for that First Class flight ticket or expensive hotel room.
That being said, with so much travel being grounded, does it make more sense to switch to cash back?
Switch to Cash Back?
Let’s break this question down to a pros and cons list to continue the analysis.
What would be the positive reasons to switch to cash back in Canada?
Cash back is predictable because the value of cash back is not variable. So if you earn $5 in cash back, you get $5. Who doesn’t like consistency in times of uncertainty?
- Current promotions
You will notice that the cash back market in Canada has really heat up over the past 2 years or so. We are seeing 10% cash back promotions offered by several different companies. So the opportunity to churn high cash back sign up bonuses is there.
Note that for more information on the current cash back credit card offers, we release a monthly post listing the top cash back promotions. The last one was in February, and the March one will come out tomorrow. All the while, we have our ongoing top cash back list found on the menu bar under Top Credit Cards”.
- Loyalty companies shutting down
You are probably reading articles everywhere about airlines and hotels potentially going bankrupt. What happens to our account balances then?
Because miles and points are variable, it goes with the concept of high risk, high reward. So we talked about the high risk mentioned about (i.e. bankruptcy). Now let’s talk about the high reward opportunity.
- More award space openings when the times comes
When things eventually (assuming?) go back to normal at some point, it’s not like every one is going to switch on the light one day and book up everything possible. I suspect that people will slowly get back to travelling. When that time comes, there should be a window of opportunity where there should be lots of award availability.
This is going with the assumption that airlines and hotels either keep their regular award availability space, or better yet, open up more space to attract customers back. I highly doubt companies will do the reverse and shut out award space to force people to pay cash for travel. It can happen, but this section should be about the cons of cash back and pros of going for miles and points. So let’s continue…
- More incentives to attract customers back
I touch on this idea in the paragraph above. The high reward potential is that airlines and hotels will want to add more incentive to win customers back to their specific company. Which means, I am hoping to see reward redemption discounts across the board. For example, less miles to redeem for the same flight or less points to book that same hotel room. That would highly increase the value of our miles and points that we have been stockpiling while waiting for travel to open back up.
We saw something similar after the 2008 crisis. In 2009 and 2010, things really opened up. Then things felt like good deals were closing up in recent years. It should be a cycle right? Open, close, open, close… etc.
Who knows what will happen. Who knows who will be left standing (i.e. which companies will still be around) when things blow over. Who knows who will make bold moves to win customers back. Some companies may open the flood gates, others may shut off the valve.
So let’s go back to our original question. Should we be switching to cash back?
My answer is: “it depends on what type of person you are”. In other words, what is your risk tolerance level? Depending on your answer, I have 3 different responses:
- If you are a low risk type of person, then I would suggest going for cash back. Predictability and getting more sleep at night is probably more important. Then put your energy towards those 10% cash back offers like the Scotia Momentum Visa Infinite Card (first year fee waived, 10% cash back in the first 3 months up to $2,000 in spending).
- If you are a medium risk type person like me, then I would suggest to diversify your portfolio. Have some cash back and continue to earn miles and points as well. I continue to have the grandfathered Capital One World Elite Aspire Travel MasterCard to earn essentially 2% cash back (on all purchases), which I use for every day spending. But I am more than happy to keep earning those credit card sign up bonuses by meeting spend requirements.
- If you have a high risk tolerance, then this is the time to go crazy and rack up those miles and points as much as you can, because if the flood gates open, there are endless possibilities. Just keep in mind that bankruptcies can happen or that companies may need to cut down on costs. Who knows what will be affected, but the potential is there!
Question for you, which risk tolerance level do you have and what will your strategy be? Please let us know in the comment section below!