Understanding Credit Cards
There are essentially 4 types of rewards that you can earn with credit cards, which are: fixed value, transferable points, co-branded and pure cash back. This post will explain the differences between each type.
Fixed Value Credit Cards
This is when you earn points at a fixed rated where you know how much you are going to earn and you know exactly what you are getting in return when you redeem your points. For example, the BMO World Elite MasterCard earns 2 points for every $1 spent on all purchases. Two points is worth 2 cents when you redeem for travel related expenses. These types of cards are good for flexibility to book cheaper flights. They are not good to use to purchase business class or first class flights.
- MBNA Rewards World Elite MasterCard
- Scotiabank American Express Platinum Card
- Scotiabank Gold American Express Card
Transferable Points Credit Cards
These types of points allow you to accumulate points into a central pool and gives you the flexibility to transfer to different partners. For example, the American Express Membership Rewards program, which is my favourite rewards program, gives you the option to transfer to different airlines and hotels programs. The key with these programs is to watch for transfer bonuses, which the RBC Avion program has historically been good at. But we never know how things will change in the future, so when you see a promotion, it is usually good to take advantage of it while it is around.
These are also known as hybrid credit cards.
Co-branded Credit Cards
These credit cards allow you to earn points of a specific airline, hotel or other type of loyalty programs (i.e. retail) directly. These types of credit cards are usually associated with perks such as: free checked bags, free hotel night, priority check-in, lounge access, and companion passes.
Note that some loyalty programs also have the flexibility to transfer points to another loyalty program. For example, the American Express Starwood Preferred Guest Credit Card allows you to earn Starpoints, which is one of the best transferable hotel programs out there that allows you to transfer their points to 30 different airline programs.
Pure Cash Back
These types of credit cards allow you to earn pure cash back that is either credited directly onto your monthly statement or a cheque is sent to you. Cash back is a fixed return. You will generally want to find multiplier bonuses, whereby you earn a higher return on specific purchases. For example, the Tangerine Money-Back Credit Card gives 2% cash back on a select group of categories (choice of 2 categories, a 3rd choice if you deposit the cash back into your Tangerine Savings Account), but 0.5% cash back on all other purchases.