As consumers spend their rewards points on everyday purchases, cash back credit cards are also gaining more traction.Oscar Wong/iStockPhoto / Getty Images
With some loyalty programs allowing members to use their rewards on everyday purchases at the same or similar value as travel redemptions, more consumers are choosing to cash in.
Air Miles eVoucher redemptions are up 64 per cent from Jan. 1 to Oct. 16 from the same period last year, according to Jason Beales, the chief strategy and commercial officer at Air Miles.
Air Miles collectors can transfer a limited number of dream miles to cash miles each year, depending on their status. Dream miles can be used for flights and hotels, while cash miles can be redeemed for eVouchers at retailers such as Amazon.com Inc., Walmart Inc. and IKEA.
Since dream and cash miles hold similar value, it may make sense to use them now to cut everyday costs instead of saving for travel.
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Amex Canada has seen a similar trend. There has been a double-digit increase in cardholders using points for purchases, said Rey Saeidi, vice-president of proprietary and co-brand products and rewards at American Express Co., in an e-mail.
It’s reasonable to assume that other points programs, such as RBC Avion and BMO Rewards, are experiencing similar redemption patterns, but unlike Amex and Air Miles, your points are worth significantly less with those programs when used for nontravel rewards.
Ms. Saeidi noted that cash back credit cards are also gaining traction, in line with broader market trends.
The benefit of cash back cards is clear: There’s no need to worry about points expiring or limited seat selection, as is the case with travel cards; with cash back cards, it’s just money back in your pocket.
Savvy Canadians are rethinking their priorities, and banks are taking notice.
The biggest complaint about cash back cards is that they offer limited rewards. However, a few banks have recently improved their offerings.
As of Oct. 25, Tangerine Money-Back Credit Card holders will be able earn 2 per cent cash back in three new categories: foreign currency spend, fitness and sports clubs and e-games. That adds to the card’s 10 existing options, including gas, groceries, restaurants and entertainment.
Cardholders get to choose two 2-per-cent unlimited cash back categories (three if the rewards go to a Tangerine savings account), with 0.5 per cent back on all other purchases. Since categories can be changed every 90 days, consumers can maximize their rewards based on their spending habits – a unique feature in Canada.
Note that a foreign transaction fee of 2.5 per cent applies to the card, which offsets the 2-per-cent reward, but there is no annual fee.
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The no-fee Walmart Rewards Mastercard also received an upgrade. Cardholders now earn 3 per cent before taxes in Walmart rewards – a cash back program – on all Walmart purchases in store, online and on Marketplace, up from 1.25 per cent for in-store purchases. All other purchases earn you 1 per cent back.
Previously, this card didn’t offer much of a return, so it wasn’t worthwhile. However, the increased value has dramatically improved the offer, making it potentially valuable for Walmart regulars.
Wealthsimple’s new credit card, announced earlier this year, made waves with 2 per cent cash back on all purchases and no foreign transaction fees. Launched initially with a $10 monthly fee, it increased to $20 ($240 annually) before many wait-listed users even received their cards.
The fee is waived if you hold $100,000 or more in assets or set up $4,000 or more in monthly direct deposits. While there’s no arguing that the high flat-rate rewards are tempting, you’d have to spend $12,000 annually on the card just to break even if you don’t qualify for the yearly waiver.
The higher fee obviously indicates that Wealthsimple is looking for users who will invest with the company long-term, not those who want high rewards with minimal costs.
For those seeking a no-fee option with no foreign exchange charges, the EQ Bank Card could be a better choice, as the prepaid card waives foreign exchange fees on both purchases and ATM withdrawals.
As inflation changes spending habits, Canadians are seeking rewards that offer real relief. Whether it’s cash back or flexible points, consumers want value that works as hard as they do.
Barry Choi is a personal finance and travel expert. He was previously affiliated with Tangerine, Walmart, EQ Bank, Air Miles, American Express, RBC and BMO, but currently has no relationship with any of the brands mentioned.
Editor’s note: A previous version of this article incorrectly stated that Air Miles cash miles can be redeemed for eVouchers at Shell PLC. Collectors can use their cash miles for Shell transactions at gas stations, rather than with an eVoucher to be redeemed later.
