Rewards Programs Primer

Before getting into the specifics of an individual rewards program, it is useful to know more how these programs work in general and what things you should be thinking about when choosing which ones are right for you. The concepts and terminology found here will give you a good foundation to start with.

Bonus Points & Promotions

Most rewards programs are almost worthless by themselves and carrying around and thinking about another piece of plastic in your wallet is most likely not worth the 1%, or even much smaller, reward you will be earning. 1% is a great reward when it comes on a credit card which you use for all of your daily spending. However, when it comes to shopping at Hudson’s Bay Company, something you might only do a few times a year, that 1% will take forever to add up to even a $10 gift card. This is where bonus points come in.

Many rewards programs offer bonus points in the form of coupons, specific product bonuses, special shopping days, points multipliers, etc. Sometimes they’ll even give you points for almost no reason or doing something trivial like updating your e-mail address on their website. This is where the real value in points comes in! So much so that a few times a year you will find that a store is effectively paying you to take a product off their shelves. Sounds crazy, I know … but trust me it is true and I have done it many times myself.

Keeping track of all these bonuses can be a challenge but you can let HowToSaveMoney.ca and other online resources do most of the hard work for you. Then, with a few organizational skills of your own, it becomes a piece of cake. When I discuss the specifics of each individual program you can see more clearly how bonus points make a difference and which programs have the best regular points and bonus points offers.

Devaluation

A considerable drawback of points of any kind is that they tend to devalue themselves over time and often quite quickly. It is very rare indeed that points will actually increase in value but it can happen if a program is reinvented or a new and better reward is made available. For this reason it is best to both earn points quickly and spend them quickly. If you are one of those people who are planning to save them for retirement, then I would say forget it. My advice is to save your money for retirement and enjoy your points now! You’ll get to know which points tend to devalue more quickly over time and which ones are safer to hold on to for a few years.

Expiration

It is becoming more and more popular for points to expire, especially in the airline industry. Points can actually be a liability on a corporation’s balance sheet and for that reason they want them to go away as soon as possible and if they can make them go away without it costing them a red cent, then so much the better. I will try to keep you informed of expiration periods for most of the major points programs to ensure that you will never lose your points.

Fees

Believe it or not, some rewards programs do charge membership fees to join them but, thankfully, most of them do not. If a fee is involved you will most likely want to avoid the program altogether unless far superiour rewards are offered in comparison to other free programs.

Marketing and Privacy

If you are a very privacy conscious person, then participating in rewards programs may not be for you. By signing up for a card or program you usually have to agree to a set of terms and conditions that authorize the issuing company to track your spending, market to you directly, and occasionally sell your information to 3rd parties. I typically don’t worry about this very much because no matter what you do in this modern age, people are going to be able to find out things about you. If you have a credit card or bank card, then I’m sure that is already the case. I personally don’t care what a company knows about me and at this point I have signed up for almost everything going while researching for this website and I haven’t found the effects to be overly detrimental.

Reward Options & Availability

A big factor when choosing whether or not to participate in some of the smaller rewards programs is what reward options there are and what kind of availability there is for those rewards. Take iCoke.ca for example. I am a member of this rewards program and it initially looked promising because they had free movie tickets to empire theatres available for, I believe, a mere 5000 iCoke coins. Well, I later found out that those movie tickets were almost never in stock. They would sell out in a matter of days or even hours and then wouldn’t appear again for months at a time. Fast forward to today and I’m not sure movie tickets will even be offered again and when they are offered they cost at least 15,000 iCoke coins now. That’s quite a difference! Looking back, it probably doesn’t make a whole lot of sense to even bother with this program because the good rewards are so sporadic.

Choosing The Right Reward

One of the biggest keys to maximizing your return in rewards programs is choosing the right reward. It is absolutely essential that you do not simply choose whatever reward is most appealing to you but choose the reward that represents the greatest value for the amount of points being redeemed. This certainly can be subjective because even if something has a higher material value it might actually be completely worthless to someone who has no use for that particular item. However, in most cases an easy mathematical calculation will show which reward offers the best return.

One very simple example here is the Aeroplan rewards program. If you buy any product out of their rewards catalogue and calculate your return it will most likely be worth less than 1% of the amount you had to spend buying stuff to get it. Conversely, if you redeem for flights then your real return can be closer to 3 or 4% but if you live in a very central city like Toronto then the return can drop down closer to 1% again.  Flight rewards are definitely more appealing to those living in smaller cities and rural areas. Finally, if you never leave your home town or can’t stand flying then flight rewards have no value to you at all so getting a 1% or less return by redeeming for a new television or a Futureshop gift card represents much more value to you personally.

To take the example to the next level, I would normally still suggest choosing the reward with the highest return even if it isn’t a perfect fit for you. For instance, you could redeem your Aeroplan miles for a free flight for a family member and then have them pay you the real cost of the ticket. In another scenario, if what you really want is a TV because you can’t afford to buy one without using points then I would suggest still buying the plane ticket, assuming you need to travel sometime, and then put the money you saved on the ticket aside.  You could then later use that money to fund the purchase of a TV.  So, you see, you can be very creative in how you manage your rewards such that you get the best return but still get the exact reward you want as well.

Transferability

Transferability is another important thing to keep in mind. There are three main types of transfers you could want to do with rewards points:

  • To another person or account.
  • From one rewards program to a completely different rewards program.
  • Redeeming a reward for another person other than yourself.

Unfortunately, trying to do any or all of these three things can be tricky indeed.

First, let’s consider transferring points to another person. Most rewards programs simply don’t allow this and the ones that do often charge a fee. Shoppers Optimum is the one rare exception where it is completely easy and painless to transfer points to any other Optimum member. Airline rewards programs and hotel rewards programs are among the most likely to allow you to transfer points, but usually for a fee. Sometimes it is restricted to family members only as well. All these restrictions and fees can make family points planning very difficult. You have to be very careful not to get caught in the cost to transfer trap because sometimes the cost of transferring the points can almost equal or even exceed the actual value of the points themselves. You should always know the true value of your points and avoid transfers absolutely as much as you can.

Second, let’s consider transferring points to another rewards program. This is completely prohibited in many rewards programs. In those programs that do allow there is usually a specific list of partners that you can transfer your points to. It is often the case that even when transferring to partners that the conversion rate will not be favourable and you will lose value overall during the transfer. In some rare cases you can actually gain extra points by doing transfers and I will be sure to point those out as we go along. The Starwood Hotels points program called Starwood Preferred Guest is one of the best overall points programs especially when it comes to transferring. You can transfers your points to almost any airline’s loyalty program at a favourable rate and on top of that they throw in bonus airline miles for every 20,000 starpoints you convert. It’s pretty hard to beat that. As an absolute last resort when transferring points there is always points.com which allows you to transfer between quite a few loyalty programs but at the same time they rob of you of probably 90% of the value of your points. This site will be discussed more later but should usually be avoided entirely.

Third and finally, is transferring your redeemed reward to another person. This is not usually an issue when it comes to standard rewards like products, gift cards, and cash. However, when it comes to hotel points, airline miles, car rental points, etc it can be an issue. Most airlines will allow you to buy a ticket for an immediate family member and other will allow you to buy one for anyone. In some cases you may be required to fly with the person you are redeeming for. This usually isn’t an issue but it is best to know these things ahead of time before saving your points for a friend or family member and then finding out you can give them the reward you wanted to.

 

Now that you know more about how rewards programs work, choose the rewards programs you are most interested in from the left side menu to get started.

 

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