Typically, you are issued a credit card to purchase goods and services on credit. This means you don’t pay for your purchases right away, but payment is taken out (on a predetermined date of the month) of an account linked to the credit card at some future point in time. As a result, you enjoy “free money” (or credit) from the date of the transaction until the payment date.
While you may think this is “free money”, someone does end up paying, including:
- Transaction fees: Usually paid for by the vendor, from whom you have purchased the goods and services
- Interest on outstanding balances: Paid for by the credit card holder (you!), on any outstanding balances owed on the card
- Annual fee: Where applicable, this fee is charged to the card holder whenever the credit card is up for renewal. Such fees are not applicable to no-fee cards, however
So, as you can appreciate from the above “Credit Card 101 primer”, card sponsors and issuers are always being compensated for the “privilege” of allowing you to own a credit card. However, there are instances where they (credit card issuers) reward their cardholders, and one such instance is when you hold Rewards Credit Card.
By definition, Rewards Credit cards are instruments (credit cards) that, when used by the holder, allows the accumulation of “rewards” upon use. Depending on the type of card you have, such rewards may accrue on all transactions, or they may be awarded only on select transactions. Generally, rewards can come in the form of:
- Cash-back credit rewards: In their simplest form, cash-back translates into a rebate (or discount) on the value of eligible transactions. By way of an example, if you have a 2% cash-back rewards card, a $1,000 purchase could net you $20 “back” as a rebate/discount. Depending on the type of cash-back rewards card you have, this $20 may be deposited directly into your account; it may be taken off the purchase price; or it may be credited to your next statement
- Points rewards: These types of cards reward you with points that are accumulated upon each eligible purchase. Usually, a point or denominations thereof (10-points, 25-points, 100-points) translates into certain dollar-value in rewards. Once you accumulate a minimum number of reward points, you can redeem them either for goods/services from an issuers website, or through other means (e.g. store credits)
- Miles rewards: Usually, the reward you receive from these types of reward programs depends upon the type of miles card. For instance, if you use an Air Miles Canada sponsor’s card, your rewards card will get you “air miles” for every eligible transaction. However, those miles can be redeemed at a number of places, including Hudson’s Bay, Best Western or Rexall drug stores.
Other “miles” reward card sponsors may allow you to apply your accumulated miles for credit when you travel or book flights on select airlines, like WestJet.
Introducing the Best-of-breed Travel Rewards Cards
Now that you are familiar with the concept of getting rewarded by your credit card sponsor (or issuer), lets discuss Travel Rewards Credit Cards in greater detail. You may recall that, in our discussions on “miles” rewards, we mentioned that some of those miles can be redeemed for travel perks, like discounts on airline tickets. Travel Rewards Credit Cards, however, offer broader based travel-related rewards.
Depending on who sponsors/issues your travel rewards card:
- You could redeem your travel rewards for airline tickets
- Use them to rent a car while travelling
- Book hotel stays when on vacation
- Tap into professional services, such as travel agencies, to help you formalize travel plans
- Receive favourable exchange rates when converting foreign currencies
Some travel rewards cards offer other benefits, like access to companion flights, priority entry at “VIP” airport lounges, travel insurance coverage and travel medical coverage. Here is our list of Top 4 Travel Rewards Credit Cards in Canada:
American Express Cobalt™Card
Why we like it?
Positioned for the millennial user, this card is AmEx’s first Canadian card to carry a monthly fee – which is just $10! You can earn up to 30,000 bonus points in your 1st year, and it comes with a strong travel insurance offering.
$1 spent on eligible purchases, including streaming services, restaurants, groceries, transit and gas and order-in food deliveries, could earn you up to 5 points. And you can add supplemental cards at no additional cost.
Members also regularly receive other bonuses and perks, as well as access to ongoing events in and around Canada.
BMO® AIR MILES®† Mastercard®
Why we like it?
If you love collecting (and using!) Air Miles, then you’ll find this card a great addition into your wallet. For starters, you’ll receive 500 Air Miles as your welcome gift…but there’s more! For the first 6-mohths of your membership, you could earn 3-times the regular miles when you use your card for eligible transactions. After that, you’ll earn 1 Air Mile for every $20 in eligible purchases charged against your card, including spending at Shell gas stations and popular Car Rental agencies.
RBC Visa Infinite Avion
Why we like it?
Avion takes travel rewards to the next level! You can choose to fly on any airline, and at any time – including peak season. Additionally, you can convert your rewards to other supported loyalty programs, such as WestJet dollars, American Airlines Advantage miles, British Airways Avios or Cathy Pacific Asia Miles.
In addition to solid travel insurance plans, including Trip Cancellation, Emergency Medical Insurance, Auto Rental insurance or card loss/damage protection, you’ll earn points on hotel stays, travel dining, gas, cruises and vacation packages.
While you get 15,000 points on approval, Avion comes with an annual fee of $120, with a $50 charge for additional cards.
Scotiabank American Express® Card
Why we like it?
With a more than generous offering of 5,000 bonus points for just $500 spent in your first 3-months, this is yet another NO Annual Fee card that has made it to our list. This is one of those dollar-for-point matching cards, where every dollar you spend gets you one point in rewards.
You can use your card to book your travel through Scotia Rewards Travel Service, and there are no redemption restrictions. You’ll receive a number of travel benefits too, including emergency medical insurance, trip interruption insurance, rental car loss/damage insurance and travel accident insurance.
Redeem your points to travel anywhere and at anytime. And…you’ll be eligible to access a number of special offers that are regularly issued through American Express Invites® and Scotia Rewards Travel Advantage.
Sounds great? Well, it truly is – but only if you pay your credit card bill in full each payment cycle, and if you manage your credit card usage responsibly. While your travel rewards credit card might give you plenty of reasons to cheer, it can also give you pause for thought.
If you are inclined to just pay the minimum amount due on your statement, and to carry forward a balance month after month, you might not really be enjoying the full potential of your travel rewards credit card. Why? That’s because the interest payable on your outstanding balance each month, is likely to nullify any benefit you might receive in terms of travel rewards.
When selecting you travel rewards credit card, you should also be aware that some rewards – like booking flights – might be restricted to specific times of the year only, and on specific destinations. Additionally, you may be income-tested in order to qualify for applying for some cards. For instance, the BMO World Elite Mastercard has eligibility criteria of $80,000 individual or $150,000 household income.
This information is just our view and should be not be considered advice of any sorts.
From our experience and other professionals we partner and engage with, we work to find useful tips and information that would be important to share.
If you are someone that is looking for professional advice tailored to your circumstance, please contact a bank, financial advisor, or mortgage broker.