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Points or cash back?

Points or cash back?

Posted on: May 30, 2013
Author: Staff

We did the math, and you may be surprised at how "rewarding" your credit card actually is.

With the promise of free flights, gift cards, and other useful goodies, credit card points can sound great. But a little analysis can help you figure out if points or cash back provides the biggest benefit.

About 60% of consumers use a rewards credit card, and in Canada, many of those are linked to Air Miles and Aeroplan. These two behemoths of the rewards world have long been fighting for space in your wallet. Over the past five or so years, cash back has gained some significant ground by attacking Air Miles and Aeroplan on their restrictions, booking fees, and limited flexibility.

What does a flight really cost you?

To compare the two rewards platforms, we researched a return flight from Edmonton to Toronto. This flight was $169 each way ($338 total), with another $174.52 going to taxes and fees. Because you have to pay taxes and fees no matter what reward platform you choose, we're going to compare only the flat fares for this study. We also tried to find credit cards with similar annual fees for a fair comparison.

Next, we broke down the actual total flight costs into what you'd have to spend on your card to earn this flight:

Card Annual Fee Rewards Platform Value Spend required to earn $338
ATB Gold Cash $0 1% cash back on everything $338 $33,800
CIBC Aero Classic Visa $29 1 Aeroplan Point for every $2 spent 25,000 Aeroplan Points $50,000
BMO Air Miles $0 1 Air Mile per $20 spent 2500 Air Miles $50,000
RBC WestJet $39 1% WestJet Dollars back on everything $338 WestJet Dollars $33,800

In this example, cash is king. Not only can you earn enough cash for your flight faster, you also don't have to forfeit over a cent for the annual fee. Sure, with cash you often have to wait to redeem, but in the end, wouldn't you rather earn at a much faster rate and get real cash you can use for anything?

A closer look at gift cards

In the next example, we take the same approach but focus on one of the most popular rewards redemption items: gift cards. You would think that gift card prices would be pretty standard across the board, but the results may also surprise you. Here's a look at what it takes to earn $100 in cash/gift cards:

Card Annual Fee Rewards Platform Value Spend required for one $100 gift card
ATB Gold Cash $0 1% cash back on everything $100 $10,000
CIBC Aero Classic Visa $29 1 Aeroplan Point for every $2 spent 13,000 Aeroplan Points $26,000
BMO Air Miles $0 1 Air Mile per $20 spent 950 Air Miles $18,000
RBC WestJet $39 1% WestJet Dollars back on everything $100 WestJet Dollars $10,000

As this whole-brain study shows, not only can you earn at a faster rate (sometimes double) with cash back, you also don't have to pay an annual fee to earn.

So if you're a point junkie, you may want to do the math on your points card. If the points don't add up, try converting to cash back.

 
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