Rewards credit cards 101: How to compare rewards credit cards

Today, many Canadians choose their credit cards based on the rewards. But not every card offers the same value. Whether you’re looking to earn cashback rewards on your purchases, points for your upcoming vacation, or exclusive perks at your favorite store, there is no shortage of options.  Each card has a different earn rate, points system, and redemption structure. It can be a lot! But we can help. In this guide, we will walk through the three popular types of rewards cards in Canada, including the cashback card, travel rewards, and store-branded cards. By learning about each of these options, you will be in a better place to make the right choice for your wallet.

Rewards Credit Cards Explained

Rewards cards provide you with an incentive for credit card spending. Each time you swipe, you will get something in return. You could receive cashback, travel miles, or store credit; it just depends on the type of card you hold. The best part? Over time, these perks add up to real savings.

There are three main types of rewards cards in Canada:

• Cashback credit cards provide you with money for spending as they give you a percentage of your eligible purchases back in cash.
• Travel rewards credit cards help you earn points or miles redeemable for travel-related expenses. Think hotels, flights, or rental cars. Some even allow you to use your credits towards tour packages.
• Store-branded credit cards offer loyalty points or in-store credits for a specific retailer.

Within these credit card types, each has its own structure. Some offer flat-rate rewards, and others have tiered systems with specific categories of spending that earn more. It doesn’t end there either. Some cards allow flexible redemption options, with others restricting you to specific platforms or merchants.

As with most financial products, rewards cards have limitations. For example, they usually charge an annual fee, have a specific earnings cap, or even expiration dates. This is why it’s necessary to read the fine print on your card to ensure it’s the right program for you.

Cashback Credit Cards

One of the most practical ways to earn rewards is through a cashback credit card. These cards give you a percentage of your spending back (as either a statement credit or a direct deposit). With the funds going straight into your pocket, a cashback card is ideal for those who value simplicity and tangible savings.

Cashback cards come in two types: the tiered card and the flat-rate card. With a flat-rate card, you will earn the same percentage on every purchase regardless of the category. Often, a flat-rate card will pay a 1.5% to 2% rate in cashback.

Tiered cards operate differently. They will pay out a higher cashback rate on specific categories like groceries, gas, or dining. For example, you might see a card that offers 4% cashback on gas, with everything else earning 1%. Some cards even include a rotating bonus category that changes quarterly.

Pros of cashback cards: The main benefit of cashback cards is their ease of use. You always know what you’re earning, and redemption is typically seamless; no need to navigate complex point systems or blackout travel dates.

Cons of cashback cards: Disadvantages include the fact that they may not offer as high a return as travel cards for big spenders or frequent flyers. If you are a heavy spender in the travel category, then you may find better value in another card.

Best For: Cashback cards are ideal for those Canadians who want low-maintenance, everyday rewards. No elaborate reward strategies needed.

Travel Rewards Cards

Travel rewards cards help you turn your everyday spending into premium flights or luxury hotel stays that would otherwise be unaffordable. Through your purchases with this card, you will earn points or miles that you can redeem for flights, hotels, car rentals, or other travel-related expenses.

The value-added perks of travel cards are what really set them apart. For example, many premium options have exclusive travel benefits like airport lounge access and no foreign transaction fees. These are both helpful for Canadians traveling abroad. Not to mention additional insurance for trip cancellation, trip interruption, rental car coverage, or out-of-country medical expenses. These features provide travelers with peace of mind and sometimes hundreds of dollars in savings on a single trip.

Pros of travel rewards cards: The benefits of these cards include access to high-value redemptions. With strategic planning, these cards will provide more value than a simple cashback one.

Cons of travel rewards cards: Many travel cards come with higher annual fees compared to other types. Also, navigating the redemption process can be complex due to blackout dates, limited seat availability, or fluctuating point values.

Best For: Travel rewards cards are ideal for frequent travelers and anyone who wants to help subsidize their future vacation.

Store Credit Cards

Store credit cards have an association with a specific retailer, rewarding loyal customers with targeted promotions. The benefit of holding a store card is that they often have exclusive discounts and accelerated earn rates for store-specific purchases. Retailers also tend to hold member-only events and promotions. For frequent shoppers, these perks can add up to sizable savings, especially when combined with seasonal sales or other in-store offers.

Pros of store cards: One of the advantages of store cards is the potential for high-value returns at a specific store brand. 

Cons of store cards: Store cards carry high interest rates, which can catch consumers off guard. We recommend only using these cards if you can always pay off your balance (in full) each month. If not, consider a low-interest card option instead.

Best For: Store cards are ideal for loyal customers who regularly shop at the same retailer. Used strategically, these cards can deliver strong rewards with minimal effort.

Key Factors to Compare When Choosing a Rewards Card

Not all rewards credit cards are created equal. And even if they were, it wouldn’t be helpful since the rewards are only as good as your ability to use them. Whether you want to maximize cashback, earn travel perks, or collect store-specific points, it's essential to compare more than just the headline reward rate.

As you evaluate each of the credit card types, consider the following factors:

• Rewards structure. Does the card offer a flat-rate return on all purchases, or do rewards vary by category? Remember that category-based rewards can be lucrative, but only if they match your spending habits.
•  Annual fee. Many premium rewards cards charge a hefty annual fee. If you want to use the card, make sure the perks justify the cost. Otherwise, consider a no-fee card.
• Redemption flexibility. Consider how you can use your points. Can you easily redeem them for travel, cashback, or merchandise? Some programs are notoriously complex or limited in redemption options.
• Sign-up bonuses. A generous welcome offer might seem appealing, but be sure to check the spending requirements and eligibility rules. Some cards require a minimum spend in order to qualify for the bonus.
•  Foreign transaction fees. If you travel often or shop online from international retailers, look for cards that waive this fee.
• Interest Rate. Rewards quickly lose value if you carry a balance. Always compare purchase APRs.

For more on aligning your card choice with your lifestyle, see How to Choose the Best Credit Card for Your Needs.

Rewards Card Comparison Summary

Final Thoughts

There is no one-size-fits-all rewards card. Instead of just relying on the card that you saw in an advertisement on TV, take the time to evaluate your lifestyle. Assess your monthly spending categories and compare your options. Also, don’t forget to read the fine print for details on how your credit card calculates rewards. For extra assistance, try the credit card comparison tool, which can help you find a card with just a few clicks.

Choosing the right rewards card isn't just about maximizing points; it's about finding a balance between value, usability, and cost.