Travel Rewards Credit Cards
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If you’re thinking about starting to use a rewards credit card, you may be overwhelmed by the number of options to choose from. There are cash back credit cards, gas rewards credit cards, and even cards that give you free merchandise and movie tickets. However, if travelling is one of your hobbies, you should look no further than the list of travel rewards credit cards available in Canada. Here’s all you need to know about how travel rewards are accumulated, what they can be redeemed for and some of the other perks they come with.
What are travel rewards credit cards?
Travel rewards credit cards are simply credit cards that allow cardholders to earn travel points for all purchases made. The travel points you earn can then be used to help you pay for some portion of a trip, whether it’s a flight, hotel, excursion or any number of other travel-related expenses.
How are travel points accumulated?
For almost every purchase made with a travel rewards credit card, points or miles accrue in the cardholder’s account. As with many rewards cards, depending on the transaction, a different number of points may be awarded. For instance, in the case of TD travel rewards cards, cardholders earn 3 travel points per $1 spent using the card, which is equivalent to a 1.50% return; you earn 6 points for booking your trip over the phone through either Expedia for TD or the TD Travel Rewards Centre, which is a 3.00% return; and you earn 9 points for every $1 spent online at the Expedia for TD website, which is a 4.50% return.
Purchasing something simply to accumulate travel points is not a wise idea, as it could leave you with a mountain of credit card debt – the interest for which could wipe out the value of any travel points earned. However, if you are going to make a purchase anyway, the travel points can be a valuable bonus.
How are travel points redeemed?
As a general rule, there are two ways to cash-in travel points or miles:
- Points/miles can be exchanged for a certain dollar value of travel expenses; this is how TD Travel Points work, as an example.
- Points/miles can be used directly to purchase the travel expense; this is how Aeroplan works. With Aeroplan, they will tell you how many points are needed for a specific flight. Aeroplan provides a detailed chart showing the cost (in points) of trips, depending on the region, length (short or long haul) and class of ticket.
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What can travel points be redeemed for?
When people think about travel rewards credit cards, free flights and hotel bookings usually come to mind. Depending on the card though, other travel expenses may be eligible. Here is a list of possible travel expenses that you may be able to redeem travel points for:
- Hotel stays
- Bus rides
- Taxi fares
- Campground expenses
- Ferry rides
- Baggage charges
- Ski rentals
- Hot air balloon rides
- Airport parking, and more.
Keep in mind that every travel points program is different, so what qualifies as an eligible travel expense for redemption will vary too. Travel points can even be redeemable for cash, through some cards, although the maximum value typically comes from travel-related redemptions.
Case study: Michael’s Aeroplan points
Michael has a CIBC Aerogold Infinite VISA card and is looking to use his Aeroplan points to book a round-trip business class flight from Toronto to Cancun. The flight will cost 60,000 Aeroplan points.
Since he got the card, Michael has spent $20,000 on gas, grocery and drugstore purchases, which gave him 30,000 points ($20,000 x 1.5 points per $1 spent). Michael spent a further $30,000 on purchases that accumulate points at a rate of 1 point per $1 spent, which gave him another 30,000 points.
Assuming that a flight to Cancun costs $1,278, including $185.56 in taxes that Michael is responsible for paying, what is the return on his spending?
To find how much Michael’s points are worth, we first subtract the Aeroplan taxes from the price of the flight ($1,278 - $185.56). In this example, his 60,000 Aeroplan points are worth $1,092.44. To find the value of each point, we then divide $1,092.44 by 60,000 which gives us $0.018/point.
So, we know that each point is worth $0.018 (1.8 cents) but this figure does not properly show Michael’s return for every $1 spent. He spent $50,000 and received 60,000 points. To find Michael’s points per dollar spent, we then divide 60,000 by $50,000, which gives us 1.2 points per dollar spent.
To calculate Michael’s return for each dollar spent (his return for using this card when he redeems for this flight), we multiply 1.2 times $0.018, which equals $0.0216. In this example, Michael receives a 2.16% return for each dollar spent if he redeems his points for this flight.
Other benefits provided by travel rewards credit cards
Beyond just having the ability to earn travel points/miles, there are a number of other benefits provided by travel reward cards. Most come with at least some amount of travel medical insurance, possibly trip cancellation and trip interruption insurance, and even collision and damage insurance on any rental cars you use. It’s important to remember, however, that you need to pay for at least a portion of your trip (or redeem points earned via your card) with your travel rewards credit card, to be covered. A summary of your insurance coverage will be provided in the cardholder agreement, when you first receive your credit card.
Drawbacks of travel rewards credit cards
There are some drawbacks to using a travel rewards credit card. For starters, deciphering the dollar value of the rewards sometimes takes a bit of research and analysis. Unlike a cash back credit card, where the return is clearly understood, a travel rewards credit card’s ultimate benefit isn’t always clear upfront. As we explain in our section on how to value points, the key is to always think about what a given dollar level of spending will yield in rewards. The question to ask is, “What net yearly rewards does this card provide?” This takes into account everything from account fees to cash back tiers to the value of your points when you redeem them.
Another potential drawback is that sometimes booking your desired trip can be difficult. Some travel rewards credit cards do not allow you to book flights during busy travel periods, known as “blackout periods”. In addition, where specific airlines are connected to a card, they often only make a certain number of seats available for rewards redemptions. Before signing up for a travel rewards credit card, it’s worth checking out the fine print of both the card agreement and the points program to see if any of these restrictions apply.
Other things to keep in mind:
- Some travel points expire, while others do not
- There may be a fee every time you redeem points, such as a booking fee, taxes or fuel surcharges on flights
- Booking well in advance is recommended, as prices are normally lower and availability is better; in some cases, such as with Aeroplan, the price does not change over time but the availability of seats does
- It’s possible that late card payments will not result in points being awarded
Is a travel rewards credit card right for you?
If you’re an avid traveller, a rewards card with travel benefits may be the perfect thing to keep in your wallet. On the other hand, if you don’t do much travelling, a cash back credit card might be a better choice. It’s important to choose a card that offers the benefits most valuable to you. If you decide to get a travel rewards credit card, keep in mind that while the rewards won’t buy much initially, they do eventually add up. The important thing is to actually use them: points that never get redeemed are points wasted.
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Types of Rewards Credit Cards
- Credit Card Rental Car Insurance
- Trip Cancellation/Interruption Insurance
- Travel Medical Insurance
- Travel Accident Insurance
- Delayed Baggage Insurance
- Lost Luggage Insurance
- Flight Delay Insurance
- Hotel/Motel Burglary Insurance
- Purchase Security Insurance
- Price Protection Insurance
- Extended Warranty Insurance