Are loyalty programs right for you?

What exactly is a point?

To understand where your points come from, look at what happens when you pay. Every time a credit card is used, the merchant pays a fee to its bank. These are called interchange fees, and they range from 0.5% to 5% of the amount depending on the merchant and the card used.

Merchants build those fees into their prices. In other words, you are already paying for this system, whether you hold a rewards card or not. The posted price is the same in cash, by debit card or by credit card.

That is where your points come from. Your bank collects part of those fees, then hands a piece back to you so you keep using its card. It is not a gift: it is money you already paid coming back to you. Or not coming back, if your card offers nothing.

The question that matters is therefore never « how many points do I have, » but what a point is worth at the moment you redeem it. The same Aeroplan point is worth roughly 0.7 cent on a store purchase, and can reach 3 cents on a well-chosen flight. What you do with your points matters more than how many you have collected.

We also maintain our own valuation of rewards points in Canada, program by program. It is our own assessment work, not an average borrowed from elsewhere.

Can your points disappear?

Let us be direct: yes, in part. Four things can happen to your points.

This fourth risk is rare, but it is not theoretical. Canadian retailer programs have already been suspended during financial trouble, leaving members with an unusable balance.

The lesson is not to avoid programs. It is to look at who owns the program before putting effort into it. A single store’s program depends on the health of that store. The large programs run by Air Canada, Marriott or a major bank, on the other hand, rest on far more solid ground. They are worth billions: Aeroplan was valued at 10 billion dollars when Air Canada sold 25% of it to Blackstone.

The one real reason to wait

If you do not pay your balance in full every month, stop right here. The purchase interest rate on an ordinary card sits around 21%, while a good rewards card gives you back less than 2% of your purchases.

Here is a concrete example. A 3,000 dollar balance carried for a year costs roughly 630 dollars in interest. That same 3,000 dollars in spending would have earned you around 55 dollars in rewards. Interest swallows more than ten times what the card gives back, and no welcome bonus reverses that ratio.

This is not a rejection, only an order to respect. In this situation, a low-interest card does more for your finances than any points offer. The three cards below are built for exactly that, with no minimum income required.

The CIBC Select Visa* Card and the BMO Preferred Rate Mastercard^®* cost 29 dollars a year for a 13.99% rate. The MBNA True Line^® Mastercard^® credit card goes down to 12.99% with no annual fee at all. Compare all three against your own situation: a lower rate quickly makes up for a 29 dollar fee if your balance is large.

Once the balance is at zero, come back to this page. Everything that follows applies again.

Start with a no-fee card

This is the starting point we recommend to just about everyone. A cash back card with no annual fee, no deadline to watch and no math to do. Your usual spending simply goes through the right card.

How much does it actually earn? Take a common budget of 800 dollars a month, or 9,600 dollars a year, including 400 dollars of groceries and 100 dollars of gas.

In other words, the amount depends mostly on the card, not on your spending habits. The same grocery basket earns three times more on one card than on another. On top of that, the risk at this tier is nil: with no annual fee, the worst case is a smaller rebate than expected, never a loss.

These four cards cover most needs, with modest income requirements or none at all. They are good first choices for building your credit history without paying anything.

The CIBC Dividend^® Visa* Card pays up to 100 dollars back after 2,000 dollars of spending and asks for 15,000 dollars of personal income. The Tangerine Money-Back Credit Card lets you pick your bonus categories, starting at 12,000 dollars of income. The BMO CashBack^® Mastercard^®* goes up to 125 dollars back after 1,000 dollars of spending. Finally, the CIBC Adapta^™ Mastercard^® adjusts its categories to your actual habits.

Our page on the best no-annual-fee credit cards keeps the full list up to date every month.

If travel does not interest you

This is a question we get often, and the answer is reassuring: you are under no obligation to travel for this to be worth it. With cash back, there is no award chart to decode and no right moment to redeem. The amount comes back on your statement, and it is worth exactly what it says. No devaluation is possible, because there is no conversion.

It is also the most honest choice if you have no desire to learn how an airline program works. You cash in, full stop.

The CIBC Dividend^® Visa Infinite* Card costs 120 dollars and pays up to 300 dollars back after 2,500 dollars of spending, a threshold you can reach in a few months of groceries. The BMO CashBack^® World Elite^®* Mastercard^®*, at 139 dollars, illustrates the warning above: its 5% on groceries stops at 500 dollars per statement, and its 650 dollar bonus requires 24,000 dollars of spending. The Desjardins Cash Back World Elite Mastercard, at 100 dollars, rounds out the picture on the Quebec side.

If you fly once a year

A single flight a year is enough to justify a points card, because a welcome bonus often covers most of a ticket. There is no need to juggle five cards for that: one application a year, in a single program, then normal use until the next one.

The real deciding factor is not the size of the bonus, it is the spending threshold you have to reach to get it. Reaching 1,500 dollars in three months has nothing to do with reaching 7,500 dollars. A magnificent bonus your budget cannot unlock is worth nothing.

Not all cards are equal

Past a certain point, you will come across cards at 150 dollars, sometimes far more, and the natural reflex is to run. The reality is more nuanced. These cards often pay their own fee back through annual credits, travel insurance and airport lounge access. A 150 dollar card that hands you a 100 dollar automatic travel credit really costs 50 dollars.

The real trap lies elsewhere, and it hits beginners in particular. Some bonuses unlock in tiers, spread across a full year of spending. That is not the case for every annual-fee card, far from it: many pay their entire bonus as soon as a single threshold is met. The BMO Ascend^™ World Elite^®* Mastercard^®*, for instance, advertises up to 100,000 points, but it takes 20,000 dollars of spending to collect all of them.

These premium cards are excellent, provided you have the budget to match. A family that puts groceries, gas, insurance and bills on the same card reaches the thresholds without thinking about it. They then unlock bonuses no fee-free card will ever match.

On top of that, every benefit starts on day one, with no tier to wait for: travel and car rental insurance, annual credits, airport lounge access, free checked baggage, purchase protection. Often, those benefits are already worth more than the fee.

So run the numbers with your own figures. At 800 dollars of spending a month, you will not reach a tier set at 20,000 dollars over the year, and the advertised bonus is not the one you will collect. At 2,000 dollars a month, the same card becomes one of the best financial decisions of your year.

What about 599 or 799 dollar cards?

Let us run the same exercise, because it is instructive. On our 800 dollar monthly budget, the TD^® Aeroplan^® Visa Infinite Privilege* Credit Card earns roughly 13,000 Aeroplan points a year, at 1.25 to 1.5 points per dollar. At 2 cents a point, that is close to 260 dollars of value against a 599 dollar annual fee. The American Express Platinum Card^® gives 2 points per dollar on dining and travel, and 1 point per dollar on everything else, for 799 dollars.

The conclusion is clear: at that level of spending, earning alone never covers the fee. These cards do not pay for themselves through points, but through what comes with them, and what lands on day one.

The calculation to run is therefore a different one. Add up, in dollars, only the benefits you will genuinely use this year. If the total exceeds the fee, the card is worth it for you. If not, it is not, whatever its prestige.

The false reasons not to start

Three objections come up constantly, and none of them holds up.

We took these beliefs apart in detail in our analysis of the 7 myths about credit cards.

Five questions to place yourself

Answer them honestly, in order.

• The balance: do you pay your card in full every month?
• The budget: how much goes through your card each month, under 800 dollars, between 800 and 2,000 dollars, more?
• Travel: do you fly at least once a year?
• Time: how much are you willing to spend on this, none, an hour a year, a few hours a month?
• The project: do you have a goal in mind, and by when? Aim for two years at most; beyond that, the devaluation risk becomes real.

Here is how to read your answers.

Find your card with our comparison tool

We track more than 200 active credit cards in Canada. Nobody can read all of that, and that is exactly why our credit card comparison tool exists.

It works the opposite way to the usual rankings. Instead of handing you a ready-made list, it asks for your real constraints and removes everything that does not suit you.

• Start with the annual fee and the income required: those two criteria alone eliminate most of the catalogue.
• Then the reward type: cash back or travel points, based on the answer you just gave yourself.
• Finally the details that count: the bonus spending threshold, the earning caps and the insurance included.

Even after filtering, the list stays long and runs over several pages. That is not a flaw: focus on the first ones, the ones the sort brings up for your profile, and leave the rest.

Then comes the most useful step. Tick « Compare » on the cards that interest you, then run the comparison. You get a side-by-side table: first-year value, second-year value once the bonus is gone, the size of the bonus, the minimum spending and the time you have to reach it.

That is where good decisions get made. A card can show 1,603 dollars of value in the first year thanks to its bonus, then fall back to 425 dollars afterwards, while another stays steadier. Always look at the second-year column: that is the one that tells you what the card will really earn you over time.

Compare credit cards

Your needs will change, and so will your card

There is no good card in the absolute, only a good card for your situation right now. And that situation moves: the perfect card at 25 is no longer perfect at 40.

Hence one simple habit to adopt: review your wallet once a year, when the annual fees are charged. Ask yourself the five questions above again, compare them with what you are paying, then switch if your life has changed. This is not complicated optimization, it is a half-hour appointment once a year.

In short, start small with a no-fee card, set yourself a two-year project, and let your choice evolve as your situation evolves. That is all you need to remember.

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Frequently Asked Questions about loyalty programs

Here are questions frequently asked in the milesopedia community about loyalty programs.