Credit card issuers are waging a fierce war for our business, and consumers should be cashing in. But how?
I have a suggestion: take the time and trouble to determine which credit card offers the best deal for you personally and cancel all other credit cards you may have.
Today it’s possible to find a credit card that offers a guaranteed return of two per cent of the cost of all purchases made on the card.
That might not sound like much. But it means that you’ll get back $200 of every $10,000 in purchases made with the card.
That guaranteed return may well be more than you would get on a card that dangles the bait of “free” flights, “free” travel or “free” almost everything.
Until I did some research recently, I paid annual fees for several credit cards, including one that offers Aeroplan points and another that offers Air Miles. Those are two leading loyalty programs designed to steer consumers to buy from retailers that offer these points as a reward.
Silly me. Do the math. I doubled my annual fees (which were $120 for each of the two rewards cards). But I gained no more benefit than I would by putting all my spending on a single card.
Twice $120 is $240. And that is a big chunk out of $400 that I would earn annually if I spent $10,000 on each of those cards and if each card offered a two per cent return on my spending.
It is extremely difficult to measure the rate of return on credit cards that offer Aeroplan points, Air Miles or other travel rewards. For one thing, these rewards typically do not cover a multitude of taxes, fees and surcharges that airlines add to the ticket price.
The value of such rewards also varies greatly depending on when you book a flight and how close the flight is to being fully booked.
The only reliable way to know the value of your “reward” is to check how much it would cost (before taxes and surcharges) to buy a ticket for that flight on the dates you plan to travel. I made a few checks for upcoming flights from Ottawa to New York City and Miami and found wide variations in the value of these rewards.
The biggest drawback with rewards programs such as Aeroplan is that they might offer only a limited selection of flights and they also might require more transfers from one plane to another.
Twice in the past year this happened to me when travelling with Aeroplan points on Air Canada. My booking from Vancouver to Ottawa included waiting for several hours overnight in Toronto for a connecting flight to Ottawa. When I flew from Ottawa to California with Aeroplan points on Air Canada this fall, I had to change planes twice, in New York City and Chicago. (I was OK with Chicago. But New York City as well?)
Another reason I would prefer to earn a cash reward on my credit card is that it puts me in control. I can do the research myself on the cheapest and most convenient way to travel.
When you think about it, Aeroplan and Air Miles act as intermediaries between the passenger and the airline. In theory, there ought to be savings if the customer deals directly with the airline. And certainly there ought to be savings if the customer looks hard for the lowest fare.
In the current highly competitive market, many credit card issuers offer attractive inducements to get new customers. These may include air travel that can be worth several hundred dollars.
I have no problem with paying an annual fee for my credit card, provided I get good value for money. My new card, the Capital One Aspire Travel MasterCard, offers a good amount of out-of-province and out-of-country medical insurance for my wife and me. I believe that alone is worth the annual fee of $120, since we frequently travel within Canada and abroad.
So the two per cent cash back on every dollar we spend on the card is a bonus. It’s worth $200 – cash – for every $10,000 spent on the card, provided we pay off the balance each month, which we invariably do.
Michael Prentice is OBJ’s columnist on retail and consumer issues. He can be contacted at firstname.lastname@example.org.