Not all travel rewards credit cards are created equal

Every time you say “Charge it”, you may be thinking “Hawaii”: travel is as popular as ever when it comes to credit-card reward programs. The options to cash in on your use of plastic have expanded too, with rewards ranging from merchandise to gift cards to a credit on your bill statement to charitable donations. But with so many cards out there, how do you get good bank for your reward cards bucks?

“It can be hard to clear through all the clutter with programs offering double points, triple points, but ultimately it’s important to understand that not all points are created equal,” says Prashant Sharma, RBC’s vice-president of retail credit cards. “Some people like to save up for a big trip while some people like to have instant gratification with smaller trips or things they can use at home. Either way, you want to understand exactly what different programs are offering and do your research.”

According to results of a new national survey by Scotiabank, the most important consideration among Canadians selecting a travel rewards credit card is how quickly they can earn points (meaning the number of points earned per $1 spent), at 42 per cent. Nearly 30 per cent of respondents cited the travel rewards program that the card is affiliated with as a key factor, followed by the type of card (17 per cent) and the issuing bank (14 per cent).

Seventy-four per cent of travel reward credit card holders who redeemed points in the past 12 months used them for travel, while 27 per cent opted for non-travel items. The most commonly cited aggravations associated with travel rewards cards, meanwhile, include annual fees, the time needed to accumulate points, and travel reward limitations, such as seat restrictions, limited airline choices and blackout periods on flights.

“Finding value in your card comes down to how quickly you can earn points and where and how you can redeem those points,” says Tim Elgar, director of consumer cards and rewards at American Express Canada. “Consumers should decide what type of rewards they ultimately want before they choose a card. Many consumers today value freedom and flexibility in their reward programs.”

Ask the right questions

You need to read the fine print and ask questions like:

• Are my travel rewards limited to specific airlines?

• What are the travel restrictions, if any?

• Can I redeem points for hotels?

• Are there bonus points for signing up?

• Do points increase with everyday purchases such as gas and groceries?

• Do points expire?

• Can I use points for round-trip flights as opposed to one-way flights only (meaning you need to burn up more points to get from point A to B and back again)?

• How far in advance do I need to book flights and hotels?

And don’t get too distracted by the incentives to spend; remember to inquire about the basics: What’s the annual fee, if any? What’s the interest rate on purchases and cash advances? What about travel insurance benefits? What happens to my points if I happen to miss a monthly payment?

Not sure where to turn to begin your research? To compare reward cards, check out online resources such as CreditCards.ca, which offers a comprehensive breakdown of dozens of cards.

Keep in mind that if you regularly carry a balance, rewards cards aren’t necessarily a good idea, since they tend to carry higher interest rates than standard cards. You may end up paying more in interest than you’ll earn in rewards.

Remember too that the most competitive rewards go to people with stellar credit scores, so it’s important to manage your spending and your debt.

“There has to be responsible use of the credit card,” Sharma says. “We don’t encourage people to incur more debt than they can service responsibly.”