What Does a 1% Cash Back Reward Mean
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Whether you're a newbie or a credit card connoisseur, one of the common questions that plague those looking for new plastic is "should I go with a cashback or a rewards card?" Certainly, each card type has its own pros and cons, so how do you choose between the two? A cashback card can offer a straightforward, quick financial return; but a rewards card could net you potentially better goodies, like a free trip or hotel stay. Decisions, decisions!
It's easy to be seduced by a big sign-up offer or a high earn rate, but to ensure you get the match that will maximize your earnings, try to go behind the surface and consider the key factors we examine below.
| Cash Back | Rewards | |
|---|---|---|
| Sign-Up Bonus | Typically top out at $200 or so | Can be the equivalent of $300 or more |
| Return on Regular Spending | Evenly matched | Evenly matched |
| Value-Added Features | Features are usually less valuable compared to rewards cards at a similar annual fee level | Value of features can be huge, particularly for upper-tier cards |
| Ease of Use | Very low maintenance | Labyrinth of different transfer rules and redemption rates can be a headache |
| Annual Fee | Evenly Matched | Evenly Matched |
Sign-Up Bonus
You can't really beat the quick budget boost of netting hundreds of dollars' worth of extra cash or rewards just by signing up for a card and spending the required minimum amount in the time allotted. When comparing miles vs cash back cards, miles/rewards cards usually have the most generous welcome bonuses. Cashback introductory offers commonly top out at a couple hundred dollars or so, whereas rewards cards frequently follow a "go big or go home" game plan to attract new customers with offers worth $300 or more. Here's a comparison between two of the biggest bonus offers in Canada at the moment:
TD Cash Back Visa Infinite*
Eligibility Criteria:
– Credit score required: Good – Excellent
– Min personal income required: $60,000
– Annual fees: $120 (Annual Fee Rebate for the first year)†
6% is not a number you see very often in the world of cashback cards, but TD's Cash Back Visa Infinite* Card is presently offering a lucrative introductory cashback rate for New Cardholders:Apply by May 29, 2022, and earn 6% Cash Back on all Purchases for the first 3 months† up to a total spend of $2,000. After your first $2,000 in Purchases, Gas Purchases, Grocery Purchases and Pre-Authorized Payments will continue to earn 6% up to a total spend of $3,500 for the first 3 months. Plus, no Annual Fee† for the first year for the Primary and Additional Cardholders. To receive the first-year annual fee rebate, you must activate your Card and make your first Purchase on the Account within the first 3 months after Account opening
In the cashback category this is a market-leading rate that deserves attention, but it still can't outshine many of the intro offers for rewards cards on the market now.
This offer is not available for residents of Quebec. For Quebec residents, please click here .
† Terms and conditions apply.
TD First Class Travel Visa Infinite*
Eligibility Criteria:
– Credit score required: Good-Excellent
– Min personal income required: $60,000
– Annual fees: $120 (Annual Fee Rebate for the first year)†
New cardholders are eligible to receive a staggering $570† worth of combined bonuses: Apply by March 6, 2022 to earn up to 80,000 TD Points† (a travel value of up to $400 when you book travel purchases through ExpediaForTD.com†) and get a full Annual Fee Rebate† for the Primary and Additional Cardholders† (a value of up to $170†) for the first year. That's a total value of $570†.
- Welcome Bonus of 20,000 TD Points when you make your first Purchase with your Card†
- 60,000 TD Points when you spend $1,000 within 90 days of Account opening†
Plus:
- Get 0% promotional interest rate on Travel purchases for first 6 months†
To receive the first-year annual fee rebate, you must activate your Card and make your first Purchase on the Account within the first 3 months after Account opening.
Just remember: whether for a cashback or rewards credit card the largest introductory offer in the world will be worthless if you can't fulfill your side of the bargain and make the required minimum spend. In this case the maximum value of the sign-up bonus offered by the TD First Class Travel Visa Infinite* is superior to that offered by the TD Cash Back Visa Infinite card, but only if the cardholder of the former can clear its rather high spending hurdles.
This offer is not available for residents of Quebec. For Quebec residents, please click here .
† Terms and conditions apply.
Return on Regular Spending
In the battle between points cards vs cash back there is no clear winner for the best regular earn rates. Since both types of cards can feature accelerated earn categories, you need to assess where exactly you spend your money to figure out which card will be the biggest earner for you. This is clear when we compare two top ranking credit cards like Amex's Cobalt and the Tangerine Money-Back Credit Card.
American Express Cobalt™ Credit Card
Eligibility Criteria:
– Credit score required: Fair-Good
– Min personal income required: N/A
– Annual fees: $155.88
The Amex Cobalt is a "lifestyle" rewards card that offers some of the most elevated earn rates possible for people that really love food and travel. Cardholders get:
- 5 points per $1 spent on eligible eateries, grocery stores, and food delivery services
- 2 points per $1 spent on eligible travel and transit-related expenses, like airfare, hotels, ground transit and gas.
- 1 point per $1 spent on anything else.
Tangerine Money-Back Credit Card
Eligibility Criteria:
– Credit score recommended:Fair-Good
– Min personal income required: $12,000
– Annual fees: $0
What makes the Tangerine Money-Back Credit Card so valuable is that it not only has no annual fee but also has the most flexible choice of accelerated earn categories of any card on the market. It's the perfect shopping companion for those whose primary expenses don't fall into common cashback categories, as cardholders can choose two spending categories that will earn 2% cash back from a wide selection of 10 options, including:
- Restaurants
- Gas
- Drug stores
- Furniture
- Home improvement
- Entertainment
- Public transit and parking
Cardholders can even opt to get a third 2% cashback category as long as they deposit their earnings into their Tangerine savings account.
Apply by January 31, 2022 and get 15% cash back in the first two months*, valid on up to $1,000 in purchases for a maximum $150 in cash back. After passing that mark your rate will drop back to 2% in your 2-3 selected categories and 0.5% on everything else.
*Terms and Conditions apply
Value-Added Features
Most basic cashback or rewards cards include purchase security and extended warranty, with things like insurance and concierge service commonly offered among higher-end cards.
The key main difference between perks offered by miles vs cash back cards manifests in premium travel rewards cards. Travel cards tend to kick the value-added features up a notch with wide-ranging insurance packages and flight/airport extras in an effort to win the loyalty of big-spending jet setters. You can see what I mean by comparing a travel rewards and cashback card, both from the same issuer and with comparable annual fees.
Scotiabank Passport™ Visa Infinite* Card
Eligibility Criteria:
– Credit score recommended: Good-Excellent
– Min personal income required: $60000
– Annual fees: $139
The lineup of features on this frequent flier favourite is outstanding and could save globetrotters hundreds to several thousands of dollars on common flight expenses. To start off with, the Scotiabank Passport™ Visa Infinite* Card offers a far-reaching insurance package that includes:
- Hotel burglary: If you charge a hotel or motel stay anywhere in North America to your Scotiabank Passport Visa Infinite card, you, your spouse and dependent children are eligible for coverage against theft of personal property from your room, up to a maximum of $1,000.
- Trip cancellation/interruption: You, your spouse and one travelling companion, as well as dependent children travelling with you, are insured for up to $2,500 each person for eligible expenses (up to a maximum $10,000 per trip) if you have to cancel or interrupt your trip.
- Baggage lost/delayed: If you or eligible companions on the same trip lose their bags or their bags are stolen, you'll all be covered up to a combined max of $1000 to replace essential items. If your/your eligible companions' bags are delayed for four or more hours, you'll also net up to a maximum of $1000.
- Travel medical insurance: A vital feature for those who travel often, the Scotiabank Passport™ Visa Infinite* Card covers you, your spouse and dependent children for up to $1 million towards emergency medical coverage for up to 25 days. If you are 65 years of age or over, you'll be covered for up to 10 days. This may not sound like much but many credit cards in Canada don't offer any coverage for those 65 or over.
Travellers also save because the card doesn't charge foreign transaction fees and airports will be much more bearable with the card's complimentary airport lounge access. There's no cashback card that offers those kinds of perks.
Scotia Momentum® Visa Infinite* Card
Eligibility Criteria:
– Credit score recommended: Good-Excellent
– Min personal income required: $60000
– Annual fees: $120First year free
For a cashback card the Scotiabank Momentum® Visa Infinite* Card offers some impressive value-added features, such as Visa Infinite privileges like hotel upgrades, 24/7 concierge access and unique member-only dining and wine experiences. The most attractive extra is its $1,000 mobile device insurance—and it's one of the few cards in the country to offer this (Scotiabank Passport™ Visa Infinite* Card doesn't have this feature). But while that insurance bonus is wonderful, you can see by comparing it with the Scotiabank Passport™ Visa Infinite* Card that its other insurance offerings aren't as outstanding:
- Hotel burglary: Unlike the Scotiabank Passport™ Visa Infinite* Card, the Momentum® Visa Infinite* Card doesn't feature hotel burglary insurance.
- Trip cancellation/interruption: You, your spouse and one travelling companion, as well as dependent children travelling with you, are insured for up to $1,500 each person for eligible expenses (up to a maximum $10,000 per trip) if you have to cancel your trip. For trip interruption, you and eligible travel companions are only eligible for $2,000 each. Both the interruption and cancellation insurance are less than that offered by Scotiabank Passport™ Visa Infinite* Card.
- Baggage lost/delayed: The coverage is the same as the Scotiabank Passport™ Visa Infinite* Card, but the maximum reimbursement amount for each circumstance is $500 (rather than $1000)
- Travel medical insurance: While the the Scotiabank Momentum® Visa Infinite* Card does offer the same amount of medical insurance as the Passport (you, your spouse and dependent children are covered for up to $1 million in emergency medical expenses), coverage only lasts for up to up to 15 days. And there's no coverage for those 65 years of age or over.
Ease of Use
Cashback cards throttle rewards cards when it comes to ease of use. With a cashback card you usually don't have to worry about what time of year to redeem points, minimum point redemption limits, whether or not your points/miles are transferrable or expire, and the real-world value of your points (check out our Loyalty Points Bible for an explanation about redemption values). Take a look at these two top cards to see which you think would be easier to manage:
Scotiabank Gold American Express® Card
Eligibility Criteria:
– Credit score required: Good-Excellent
– Min personal income required: $12000
– Annual fees: $120
To highlight just how much more complicated rewards redemption can be, we'll look at the Scotiabank Gold American Express card. This card is hands-down one of the easiest and most transparent rewards programs to use. Rewards act almost like cash with one point equaling $.01—but only if you put your points towards travel. If you don't use your points for travel expenses, however, the reward system becomes much more complicated and loses value (as is the case with many travel rewards cards).
For example, you earn 5 points per/$1 spent on a variety of categories, including groceries. So, if you spend $500 on groceries in a month you get 2500 points, equivalent to $25 that you can put toward any travel spending (like baggage fees, plane ticket, seat fees, etc.) on your Scotia credit card statement within a year of the transaction date. Of course, your travel points are not automatically redeemed for you, unlike with most cashback cards where the cashback points are applied to your statement every month or once a year without any effort on your part.
Point redemption gets more complicated and less valuable if you want to redeem Scotia Reward points on things like a statement credit or gift cards/donations. In these cases, point value goes down from $.01 (travel) to $.0067 (statement credit) and $.0074 (gift cards/donations). If this all seems too complicated (and remember Scotia Rewards are among the easiest to redeem) than a rewards card may not be for you.
The SimplyCash Preferred Card from American Express
Eligibility Criteria:
– Credit score required: Good-Excellent
– Min personal income required: $0
– Annual fees: $99
With the SimplyCash Preferred Card from American Express you get 5% cash back for the first 6 months (up to $300 in cash back), then 2% cash back afterward on every single purchase you put on your card. After the promotional period ends there are no spending caps or categories to worry about; all of your spending has the same earn rate all the time. There is no rewards card that can compete with that kind of simplicity.
Annual Fee
Overall, the annual fees for cash back and reward cards are comparable, ranging from $0 for basic no-frills cards, to $120 on average for higher-end cards, to $500+ for truly premium cards.
The basic idea is that the higher your annual fee, the more earn power and extra goodies you get. For example, the American Express Platinum card features a hefty annual fee of $699, but you get an outstanding bonus offer and an amazing stack of airport, airline, entertainment insurance and other benefits. But aside from the Amex Platinum and a few other super deluxe cards, rewards cards and cashback cards have more or less the same range of annual fees.
Is One Better Than the Other?
No single card can meet the needs of all consumers, and whether cashback or rewards oriented, different cards emphasize different types of spending and consumer needs. Rather than trying to determine categorically if a cashback or rewards card will be the best fit for you, you need to look at each card individually to find the best match for your lifestyle.
* This post was not sponsored. The views and opinions expressed in this review are purely my own.
Recommended Read:
- How Do Cash Back Credit Cards Work?
- AMEX Cobalt vs Scotia AMEX Gold
- Best Credit Cards for Gas in Canada
- Best Credit Cards for Online Shopping
- Best Credit Cards for Restaurants
What Does a 1% Cash Back Reward Mean
Source: https://www.greedyrates.ca/blog/cash-back-vs-rewards-points-which-is-worth-more/
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