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Monday, March 16, 2020

In light of what's going on in the world should you shift to a cash back credit card instead of a travel card? Why not a card that has both?

Over the weekend some much happened here in Canada and while lots of travel was shutting it seems so much more has transpired in the last 72 hours alone! Here in Alberta we had nearly a 50% jump in confirmed COVIV-19 cases in one day and that prompted the closure of all schools here as Alberta was one of the remaining provinces not to do so plus the City of Calgary declared a local state of emergency which means all city run facilities like libraries and rec centres are shut down.

With travel being curtailed so drastically Matt over at Pointshogger put out a really good article over the weekend as to whether you should shift your credit card focus to cash back instead of travel. This is something I've been thinking about for quite a few days as well and in Matt's article he goes into some good details of the pros and cons of the two types of cards and managing low risk versus high risk. He does such a good job I'm not going to rehash it here or write about those items. Simply click the link above and give it a read - it's short and to the point. Then come back here and read what I think.

Yes the question of should you focus on cash back instead of travel rewards is very valid. We are in a new world thanks to the Coronavirus and this world may mean working less hours, lower incomes and looking at how you can stretch your dollar. This is where cash back cards come into play, they put cash into your pocket as your reward for spending on those cards. There is one very big drawback however - the majority of cash back cards only provide you with cash back once per year. Some cards are September, some cards are November, some are January while others are on your card anniversary date. That doesn't help you in the short term - most people who will need cash back will need it now and for the next few months. So what options do you have? Well there are several cash back cards that do let you cash out monthly or whenever your cash back rewards balance reaches a certain amount. Probably the best example of this is the Rogers World Elite Mastercard (and other cards in the Rogers Financial portfolio) as you can use your cash back towards any purchase once your rewards balance hits $20.

But what I would consider to be an even better option are cards that let you choose what rewards you want. That is, travel or cash back! Any why not?  This way you are not stuck with one or the other, you have the option of what you want to do with your points. Don't need cash now? Collect on these cards to fund you future travels since travel almost always provides a better return on your spending. But if you need the cash now they let you redeem those points for almost any purchase on the card - at anytime! That's right at anytime. Almost all travel cards now have an option to redeem your points for any purchase on your card albeit at a rate lower than what you get for travel. Most are around that 1% return mark but there are some cards that actually provide potentially higher returns thanks to their category earn bonuses. Some of the cards on the lower end of the redemption value spectrum for cash back are the RBC Avion Cards, CIBC Aventura cards and BMO Rewards cards.
RBC Rewards Pay with Points options

BMO Rewards Points for Cash option

While on the higher end of cash back return value you have most American Express Cards (those earning Membership Rewards points), the MBNA World Elite Mastercard, the Scotiabank Gold American Express and Scotiabank Passport Visa Infinite Card. Here are the cash back returns you can expect on these cards:


Limited Time Offer: Increased value in American Express Use Points for Purchases (1,000 points = up to $20!)

  • American Express Cobalt Card
    • 5x points on eats & drinks equates to a 3.5% cash back return (limited to $30,000 annually)
    • 2x points on transit, gas, travel equates to a 1.4% cash back return
    • 1x points for everything else equates to a 0.7% cash back return
    • Minimum redemption amount: 1,000 points for $7 (or as little as $200 in spending)
  • American Express Gold Rewards Card
    • 2x points on grocery, gas, drug store travel equates to a 1.4% cash back return
    • 1x points for everything else equates to a 0.7% cash back return
    • Minimum redemption amount: 1,000 points for $7 (or as little as $500 in spending)
  • The Platinum Card from American Express
    • 3x points on dining equates to a 2.1% cash back return
    • 2x points on travel equates to a 1.4% cash back return
    • 1x points for everything else equates to a 0.7% cash back return
    • Minimum redemption amount: 1,000 points for $7 (or as little as $334 in spending)
  • MBNA Rewards World Elite Mastercard
    • 2x points on all purchases equates to a 1.67% cash back return
    • Minimum redemption amount: 6,000 points for $50 (or $3,000 in spending)
  • Scotiabank Gold American Express Card
    • 5x points on grocery stores,  dining and entertainment equates to a 3.3% to 4% cash back return (limited to $50,000 annually)
    • 3x points on gas stations, daily transit and select streaming services equates to a 2% to 2.4% cash back return (limited to $50,000 annually)
    • 1x points for everything else equates to a 0.66 to 0.8% cash back return 
    • Minimum redemption amount: 3,000 points for $20 (or as little as $600 in spending)
  • Scotiabank Passport Visa Infinite Card
    • 2x points on grocery, dining, entertainment and daily transit equates to 1.32% to 1.6% return
    • 1x points for everything else equates to a 0.66 to 0.8% cash back return  
    • Minimum redemption amount: 3,000 points for $20 (or as little as $1,500 in spending)
As you can see you have lots of cash back options with the above cards with really decent value. Most cash back cards in Canada average between 1% to 2% although some category multipliers push those to 4%. For example the CIBC Dividend Visa Infinite and Platinum Cards offer 4% back for gas and groceries (up to $80,000 annually) while the Scotia Momentum Visa Infinite Card provides 4% back for groceries and recurring bills and the American Express SimplyCash Preferred Card provides a straight 2% back on all purchases. But as I said before most cash back cards only reward you once per year and all those mentioned in this paragraph are that way while the list of travel cards above are not. As long as you have those minimum points amounts that we detail you can redeem for cash back at any time. Now when we say cash back it's technically not cash in your pocket but rather cash to use towards any purchase. For example here's Amex's slider that lets you use points for any purchase:

Sure a 0.7% return isn't as good as some of the regular cash back but you have instant access to that cash and when you take into account the other multipliers like 5x points for a 3.5% return it's not hard to move your cash back rate well above 1%. And with everything pretty much shutting down right now, most purchases that people will be making will only be for groceries, take out and food delivery like Skip the Dishes so cards like the American Express Cobalt Card and Scotiabank Gold American Express/Passport Visa Infinite cards are the ones to really look at!

Personally if I was in the market right now for a new card for the situation that we are in today, hands down the one that would be on top of that list is the American Express Cobalt Card. And I'm saying this from someone who has two Cobalt accounts in our family - it's earning and redemption options are the best. It is the reason why we rank the card as the number one travel rewards card in Canada and fourth overall cash back card in Canada even though it isn't marketed or known as a cash back card. And for non Amex purchases I would throw in a card like the Rogers World Elite Mastercard or the Scotiabank Passport Visa Infinite Card.

Finally remember all of the cards we highlighted above are strong cards for travel so if you don't end up using the points for cash back you'll have some healthy balances ready to travel the world once it returns to normal.

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