Credit Card Reward Types

Credit cards offer a large range of rewards that are often customized to each individual card, but they can all be grouped into one of four major reward categories that are explained in detail below: Cash Back, Pseudo Cash, Airline Miles, and Points. Choosing the type of reward that works for you can be confusing, but in the end it all comes back to the rate of return you will get on your credit card spending from the reward. When rate of returns are equal, you should always choose the card with the most flexible reward type, which is cash. Unfortunately, those cards that do offer cash back rarely offer anywhere near the rate of return that is obtainable using points, miles, or some other card-specific rewards programs.

Cash Back

This is the most basic and most desirable type of reward available, cash is king after all! With cash back credit cards, the credit card company agrees to refund a small percentage of your purchases back to you every so often either by a credit to your account or in the form of a cheque. There are several important things to consider for cash back credit cards such as percentage of cash back, payment schedule, tier systems, annual fees, and annual rewards cap.

Cash Back Percentage

The percentage of cash back can range anywhere from a low of around 0.25% up to a maximum that I’ve seen of 5% on the now very different Canadian Tire Cash Advantage Mastercard. This is a very large range and various conditions can also be applied to make what first appears to be a great cash back percentage much less favourable.

Payment Frequency

The frequency that your cash reward will be paid out is usually once per year, but in some cases it can be quarterly and I wouldn’t be surprised if eventually a card will surface that offers to do it monthly as well. They will often do anything to get a few more applicants. There are even a few cards that now pay automatically, once you reach a certain threshold, like the MBNA Smart Cash Mastercard or upon request, as long as you have a minimum amount of cash back earned, like the Capital One Gold Cash Back Mastercard.

Percentage Tiers

Tiers are like levels of cash back. The amount of cash back you receive in a given period depends on the amount of money you spent on the card in that period. Consider the following table as an example:

Tier Amount Spent Cash Back
1 $0 - $999 0.50%
2 $1,000 - $2,000 1.00%
3 $2,000+ 1.25%

In the above example there are 3 tiers, each offering a different cash back percentage. Historically, there are two ways for tiers to be applied. The most common way is that the money you spend is divided up into the 3 continuous sections so that you only make 0.5% on the first $1,000 of spending, 1% on the second thousand, and finally 1.25% on anything above and beyond $2,000. However, some cards offer a better system where if you make it to a higher tier during the prescribed period, then you will get the higher rate of that tier applied to the entire amount spent.

Tiers usually reset on an annual basis, but the Canadian Tire Cash Advantage Mastercard is unique in that it resets on a monthly basis. Other periods are theoretically possible as well, but those are the only two scenarios currently in use by Canadian credit cards. When using the monthly system, you normally get whatever percentage you qualify for on the entire amount spent that month. For yearly systems, the tiers are often larger than the example above and the cash back you receive for the year is divided up amongst the different tiers so the first X dollars of spending doesn’t receive the maximum cash back percentage.

Annual Fees

Cash back cards offer notoriously low rewards when compared to the potential benefits of other reward types and thus, if an annual fee is applied to a cash back card, it can seriously hamper your net cash back at the end of the year. An annual fee card might be justified for really big spenders on a good tiered card, but it is almost always best to avoid annual fees completely when selecting a cash back card. To see the effects of an annual fee on your cash back earning you can use Calgary Ben’s Cash Back Calculator. This tool is now quite dated, but it will give you a good idea of the rewards potential you can realize with a cash back card and how much of an impact an annual fee can have on your earnings.

Rewards Cap

Another negative of cash back cards is that, in an effort to reduce costs, they often enforce an annual rewards cap. This means that, even if you can earn a high percentage return, you can only earn a set maximum amount of cash per year. I used to use the Canadian Tire Cash Advantage Mastercard which had the best cash back rate around at the time. The maximum cash back was capped at $1000 per year for the standard edition of the card which was equivalent to $30,000 of spending on the card. Caps can often be worked around by getting an additional card for your spouse or by transferring your spending to another rewards card after you’ve reached your yearly limit to ensure you are still getting rewards on your purchases.

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Pseudo Cash

Pseudo Cash is a made up term to identify rewards that are almost cash but have restrictions applied to how it can be spent. For instance, there are a few Canadian cards available like the Citi Driver’s Edge card that offer a certain percentage reward, but that reward is only applicable to a specific item or purchase. In the case of the Driver’s Edge card you earn 2% of your spending towards the purchase of a new or used vehicle of some sort, including recreational vehicles. After you buy the vehicle, you send them proof of the purchase and they will cut you a cheque for whatever amount you have accumulated on your card that is less than or equal to the amount of the purchase.

These cards almost always provide returns that are as good or better than straight cash back cards, but they are obviously somewhat less flexible in that you are restricted on what the money can be used for and sometimes the frequency that you can redeem your reward. The combination of reward structure simplicity and higher returns than traditional cash back cards is a winning combination for those people who wish to avoid complexity and hassle.

Airline Miles

One of the most popular types of reward credit cards are those cards affiliated with a particular airline, especially in the USA. In Canada, we are far more limited in our airline choices, particularly in smaller cities, so these cards aren’t nearly as popular. The one major exception is the CIBC Aerogold Visa which is one the most recognizable credit cards in Canada. There are many important factors to consider when choosing an airline rewards credit card and they include rewards program, accrual rate, redemption rates, redemption choices, reward availability, mileage expiration, transferability, annual fees, and sign up bonuses. Please see the Airline Rewards section for more details pertaining to the specific airline rewards programs including how to get the most value for your miles.

Accrual Rate

This is the rate at which you earn miles on your purchases. Most airline rewards credit cards have a standard rate of 1 mile earned per dollar spent, but lately there have been a few cards offering slightly better rates or bonuses for specific purchases. For example, the CIBC Aerogold Visa now offers 1.5 miles per dollar spent when making purchases at gas stations, drug stores, and grocery stores. On the other hand, American Express offers the American Express AeroplanPlus Gold Card and the American Express AeroplanPlus Platinum Card cards that offer higher rates on all purchases. With the gold card you can earn 1.25 miles for all purchases above and beyond $10,000 in a given year. The platinum card has a base earning rate of 1.25 and that gets bumped to 1.5 for purchases exceeding $25,000 in a given year.

Redemption Rates

All airline rewards programs are not created equal and the number of miles required to redeem for a free flight to a particular destination can vary. In some cases it can require 10,000 additional miles or even more to fly to the same destination using a different airline rewards program. Unfortunately, Aeroplan is one of the airline rewards programs that typically has worse economy class redemption rates. That is one reason I highly recommend the no annual fee MBNA Starwood Preferred Guest Mastercard (replaced by The Starwood Preferred Guest Credit Card from American Express with a $120 annual fee in early 2010). The Marriott Bonvoy rewards program has amazing flexibility that lets you transfer points to almost any airline program at a ratio better than 1:1. This allows you to choose your airline rewards program based on your destination and thus get the best mileage redemption rate possible. This does create more hassle and complexity, but it is worth it for the savings!

Redemption Choices

Each airline has different routes and flies to different destinations so that is a big factor when choosing an airline rewards credit card. Also, these programs often offer other reward types including vacation packages, gift certificates, electronics, etc as options for redeeming your points. However, travel almost universally offers the best value when redeeming miles in all programs. So always make sure you do a rough redemption value calculation before you choose both an airline mile rewards program and a redemption choice within that program.

Reward Availability

It can be difficult to obtain a reward seat with many airlines, especially Air Canada, because all airlines typically restrict the number of reward seats that are available for booking on a particular flight. To get a seat on a popular route you may need to book up to a year in advance, as soon as the seats go on sale. Flying from anywhere in Canada to Australia is one such high demand route and there are several others like it. For those people who can’t book early, some airlines are starting a new trend of making every seat on a flight available to be purchased using reward miles, accompanied by an increased cost in miles by 3 or 4 times, which makes it hardly worth it. In that case, you might as well find a seat sale and collect miles for the trip instead and save the miles you would have spent to redeem another time at the regular rate.

So be sure to plan ahead to get the seat you really want at the cheapest possible redemption rate. Getting to know the fine details of your airline’s reward system really helps with that!

Mileage Expiration

One of the major downfalls to airline rewards is that many programs are now introducing mileage expiration policies where none previously existed and decreasing the time until expiration for existing policies. Most programs have settled on 3 years of inactivity for the expiration of miles, but it is only 1 year with Aeroplan. But, having a credit card affiliated with the program circumvents this problem because the miles you earn from the credit card count as activity, which will prevent your miles from expiring. Some cards even offer this as a specific feature proclaiming boldly that “your miles will never expire”. In addition to inactivity mile expiration, Aeroplan is also the first airline rewards program to institute a hard expiration date for each mile earned no matter how much activity you have. With them, you will lose a mile exactly 7 years from the date that you earned that specific mile, no matter what. Tracking each individual miles in your account seems like it is a bit cumbersome, but they do it anyway!


So your partner’s account is short a few miles and you would like to give her some of yours to help her get a reward. Sounds like a good idea, but the options for doing this are, unfortunately, severely limited. is one one way to do it, but they essentially rob you of 90% of your miles when using their service or charge you large fees to make trades with other users. Airlines sometimes allow you to make transfers using their website or customer service but they will charge you between 1-3 cents per mile transferred to do so. This effectively eliminates the benefit of doing it in the first place because just transferring the miles can cost almost as much as the benefit the reward will give your partner. Fortunately, most airlines allow you to purchase tickets for family members and sometimes friends so the best option is to collect miles on only one account if it makes sense in your situation.

Annual Fees

Most Canadian airline rewards cards come with a very high annual fee of around $120, so this is one of the main reasons to avoid these types of cards. Now that the MBNA Starwood Preferred Guest card is discontinued, there aren’t many true no annual fee options that result in you getting actual airline miles anymore. Although, there are several no annual fee travel points or pseudo cash cards like the Blue Sky® Credit Card, the various Air Miles credit cards, or Capital One Aspire Gold Mastercard that can be used for flights, but unfortunately the rate of return that they offer is typically much lower than actual airline reward miles.

Sign Up Bonuses

One of the biggest reasons to choose a miles card is for the sign up bonuses. Many cards offer sign up bonuses ranging from 5,000 to 25,000 free miles within the first year, sometimes even more. At the time of this writing, the MBNA Alaska Airlines Mastercard is actually offering 25,000 bonus miles with a very reasonable annual fee of $79. It is often worthwhile to sign up for miles based credit cards just for the bonus miles, which translate quickly into free flights, and then to cancel the card later in the year before the annual fee renews! When doing this, make sure you keep a close eye on your credit score especially if you attempt to do it several times in the same year. You should also pay attention to specific promotions because many cards temporarily increase their sign up bonus during the summer months or during other promotional periods.

Points & Travel Points

Many of the big banks and credit card companies have their own points programs that go along with their credit cards. These points can then be redeemed for a myriad of rewards which can include airfare, vacation packages, hotel stays, groceries, gift certificates, appliances, general merchandise, etc. These programs vary greatly in how good they are, but it isn’t often that they offer top value. Many of the same principles apply here as when dealing with airline miles. Pay particular attention to restrictions and reward caps when considering one of these cards.

Reward Caps

Many points-based cards, when it comes to travel, cap the maximum cost of a flight when redeeming for a reward. 25,000 miles is currently the rough standard for a flight anywhere in Canada and the Continental USA with traditional airline miles programs. If planned properly, one of these flights could cost as much as $1000 in peak season or when flying to remote destinations. Similarly 25,000 points in a points-based credit card program will often cap the maximum ticket value at a much lower amount like $450. This can decrease your overall value by up to 50%, which is why I rarely recommend points-based cards. One rare exception to this rule is the MBNA Rewards Mastercard card, which offers flexible reward redemption on any airline with no cap for a $0 annual fee.

Now that you know more about credit cards and the different reward systems they use, take a look at The Best Credit Cards In Canada and choose the card that is right for you!

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