How You Can Use Credit Cards to Save for Retirement

Craig Sebastiano
by Craig Sebastiano August 22, 2018 / No Comments

Saving money is hard, but it can sometimes be easier if you use your credit card. You can either join a little-known pension plan or use a card that allows you to convert your points into savings.

The first option is to join the Saskatchewan Pension Plan (SPP), which is available to all Canadians with RRSP room. As of January 2018, the annual contribution limit rose to $6,000 from $2,500. Even though you might have more RRSP room available, the $6,000 annual limit is the same for everyone.

You can make monthly contributions to the SPP using Visa or Mastercard, but not American Express. If you use a cash-back credit card, you can get money for making RRSP contributions. For instance, if you contribute $6,000 a year using the Scotia Momentum Visa Infinite card, you’ll get 1% back or $60 annually. Over five years, you will earn $300. Unfortunately, monthly contributions don’t count as a recurring bill payment, which would have earned 2% cash back.

If you contribute using a travel rewards credit card, you can save for retirement and earn points for flights or hotel stays.

Another option is to use a credit card that allows you to use your points for savings products. Here are what some financial institutions offer:

RBC

RBC has nine different cards you can use to earn RBC Rewards. Most of them—such as the RBC Visa Infinite Avion ($120 annual fee) and the Signature RBC Rewards Visa ($39 annual fee)—allow you to earn one point per for every dollar you spend. You can also earn 25% more points on travel-related purchase with the RBC Visa Infinite Avion card. If you want to earn 1.25 RBC Rewards points on all your spending, you can get the RBC Avion Visa Infinite Privilege card ($399 annual fee).

You can use your points to contribute to an RRSP, TFSA, RESP, or registered disability savings plan. Points can also be redeemed to pay down your mortgage, credit card, or line of credit. And they can be used for travel, gift cards, merchandise or charitable donations.

National Bank

National Bank’s À la carte rewards program lets you earn points with four different cards. You’ll earn one point per dollar spent with the Platinum card ($89 annual fee) and 1.5 points per dollar spent with the Business Platinum card ($125 annual fee). With the World Mastercard ($115 annual fee), you’ll earn 1.25 points per dollar spent on the first $20,000 in purchases every year, two points per dollar spent for between $20,001 and $30,000 in annual spending, and 1.25 points per dollar spent for $30,001 or more in purchases annually. If you hold the World Elite Mastercard ($150 annual fee), you’ll earn 1.5 points per dollar spent for the first $40,000 in annual spending, two points per dollar spent for between $40,001 and $80,000 on purchases annually, and 1.5 points per dollar spent for purchases of $80,001 or more.

The only investment products you can use your points for are for RRSP and TFSA contributions. Points can also be used to pay down your mortgage or home equity line of credit, as well as for travel, merchandise, gift cards, and charitable donations.

Desjardins

Desjardins offers four different credit cards that earn BonusDollars. Three of the cards allow you to earn 1% back on every purchase and the annual fees range from $30 to $110. But the Odyssey World Elite gives you 1.5% cash back on every purchase up to $20,000 a year. For spending of $20,000 and more annually, the rate rises to 2% cash back. However, the card has an annual fee of $130 and requires a minimum annual income of $80,000 or a combined household income of $150,000.

BonusDollars can be used for RRSP, TFSA, and RESP contributions, as well as to purchase market-linked GICs, mutual funds, or other savings products. Alternatively, you can use BonusDollars to pay down your mortgage or personal loans, purchase insurance, or to cover service fees. Of course, BonusDollars can be used for travel, gift cards, and much more.

The future value of a contribution

Let’s assume you decide to contribute $100 worth of points to an RRSP or TFSA. That $100 turns into $196.72 in 10 years or $386.97 in 20 years if the annual rate of return is 7%. Assuming the same rate of return, $500 worth of points will turn into $983.58 in 10 years or $1,934.84 in 20 years.

The bottom line

Making SPP contributions with your credit card or using your points to contribute to an RRSP or TFSA are great ways to add additional savings for retirement. However, it’s only worth it if you pay off your balance in full every month.

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