Rewards Credit Cards

Updated: Sep 10, 2020
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Rewards credit card offers provide rewards in like cash-back, points, or miles. So, they can be great for frequent shoppers and travelers. However, they also come with higher interest rates and can have high annual fees.

You need to have good-to-excellent credit to get approved, and you can build credit if you use the card responsibly. Read on to find out more about Canadian rewards credit cards, including their features, benefits, and drawbacks, so that you can make an educated decision.

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Not all rewards cards are created equal. Although they all work the same, they differ in types of rewards they offer, fees, and redemption options.

Some of the most common features of rewards cards include:

  • Fixed or tiered cash-back, points, or miles
  • Sign-up bonuses
  • Flexible redemption options
  • Discounts for travel-related purchases or at selected merchants
  • Access to exclusive airport lounges
  • Travel insurance
  • TSA PreCheck reimbursement
  • Global Entry reimbursement
  • Insurance for delayed or cancelled flights
  • Free checked baggage
  • Insurance for lost or delayed luggage
  • Rental car insurance
  • Roadside assistance

Keep in mind that you may not get all these features on a single card. While travel cards don’t typically offer cashback rewards, cash-back cards can offer travel perks. The features vary from one issuer to the next.

Rewards Cards Pros

You can enjoy many attractive benefits when using a rewards credit card, depending on the type you choose. These are some of the best perks to consider.

Earning Cashback, Air Miles, or Points on Purchases

The best thing about having this type of card is that you earn rewards every time you use it.

You can earn a particular cashback percentage on every purchase, which may be limited to specific categories. They can be fixed or rotating (quarterly or annually). Some issuers even allow you to select your desired categories from a specified list.

You can also earn points on purchases. Depending on the issuer, this can be flat (e.g., making 1 point per dollar on all purchases) or tiered (e.g., earning 3 points per dollar on restaurants, 2 points per dollar on gas and groceries, and 1 point per dollar on other purchases).

Earning travel rewards is yet another excellent advantage. You can earn air miles or hotel points, which can be very useful if you’re a frequent traveller.

Sign-Up Bonuses

Not every issuer offers sign-up bonuses, but many do because they’re a great incentive.

However, you don’t get a bonus just for opening an account. You need to spend a specific amount of money during a particular period to earn that bonus. Usually, that’s several hundreds of dollars.

Flexible Redemption Possibilities

There are plenty of options for redeeming your rewards. Cashback is pretty straightforward, as well as air miles that you can redeem for flight tickets (usually only at selected airlines).

As far as points go, you can use them for merchandise, gas, gift cards, airline tickets, hotel stays, and a wealth of other purchases. You can even redeem points or miles for a statement credit, thus reducing your outstanding balance.

When shopping for a rewards card, look for the features you’re going to use regularly. Getting value from your rewards takes time, and they may not offset all the fees if you mostly keep the card in your wallet.

Rewards Cards Cons

The following disadvantages may not outweigh the benefits of this card type. You can even altogether avoid some of them.

High APR and Annual Fees

These cards come with a high APR, but some issuers provide a $0 intro APR. Interest rates are usually very high, especially with travel cards.

Many issuers offer cards with no annual fees, while others only waive them for the first year. However, cards with the best rewards require high annual fees. They can range from several hundred to several thousand dollars.

Possibility of Rewards Caps, Expiration, and Minimum Redemption Thresholds

Some cards don’t allow you to earn more rewards than specified for a certain period, usually three months. Some even offer expiring rewards, which you may lose after each quarter ends or after a year or more, for instance.

While caps and expiration dates may be frustrating, minimum redemption thresholds might be an even more significant disadvantage.

Credit cards with such limitations don’t allow you to redeem what you’ve earned until you’ve reached a specified amount. That could potentially mean spending thousands of dollars before you can get some real value.

Good-to-Excellent Credit Required

While you can avoid said disadvantages, you can’t get around this one. To be eligible for any rewards card, you must have a good-to-excellent credit score (typically 690 or higher).

But if you’re qualified and want to improve your credit, this card type may be a good choice – as long as you use it responsibly and maximize its potential.

To make the most of your card and rack up the rewards, use it for most or all of your purchases, take advantage of discounts and freebies, and pay off your full balance on time every month. You can also consider pairing it with one or more complementary cards, preferably with no annual fees.

Should You Use a Rewards Card?

Using this type of card can be a very lucrative endeavour, as long as you use it regularly and responsibly. Since you can avoid annual fees and high-interest rates, you can save money while earning some of it back.

However, if you’re looking for really high rewards, you have to be ready for hefty annual fees. That’s usually the case with travel cards, but it’s a possibility with other cards too.

Whether you should use this card type depends entirely on your spending habits – what you’re spending money on, how much, and how frequently.

If you’re a frequent traveller, getting a travel card might be a very good idea. If you’re a big spender, cashback or points card may be just what you need.

The Bottom Line

Rewards cards can be an excellent choice for anyone with good-to-excellent credit who’s frequently travelling or paying for the bulk of their spending with a credit card. Earning rewards just for using the card is something to consider.

If you decide to use one, be sure to explore various issuers and compare the features to choose the right fit for your spending habits.

Reward Card Offers Recap

Rewards Credit Cards FAQs. What People Ask About Reward Cards

Are Rewards Cards Taxable in Canada?2020-08-31T22:39:50-07:00

You’ll be happy to know that rewards cards are not taxable in Canada. The CRA treats rewards points as discounts and incentives by card issuers, so you don’t have to pay taxes on your card earnings.

How Much Are Rewards Points Worth?2020-08-31T22:40:03-07:00

It depends on the card issuer and the redemption options they offer. The value of points and air miles typically ranges around 1 cent per point or mile, but you can find cards that offer lower and higher values. Check with your card issuer before making any commitments.

Do I Lose Rewards on Returned Purchases and Missed Payments?2020-08-31T22:40:11-07:00

Unfortunately, yes. If you return a purchased item, you’ll lose the rewards you earned from it. Missing a payment is slightly different because you can retrieve your rewards.

If you miss a payment, you’ll temporarily lose all the rewards from that particular billing period. You can get them back only when you provide your full payment and pay for the reinstatement fee. If you fail to do so within a specified period, you risk saying goodbye to all the rewards.

How Can I Become Eligible for a Rewards Card?2020-08-31T22:39:56-07:00

You must have good-to-excellent credit to apply. That’s a FICO score of at least 690 points. Other application requirements may differ from one issuer to the next.

Every issuer in Canada will require your ID to check your birth date and address. That’s because you need to be a legal resident of Canada who is at least 18 or 19 years of age, depending on the province.

How Can I Redeem My Credit Card Rewards?2020-08-31T22:40:18-07:00

You can redeem your rewards through your card issuer’s portal. Once you get approved for the card, they’ll inform you about how you can redeem what you’ve earned.

Depending on the card, you can redeem your points for gift cards, online or regular shopping, travel purchases, statement credit, etc. You can also deposit your earned cash to your chequing account.

Are Rewards Cards Worth It?2020-08-16T20:23:10-07:00

It depends entirely on your spending habits. It can be worth carrying this card if you use it frequently for everyday or travel-related purchases. It’s vital to use it responsibly, making sure you keep a low credit utilization ratio.

It can also be worth it if you don’t have annual fees or make sure the rewards you earn are high enough to offset the fees.

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