What You Ought to Know About How Your Credit Card Rewards Program is Ripping You Off!
To pull back the veil of secrecy, we performed the “toaster test”, comparing how many points you have to redeem to earn yourself a new shiny silver toaster. In comparing 5 of Canada’s best rewards credit cards programs, here’s what we found:
- The average cardholder has to spend between $10,000 to $16,000 on their credit card to earn enough points for a toaster!
- It takes the average cardholder up to a year and a half to earn enough points for that toaster to become theirs. Depressing.
- When redeeming for a toaster, your points can be worth as little as $.0056 cents per point, a far cry from the $.01 cent many cash-back credit cards earn cardholders.
- There is over 50% variation in price for the same toaster between credit card rewards programs. That’s the difference between waiting 1 year or 1.5 years, so choose wisely.
So what can we learn from all of this?
When selecting a rewards credit card, you not only have to calculate how many points you’re getting per dollar spent, but also, how many points your credit card issuer is charging you to redeem for each item.
If you don’t want to wait a year and a half to buy a toaster, and you don’t spend enough on your credit card to earn yourself a flight, you may be far better off with a cash-back program. You know exactly how much value you’re getting back for every dollar spent on your credit card, and you can typically redeem for much smaller increments, i.e. $50.
As a rule of thumb,don’t redeem for merchandise, stick to cash or travel. Issuers manipulate the price of the merchandise at levels that cause you to leave a certain amount of points unused (what they call breakage). Instead of making the toaster 1,000 points,they’ll make it 1,050 points, knowing full well, there are no items in their catalog you can redeem for 50 points – not even cash.