Should You Get a Rewards Credit Card?

Credit cards offer a convenient way to cover large purchases, shop online, and pay for recurring subscriptions, but that’s not all they’re good for.

At FinlyWealth, we believe that one of the best parts of a credit card can be its rewards program – an incentivizing system that simultaneously optimizes your expenses.

Whether you choose a card with flexible cashback or points geared towards specific redemption opportunitues, your card’s specialized earn categories will help you accumulate rewards to fund future purchases, creating an endless cycle of spending and earning.

As good as this sounds, there are still some caveats that come with rewards credit cards. For example, some of the best rewards credit cards have annual fees. An annual fee is only worth it if the annual value justifies the yearly cost of the card, ideally by offsetting the fee altogether. You’ll also want to make sure you pay off your balance every month to avoid hefty interest rates.

For more information on whether or not a rewards credit card is worth it, stick around.

Are Credit Card Rewards Worth it?

As touched upon briefly in the intro, a rewards credit card is absolutely worth it if your spending habits, financial health, and the credit card in question are compatible.

For a better idea of what we mean, consider these questions before applying for a rewards credit card:

How’s Your Credit Health?

While issuers don’t typically disclose an exact credit score requirement for their cards, an estimated range can give you a better idea of what’s expected.

To help you assess whether you’re in good standing prior to sending in an application, our Best Credit Card Finder provides a credit score estimate under each featured card.

As a general rule, you may notice that more premium credit cards come with higher credit score estimates, which can sometimes even supplement an annual cost.

If you happen to have a low credit score or perhaps no credit score whatsoever, you’ll want to focus on building your credit before focusing on rewards. To boost your credit health, consider applying for a secured credit card instead.

What’s Your Annual Income?

Sure, this might sound like an invasive question, but it’s one of the main questions you’ll be asked when filling out your credit card application.

Why? Many credit cards come with annual income requirements. You can meet these annual income requirements either personally or as a household. 

Oftentimes, high annual income requirements accompany higher annual fees. This suggests that the credit card issuer wants to ensure that you’ll be able to keep up with the cost of the credit card.

Do You Pay Off Your Balance on Time?

Building off of that last point, if you ever fail to pay off your rewards credit card’s balance on time, it’s likely that you’ll fall subject to some high interest rates on your carried balance.

For the most part, rewards credit cards are designed solely with earning potential in mind, not low-interest. Some exceptions to this rule are the Scotiabank Platinum American Express Card and the Desjardins Odyssey Visa Infinite Privilege Card, both of which boast lower-interest rates, decent reward programs, impressive perks, and respectable coverage. Still, while these interest rates are low for rewards credit cards, there are much better low-interest credit cards on the Canadian market, some with zero interest promotional periods, lower rates overall, and low to no annual fees.

Ultimately, to avoid high-interest rates on a rewards credit card, you’ll want to understand your billing cycle and pay off your credit card balance in full by its respective due date.

What to Look For in a Rewards Credit Card

Let’s say you’ve got good credit, a decent annual income (if applicable), and you plan on paying off your balance on time each month. With all of this in mind, you’re ready to apply for a rewards credit card … but which one?

To help you decided whether or not a particular rewards credit card is right for you, consider the following:

Does the Value Justify the Cost?

If you’re open to applying for a rewards credit card with an annual fee, you’ll want to make sure that the overall value of the card justifies the annual cost.

For a better grasp of the card’s overall value, our Best Credit Card Finder provides an annual rewards calculation beneath each card. This calculation gives you an idea of how much value you can potentially extract from the selected card on a yearly basis. The initial calculation is based on average spending, but you can also edit the spending amount to properly evaluate your unique situation.

To squeeze the most value out of your card, you’ll of course want to make sure you intend on optimizing each specialized earn category as much as possible and that you’ll actually use all of the added perks. 

Are There Any Limitations to the Rewards Program?

Even if you intend on taking full advantage of a rewards program, there are still some limitations you might encounter.

At first, some reward rates may look too good to be true, and that may be because they are. Many reward credit cards feature intro offers that provide new cardholders with bonus cashback or points during a promotional period. That said, after the promotional period has run its course, reward rates will revert back to their standard values. Therefore, while a welcome bonus might seem like a smart aspect to base your application on at first, it’s actually better to apply for a card that’s going to give you strong reward rates at all times. Similarly, you should always double check your card’s terms and conditions for potential reward expirations.

Unfortunately, there are also some cases where regular reward rates are subject to spending or earning caps. These caps can be implemented monthly or annually and will dictate how much you can earn or spend in a specified category. If you’re considering a rewards credit card with caps, make sure that your spending habits fall below the imposed threshold. If you ever happen to hit the spending or earning caps on your card, then you’ll be subject to the card’s base rate which is usually much lower than its specialized category rates.

When dealing with points, each card’s loyalty program will have a set list of redemption categories that your points can be applied to. Redemption categories may include travel, entertainment, dining, gift cards, or statement credits. Each redemption category will have its own set value and some categories will be more valuable than others. In some cases, you’ll also need to collect a minimum amount of points to start redeeming towards a particular category.  Since you’re limited to the redemption categories provided by your card, you’ll of course want to make sure that the available options match your spending goals. For example, if you don’t expect to do much travelling, then you shouldn’t opt for a rewards credit card with points that are most valuable when redeemed towards travel. 

To explore the various redemption opportunities offered by each loyalty program, check out our Points Calculator page.

Best Rewards Credit Cards in Canada

Choosing the best rewards credit card can be quite subjective. The most optimal option for you depends on your unique financial lifestyle.

Still, there are some objectively valuable rewards cards worth considering, at least to help you get started on your search.

If you’re looking for the top points rewards credit card, consider the highly-esteemed American Express Cobalt Card. This card offers tons of points on everyday spend categories like dining, groceries, streaming, gas, and transit – contributing to the most impressive net annual reward potential. Not to mention, American Express Membership Rewards points are some of the most valuable points on the Canadian market, especially when redeemed towards to travel. To estimate how much value you can squeeze out of this card, try this tool.

Alternatively, if you want the flexibility of cashback rewards, your best bet is the Neo World Elite Mastercard. The rewards program is pretty unique, giving cardholders plenty of opportunities to boost their initial cashback rates. While the initial rates are already some of the best available, if you happen to save $5k - $10k inside of a Neo everyday account, or if you choose to purchase products and services from Neo Partners, your cashback rates effectively turn into the highest percentages offered in Canada.

Conclusion

So, should you get a rewards credit card? If you plan on paying off your balance on time, can afford any associated annual fees, and you meet the selected card’s annual income requirements (when applicable), then a rewards credit card is a smart investment.

With a rewards credit card, you can earn cashback or points on every eligible purchase, allowing you to essentially collect money as you spend it.

When choosing a rewards credit card, opt for a contender that suits your financial habits and make sure that you’ll use all of the perks provided.