Understanding Credit Cards
When it comes to earning rewards with credit cards, there are essentially 4 types of points currency that you can earn, which are:
- fixed value
- transferable points
- co-branded / program specific
- pure cash back
This page explains the differences between each type of reward options.
Fixed Value Credit Cards
This is when you earn points at a fixed rate where you know how much you are going to earn and exactly how much you will get in return. It is very similar to cash back.
For example, every point earned with the Scotiabank Gold American Express Card is worth 1 cent each. These points are generally earned to use against travel purchases. These types of points are good for flexibility to book paid cheaper flights. For example, if you had 50,000 points, it would give you a $500 credit against a travel expenses. This way, you avoid having to deal with the complicated aspects of loyalty programs (e.g. award availability, blackout dates, etc.).
Conversely, if earned the same 50,000 points (credited to a frequent flyer mileage account with the same earning ratios), you can probably leverage the 50,000 miles for much more than $500. But then you will have to spend more time studying the loyalty program and deal with blackout dates and award availability.
Examples of cards:
Transferable Points Credit Cards
These types of points (also known as hybrid points) allow you to accumulate points into a central pool and gives the flexibility to transfer to different partners, as well as redeeming as cash towards a purchase. For example, the American Express Membership Rewards program gives you the option to transfer to different airline and hotel programs or redeeming the points at a fixed rate.
As mentioned above, if you are willing to spend time to learn the intricacies of loyalty programs, I suggest only transferring these points whenever you have a specific reward redemption in mind. Otherwise, you are better off keeping them in a transferable state to give you more flexibility. One exception would be if you are taking advantage of a transfer bonus. For example, the RBC Avion program sometimes offers limited time conversion bonuses. This does give a nice boost to account balances.
Co-branded Credit Cards
These credit cards allow you to earn points with a specific airline, hotel or other type of loyalty programs (i.e. retail) directly. These types of miles and points allow you to earn fluctuating value of rewards; in some cases, significant value for First and Business class flights. The downside is that now you have to deal with the frequent flyer or hotel programs and their limitations (i.e. blackout dates, taxes and fuel charges, resort fees, lack of availability, etc.).
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. These types of cards are good to sign up for if you frequently use a specific program. This way, you can take advantage of more of the perks associated with the card to maximise the benefits.
Note that some loyalty programs also have the flexibility to transfer points to another loyalty program. For example, the American Express Marriott Bonvoy Card allows you to earn Marriott Bonvoy points which are transferable to 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. So I would choose 2-3 categories of purchases that I cannot earn at least 2% cash back with another card in my portfolio. I would definitely not use the Tangerine card for anything less than a 2% return.