Ditch Your Points Plan: Cash Back Credit Cards Offer More For Your Money

About a year ago, Matt Brownlow started putting all his expenses on a Tangerine cash back credit card to get the most out of his cash back rewards. He then pays the balance at the end of each month.

The 33-year-old mortgage broker from Mission35 Mortgages in Burlington, Ont., ditched his previous President’s Choice points card in favor of a cash back card so he could use the rewards as “treat money”.

“If there’s something I’m saving for, I could put that money aside. With Tangerine, it’s great because it can go into a separate savings account. Last month I bought a food processor with that money because I had been eyeing one,” he said.

“I also used that money to put it in my Questrade account. I just deposit it when it hits a certain amount…I can put it in an exchange traded fund and watch that money grow a lot faster.

Among credit card holders, 78% say they most often use a card that offers some kind of reward, according to the 2021 Digital Currency Trends Report recently released by Ratehub.ca. Cash back was the most popular (54%), followed by store credit (25%) and travel cards (23%).

“Cash back offers have never been more attractive in Canada than they are now and there have never been more people looking for cash back credit cards,” said Mikael Castaldo, general manager of day-to-day banking at Ratehub.ca.

“(They are) attractive for everyday use because you can earn a significant amount of cash over time, especially if you regularly use your card to pay for specific items or recurring bills.”

Brownlow, who recently spent eight months doing home renovations, set her Tangerine card spending categories to home renovation, furniture and groceries to get the most out of her recent purchases.

The card offers 2% cash back in three categories of its choice – other options include restaurants, gas and parking – and all other spending gets 0.50% cash back, l money being deposited into her Tangerine savings account. Cardholders without a bank account get the higher cashback on two categories instead of three, with cash back straight to their credit card.

Cash back at other financial institutions follows a variety of models, whether it’s a points system that includes cash back options or partnerships with specific gas or grocery chains offering higher rewards than the baseline.

Direct cash back rewards let you maximize your savings in ways that points couldn’t, Castaldo said.

“You can set it up to have your cash back automatically paid into your savings or checking account and treat that as another savings benefit.”

Cashback is also attractive because of its simplicity.

“It’s extremely clear the rate of return you get compared to some of these points programs that can be convoluted. And that transparency seems to resonate with a lot of people,” he said.

Another advantage they have, especially over point cards, is that you get your reward to the nearest dollar. In comparison, people don’t always use all of their points in other types of reward cards.

“It’s kind of exciting for a lot of people because you don’t have that weird amount of points that you never use at the end of the year,” he said.

The downside, compared to other rewards cards, is that if you max out your points on a points card, you’ll usually get more value than with a pure cashback card.

That’s because the financial institutions that monitor the value of points assume you don’t spend all of your points, he explained.

“They have this massive point balance that they keep on their books every year so they can afford to be more generous knowing that people aren’t always going to use it. With cash back, on the other hand, people almost always reduce their balance to the last dollar each year. »

For Canadians looking to sign up for a cash back card, Castaldo recommends always reading the fine print.

“A lot of credit cards may have great welcome offers, but those offers will disappear after six months,” he said.

The best way to get “bang for your buck,” he adds, is to go online and research the details of each card.

Ratehub’s findings are based on an online survey of 1,527 Canadians, conducted between August 20-22, 2021, using Leger’s online panel.

This report from The Canadian Press was first published on March 8, 2022.


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