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Rewards Credit Cards

Credit card issuers are continuously coming up with new programs and incentives to get new users to join their schemes. One method by which they do this is by providing credit cards with benefits. Whatever the incentives, whether they are travel-related, cash back, free items, or anything else, these credit cards guarantee benefits to users who use them for purchases or merely sign up for them.

What is a rewards credit card?

A customer may see and feel the benefits of using a rewards credit card right away. When you sign up and use the card, your purchases help you accrue points or credits, which you may then redeem for anything of considerable value, such as a ticket or vacation, in exchange.

Keep in mind that in order to accrue and earn your points, your account with the credit card issuer must be in "good standing," which means that you must make your minimum monthly payment on time.

Types of rewards credit cards

There are many various types of rewards credit cards available, but some are more widespread than others in terms of use. The following are the most generally available rewards credit cards:

  • Travel cards: Every time you make a transaction with a travel rewards credit card, you earn travel points that can be redeemed for items like airline tickets or hotel stays. As soon as you apply for a travel rewards credit card, the card issuer will inform you of the number of points you will get for each dollar spent and the amount of money the points will be worth when redeemed. You may even be eligible for a sign-up bonus in the form of more travel points just by signing up for the credit card with your chosen issuer. The value of the points on travel cards, as well as their redemption options, must be understood before using them. Some cards allow you to exclusively travel on certain airlines or pick certain seats, while others allow you to do both. Most essential, be certain that your points do not expire, or otherwise you risk losing all of the benefits you have earned thus far.
  • Store credit cards: Store credit cards are tied to individual merchants and reward customers with points that can be used for products. The interest rates on these credit cards are quite high, even though they often promise large discounts simply for signing up for the card. Instead, choose a shop-anywhere card that offers enhanced perks for a certain retailer of your choosing. Using the Target RBC MasterCard, for example, you may get 5.00 percent cash back at Target and 0.5 percent cash back everywhere else.

Insurance products attached to rewards credit cards

The benefits of using a rewards card are not limited to the points, cash back, or free products that you may be able to accumulate. Most reward cards also come with a variety of insurance options that you may utilize to supplement your savings. These products, which range from travel medical insurance and trip cancellation insurance to rental vehicle accident and damage coverage, are provided at no additional cost to cardholders and give significant value to those who use them. More information may be found on this page.

Compare the rewards vs. the costs

Annual fee vs. no fee credit cards

Annual fees are not required for all rewards credit cards, but they are required for many of them. In general, the cards with annual fees provide larger benefits than the cards without annual fees. In many instances, just paying with the card does not qualify you for the benefits; instead, you must pay for the privilege of using the card itself in order to qualify. In the event that you do not intend to use the card very frequently or do not place a high value on the benefits, a card with an annual fee may not be the ideal option for you. Take into consideration a credit card with no annual fee but with less benefits in this situation. The benefits of using a rewards credit card wisely, on the other hand, may greatly surpass the annual fees if you make a commitment to doing so.

Interest charges

Consumers' attention is drawn to the advantages of owning a certain credit card when they use a rewards credit card. While this is the case, you should still keep an eye on the yearly interest rate associated with the card. As it turns out, incentives credit cards often have higher interest rates than credit cards without benefits. Unless you are vigilant in paying off your debt in full every month, this will not be a problem; nonetheless, maintaining an unpaid debt may prove to be rather pricey. The increased interest rates might easily outweigh any advantages you get as a result of using the credit card.

Example: No rewards vs. rewards credit card

Peter is examining two CIBC VISA credit cards at the moment. The first card, the CIBC Select VISA, is a low-interest credit card with a $29 annual fee that does not provide any benefits and has no foreign transaction fees. The second card, the CIBC Dividend VISA, has no annual fee and gives a cash back rate of 1.00 percent on every transaction. For example, let us assume that Peter purchases $20,000 worth of goods in a year and always pays his debt in full. What is the difference between the two cards?

                                Annual Spending Annual Fee Cash Back Earned                Total Cost to Peter

No Rewards Card $20,000.00             $29.00              $0.00                                     -$29.00

Rewards Card         $20,000.00             $0.00               $20,000 x 1.00% = $200.00  +$200.00

In this scenario, Peter would have had to spend $29.00 in order to use the credit card with no incentives. Using the rewards credit card instead of the cash would have resulted in an additional $200.00 in savings.

Final thought: If you’re going to spend the money, you might as well benefit from it

Obviously, spending money just for the sake of receiving incentives is not a good idea – particularly if you are required to carry a balance and incur interest costs. That being said, if you're already making purchases with your credit card, you may as well take advantage of the opportunity to earn points along the way. Every month, 70% of Canadians pay down their outstanding debt in full, indicating that they are not subject to interest charges. If you are a member of this large group of credit card users, it makes sense to be compensated for your responsible use of your credit card.

References and Notes

Balance transfers do not qualify for bonus points. Some additional purchases, such as casino chips, are also ineligible for reward points at this time.