Credit Card Rewards: Cost vs Benefit

In his satirical book How to Be a Canadian, comedic author Will Ferguson identifies some of the key principles of the Canadian economy. After throwing a few jabs at maple syrup exports and beaver pelts, he riffs on the immense proliferation and use of customer “loyalty rewards” cards, often of the stamp-collecting “buy 10, get 1 free” format, as a fundamental motivator of the nation’s gross domestic product.

Judging by the fluctuating, perforated and stamp-festooned contents of many a wallet I’ve had in the past (I think I have a free haircut hiding somewhere, I just need to find it!), it seems that Mr. Ferguson may have a point. Many Canadian credit card issuers, for example, offer credit card rewards programs that incentivize users with cash-back or points that accrue with use. Credit cards that offer the most generous sounding rewards programs also often carry higher fees and interest rates.

credit card rewards program

Does enrolling in a credit card rewards program make sense for the financially conscious consumer?

The first, and most important, concept is to understand the value of what is being offered. The rule of thumb is that $1 of spending is worth one cent (1%). However, this is not always the case. Depending on the card, points can be worth more or less.

The major question that needs to be asked is:

  • does the realized value of the rewards offered counterbalance the increased incentive to spend on credit, accrue greater balances and,
  • in the case of users who might not pay off their balances in full each month, potentially expensive interest?

It is worth weighing these risk factors against the real-world limitations and regulations that a given card issuer may place on their rewards system (such as annual fees, a hard cap on the value of rewards that can be issued in a certain time period, or limitations on the use of these rewards for certain products.)

It may be more valuable for many consumers to find more efficient, local, and innovative ways to save and make their finances go a bit further in matters of everyday spending than to create further obligations to credit card issuers.