Credit card companies are expected to roll out increasingly tempting cash back and rewards offers in 2018, as they compete for slots in Canadian wallets.
With debt levels soaring in the face of rising interest rates, it’s more important than ever to get the most out of these offers when you pay with plastic.
A survey last year by LowestRates.ca found most Canadians are willing to do online research to save money on expenses like hotels and flights, but fewer than half (45 per cent) made similar inquiries when it came to choosing credit cards. John Shmuel, the financial product comparison website’s managing editor, said that little bit of research could really pay off.
“All these credit card companies are climbing over each other to try and offer a better deal,” he told CTVNews.ca. “It’s clear that competition is ramping up. ”
Shmuel points to TD Bank’s introduction of the TD Cash Back Visa Infinite Card last June. It offered a then-unprecedented six per cent cash-back rate on certain purchases for the first three months, up to a total spend of $3,500.
“Scotiabank and American Express, they all followed it,” Shmuel said. “In 2017, we saw a lot of companies step up their game.”
There are, however, a number of things to consider before you start filling out applications for new cards.
Choosing the credit card with the right rewards or cash back program for you hinges on your income and spending habits, as well as your credit score. If you know all that, you can focus your search on the cards that give you the best “earn rate”-- a non-precise measure of bang for your buck.
Cash back vs. loyalty rewards
Applying for a cash-back card is the simplest way to go, Shmuel said. They pay a small percentage of the amount spent back to the cardholder. Some cards offer higher introductory cash-back rates that drop after a year, for example.
Cash-back rates can also differ depending on what you buy and where you buy it. Some cards offer higher rates on purchases like gas and groceries.
While cash back is great for simplicity sake, the earn rate is often considerably higher when you opt for rewards from specific companies that have partnered with the credit card provider.
“Travel rewards are no-brainers because their earn rate is high, comparatively, but of course those points only go to travel,” Shmuel added. “It comes down to understanding what the points are actually worth to you.”
Top-tier perks like concierge services and hotel discounts are typically reserved for premium cards, often branded as “elite” or “infinite,” that charge holders an annual fee. Weighing that cost against your expected earn rate should give you an idea of whether the fee is worth paying.
Websites like LowestRates.ca and RateSupermarket.ca offer comparison tools to help you find the right fit. Shmuel highlighted some of his favourite cards for CTVNews.ca.
For the traveller: Scotiabank Gold American Express Card
It packs a bevy of travel benefits, including discounts and special offers on hotels, flights, car rentals, and cruise and vacation packages. Cardholders also receive access to airport travel lounges as well as concierge services.
New accounts opened before Feb. 28, 2018 will have the $99 annual fee waived for the first year. New cardholders will also receive 25,000 Scotia Rewards bonus points if $1,000 is spent in the first 90 days, which amounts to $250 in redeemable travel expenses.
“That is one of the best travel rewards cards you can have. It comes with a huge sign-up bonus and has a great earn rate for travel rewards,” Shmuel said.
Annual interest rate: 19.99 per cent on purchases
Minimum annual income: $12,000
Required credit score: Good (650-749)
For the cash back connoisseur: BMO CashBack World Elite Mastercard
This premium credit card has a heftier $120 annual fee, but it boasts a four per cent cash-back rate on all purchases for the first four months, after which the rate drops to 1.5 per cent.
LowestRates.ca said it is best suited for the “high-income, frequent traveller who also does a lot of shopping,” thanks to perks like the 24/7 BMO concierge service, travel medical insurance, free roadside assistance, and up to 25 per cent off select vehicle rentals.
Annual interest rate: 19.99 per cent on purchases
Required credit score: Excellent (750-900)
Minimum annual income: $80,000 (individual) or $150,000 (household)
For the rewards points pro: Scotiabank Scene Visa
This one has a serious following among students, with a $0 annual fee and points perks available when you buy a Cineplex movie ticket or a meal at a slew of restaurants including Swiss Chalet, Harvey’s, Montana’s, East Side Mario’s, Milestones, and Kelsey’s.
You can also put your points towards concert and sporting event tickets through Fanxchange.
“In terms of earn rate for a no-fee card, nothing comes close to it,” Shmuel said. “But it’s very specific. It’s only loyalty points you are getting.”
Annual interest rate: 19.99 per cent on purchases
Required credit score: Good (650-749)
Minimum annual income: $12,000
For the debt dweller: MBNA Platinum Plus Mastercard Credit Card
If your head is pounding from a holiday debt hangover, this may be the card for you. The zero per cent introductory interest rate for the first year on balance transfers within the first 90 days will give you an entire year to attack debt you have previously racked up, without the pain of paying additional interest.
“It’s easily the best card in this category,” Shmuel said. “In Canada, it is the only one that offers zero per cent for 12 months.”
The card also has no annual fee and includes the platinum-level benefits associated with MBNA cards, such as auto rental insurance and trip interruption insurance.
Annual interest rate: 19.99 per cent
Required credit score: Good (650-749)
Minimum annual income: None
Deal with your debt now
Using cards like the MBNA Platinum Plus Mastercard Credit Card to attack a large debt load accrued on another credit card is a wise move, Shmuel explains. He’s among the growing number of observers who expect the Bank of Canada will continue raising its key overnight rate in 2018 to curb consumer debt.
The ratio of household debt to disposable income topped 171 per cent in the third quarter of 2017, marking a record level for Canada that ranks among the highest in the world. Simply put, Canadians owe $1.71 for every dollar of disposable income they earn.
“Credit card debt is the most dangerous form of debt there is. This is the debt that carries higher interest rates than anything else out there,” Shmuel said. “I would say utilize low balance transfer cards if you are carrying a lot of debt. Now is the time to do it when interest rates are low. They might not be as attractive six, 12, or 24 months from now.”
Don’t dump your oldest credit card
While many Canadians get their first credit card from the bank where they set up their first savings account, they could get a better deal by branching out and finding something new. But think twice before cutting up your oldest credit card.
“If you cancel a credit card you’ve had for 10 years, and the next-oldest card you’ve only had for one year, it’s almost like you’re back at the beginning. The credit bureau is going to look at this and say, ‘Oh, this person has only had a credit card for one year. They are not as trustworthy,’” Shmuel said.
Nixing a credit card of any age can also impact another key metric. Your credit utilization ratio is determined by the balances on all your credit cards divided by the sum of each card’s limit.
“Credit agencies will penalize people who have a high credit utilization ratio,” Shmuel said. “Maybe you get unlucky and you are applying for a mortgage at the same time that happens. That is a problem.”
