From Average Air Miles Credit Card to Extreme Earners

Wednesday 07th, May 2014 / 00:49 Written by
From Average Air Miles Credit Card to Extreme Earners
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This is part of a series where I answer readers questions. This question comes from reader Grant and wants to know about suggestions for getting a new credit card.

The Skinny

Grant currently has the BMO Air Miles Mastercard and is frustrated with the poor returns he is getting and the high fees and frustration associated with redeeming his rewards.

He wants to maximize his return and have an easier redemption process.

I suggest he ask himself the following:

  • Do you want a fixed value or travel points card?
  • Do you carry a balance on the card?
  • Are you willing to carry 2 cards?
  • How widely accepted is American Express at your grocery and other regular retailers?
  • How much do you spend in each category of gas, grocery, drugstore, restaurants, travel, other?

Here are the specific cards I suggest and their return, given the sample spending profile:

 

Credit Card Annual Return Return % Annual Fee Sign-Up Bonus Redemption Notes
BMO Air Miles $105.26 0.702% $99 N/A Air Miles – Point of sale or flight rewards
Scotiabank Amex $402.00 2.680% $99 First Year Free & $150 Scotia Points Statement credit against previously purchased travel American Express card not accepted everywhere
BMO World Elite $300.00 2.000% $150 First Year Free & $300 BMO Travel Points used directly to pay for travel through BMO Travel / Expedia.ca
MBNA World Elite $300.00 2.000% $89 First Year Free & $100 MBNA points Cheque mailed
RBC Avion $275.63 1.838% $120 15,000 RBC Avion Points Transferred to frequent flyer programs
American Express Gold $304.20 2.028% $150 First Year Free & 25,000 Membership Rewards Transferred to frequent flyer programs American Express card not accepted everywhere
Multiple Card Portfolio:
Scotiabank Amex Gold
MBNA World Elite
$489.60 3.264% $188 Combination Optimize return on each purchase

Hi Al ! I’m considering applying for a new credit card. I currently hold the BMO Airmiles MC but find that Airmiles are becoming more and more difficult to earn. I have done a lot of reading and have narrowed my choices down to the Scotiabank Gold Amex and the RBC Infinite Avion Visa. I am wanting to start gaining travel rewards and am looking for the ‘best bang for my buck’ when it comes to fees, rewards, ease of redemption and acceptance. Your insight is greatly appreciate. Additionally should there be a better option than these two choices, please feel free to make any suggestions !

Thanks,
Grant

Hi Grant – Thanks for the interest. I’ll try to do my best to answer your questions and give you some insight on picking the best card for your situation.

 

First, let me assess your situation:

Current Situation:

  • BMO Air Mile Credit card
  • Frustrated with high fees, poor return for spending

Future Situation:

  • Card with better return on spending, less annoyances / gotchas upon redemption

Particularly interested in:

  • Scotiabank American Express Gold
  • RBC Avion Visa Infinite

CreditCardAB
Using $105.26 Air Miles Annual Return – $99 annual fee = $6.26
Then taking the Scotiabank AMEX Annual Return $402 + MBNA World Elite $300 Annual Return + Both Sign-Up Bonuses $250
= $952 of Gain with 1st year Fees Waived.

 

Initial things to Consider

We want to make sure to use the above information to drive our decision on what the best card is for you. There are a few pieces of information that would help with this analysis and I’ll throw them out there:

  • Do you want a fixed value or travel points card?
  • Do you carry a balance on the card?
  • Are you willing to carry 2 cards?
  • How widely accepted is American Express at your grocery and other regular retailers?
  • How much do you spend in each category of gas, grocery, drugstore, restaurants, travel, other?

Travel Points cards

In my article on the best travel rewards cards, I comment on how travel points cards are not really ideal for everyone. In fact, in the current credit card marketplace in Canada, most Canadians would do much better by carrying a fixed value card, such as the Scotiabank Amex, or BMO World Elite or MBNA World Elite cards.

You would benefit from a travel points card if:

  • Your specific redemption lines up with a value spot in the program
  • You believe you are much better than average at understanding the points programs
  • You actually would be willing to pay twice the economy fare to sit in business
  • The tax consequences of carrying a better card would be burdensome

 

Carrying a balance

If you do not pay your balance in full, then you should really see your card as a loan product. In this case, any energy you spend on optimizing your card should ignore the rewards program and should focus entirely on getting the absolute lowest interest rate. Here is the list of my favorite Canadian Cards for Carrying a Balance in 2014.

The analysis I perform here will assume that you are not carrying a balance, so the interest rate is not a factor.

Carrying multiple cards

It is really important to consider whether you are willing to carry 2 cards or if you strongly prefer to carry only 1. If you carry 2 cards, then you can have a single card for category purchases (example gas and grocery) and then another for everything else. This way you can optimize your spending.

I feel there are 2 types of cards:

  • Category spending
  • All other spending

Put all your (for example) gas purchases on the card that optimizes gas, and all your other spending on a card that gets a better return on everything else.

Category-Spend-Credit-Card

If you are willing to carry multiple cards you can do this. In Canada, I think it takes at most 3 cards to optimize your spending. I think most Canadians can optimize with 2 cards.

Spending Profile

Inherent in the discussion of multiple cards is a spending profile. It is important to get a sense of what you spend your money on. If you dont have a car, then it would be unwise to get a card that benefits gas spending.

For the purpose of this discussion, I’ll do my analysis assuming the following profile:

Category Monthly Spend
Restaurants $400
Grocery (Amex Accepted) $300
Drug Stores $50
Travel $250
Other $250

Acceptance of American Express

One of the strongest cards in this analysis is the Scotiabank American Express Gold card. The problem with it is there is less acceptance of Amex cards vs Visa or Mastercard.

For example, Loblaws (and all Presidents Choice grocery chains) do not accept American Express. If you are a loyal Loblaws shopper, then the Scotiabank American Express Gold card is not going to be ideal for you as your groceries can’t be charged to that card.

It is very important to understand the retailers you frequent and find out if the card you get is going to be accepted.

My experience in Toronto

I find, in general, my personal experience shows that everywhere that accepts credit cards accepts Visa and Mastercard. I find there are a few, rare places that do not accept Amex, but it might be limited to 1 place out of 10.

Note that this is based on my personal experience of the retailers that I frequent, as a young, urban professional living in Toronto. I have been led to believe that American Express has less acceptance the less urban you get.

Credit Card Analysis

Now that we have laid out the things to consider, let’s take a look at each specific card and see what kind of a return we can get from each of these cards. Something to consider is that the insurance and warranty benefits seem to be very similar for each of the cards discussed here. We really only need to consider the differences, which are limited to the return, annual fees, signup bonus and ease of redemption.

1. BMO Air Miles (current situation)

The BMO Air Miles credit card earns you 1 Air Mile for every $15 spent and it comes with a $99 annual fee.

There are 2 ways to redeem Air Miles:

  • Air Miles Cash Rewards
    • Redeem 95 Air Miles for $10 discount at the point of sale
  • Air Miles Dream Rewards
    • See schedule of rewards here
    • BMO Mastercard gets 25% discount on these prices
    • Taxes and fees (unable to find out until purchase) are extra

Valuing Air Miles Credit Card Rewards

Personally, I value Air Miles at a hair more than $0.10 each ($10 / 95) based on the return from point of sale returns. The return from flight rewards are generally poor value for many travelers while some very specific flights can return excellent value. I pick the cash return because it is easy for everyone to achieve and I find that finding the excellent value flights is based much more on luck than on adjusting behaviour to get the ideal flights. Also, finding the amount of taxes and fees is very difficult.

That would put the return on the BMO Air Miles credit card at around 0.7% return. For our spending profile, this works out to a return of $8.77 / month or $105.26 / year. This method makes redeeming miles very easy as the miles are redeemed as discounts at the point of sale.

Scotiabank American Express Gold

This is one of my favorite cards, as I have mentioned in my best credit cards for 2014 list here. This card gets 4 points / dollar spent on gas, grocery and restaurants and 1 point / dollar on everything else. Each point is worth exactly $0.01 as a statement credit towards a travel purchase you have already made.

I personally love this card because it gives me great return on the purchases I make the most. My review of this card is here.

The real drawback to this card is that it is an American Express card. As I mentioned earlier, American Express is not accepted everywhere, so it is important to make sure that your retailers will accept Amex.

Given our spending profile, the return on this card would be $35.50 / month or $402.00 / year, assuming all of the purchases were put on this card.

BMO World Elite / MBNA World Elite

There are 2 cards that I consider pretty much identical in doing this analysis. The BMO World Elite and MBNA World Elite both earn exactly 2 points per dollar spent on all purchases. In both cases, the points are worth exactly $0.01 each. The real difference is that the MBNA card rewards can be released as a cheque, and has a lower annual fee. The BMO World Elite rewards must be redeemed from the BMO travel site (based on Expedia.ca), has a higher annual fee, but gets lounge access and slightly better insurance. For this analysis, I’ll assume they are the same, since their rewards are almost identical.

You can see my review of the BMO World Elite Card here.

The World Elite cards each return 2% towards all spending with easy redemption options. I would suggest the MBNA World Elite card, only because the cheque option seems slightly easier than calling up BMO travel.

Given our spending profile, a World Elite card would return $25.00 / month and $300.00 / year.

RBC Avion Visa Infinite

The RBC Avion Visa Infinite is a great card in the travel points category. The earn rate is relatively standard at 1 point / dollar on all purchases, and 1.25 point / dollar on travel purchases. The real reason this is a good card is because there are strong transfer partners.

There are a few ways to redeem your RBC Avion points:

  • Transfer to other loyalty programs
    • American Airlines, British Airways, Cathay, Westjet, Esso Extra
  • Cash flight rewards
    • Schedule

If you are going to be redeeming Avion points for cash flight rewards, you would be better off carrying a card that reimburses you directly for travel, such as the Scotiabank Amex or one of the World Elite cards mentioned above.

The only real value of this card is if you are transfering your Avion points to a frequent flyer program. There are transfer bonuses regularly for transferring Avion points to British Airways and American, giving you 25% or 50% bonuses (1000 Avion transfers to 1500 Avios). They are not always available but for the past several years have come by quite regularly and are something that most Avion cardholders can count on. As of this writing in Spring 2014, there is a transfer bonus of 50% from May 1 – June 30.

I think the only 2 transfer partners that get real value for Canadians are British Airways Avios and American Airlines. I do not believe that transfering Avion points to Westjet is a good use of Avion points.

British Airways Avios

The British Airways Avios program is great for discounting short flights on flights operated by One World airlines (American, US AIrways, British Airways Cathay etc.). For example, a flight from Toronto – Charlotte should run you about $600 roundtrip, but using British Airways Avios, this would cost only 9000 Avios and $55. This return is over $0.06 / Avios.

Note that upon redemption, you can buy British Airways Avios for as low as 1.3 cents each.

In my article on Aeroplan short-haul awards, I discuss the value of the British Airways awards as a comparison to Aeroplan miles.

American Airlines

American Airlines miles are quite valuable for overseas travel. The reason is because they have some very good rates for off peak travel. The taxes and fees are also quite low on most flights, as long as you avoid flights operated by British Airways and routings through London.

In April 2014, American Airlines miles had a major devaluation with some great stopover rules being taken out. I think there is a lot of value in the American Airlines program, especially when considering the lack of fuel surcharges, one-way award pricing and discounts on off-peak travel periods.

Westjet

The reason I don’t suggest using the RBC Avion card for Westjet transfers is because Avion points transfer at a rate of 100 Avion points = $1 Westjet dollar. Doing this transfer would mean that the return on spending on this card would be only 1%. If you prefer to redeem your credit card rewards for travel on Westjet, you would be better off with a World Elite card or Scotiabank Amex card, which could yield you much better than 1% return.

 

Factoring in transfer bonuses and the value of British Airways Avios at $0.013, I give RBC Avion points a value of $0.0175 each. Given the spending profile, this gives a return of $22.97 / month or $275.63 / year. This return does assume that you are strategically redeeming your Avion points for good value.

American Express Gold Rewards Card

The American Express Gold Rewards Card is another option that can get good value. With this card you earn 1 Membership Reward for every dollar and 2 Membership Rewards for every dollar spent on gas, grocery, drug stores and travel. (Note: For Canada, US differs)

Membership Rewards can be transferred to Aeroplan, British Airways, Delta and a few other programs. (Note: For Canada, US differs)

Previously purchased travel

Membership Rewards can be redeemed as a statement credit against travel, similar to the Scotiabank American Express card, however, the rate for this is 100 Membership Rewards = $1 towards travel, and is a poor use of Membership Rewards.

If you are going to go this route, then your return for spending would be significantly lower than 2%. You would be better off getting a card such as a World Elite card that gets you 2% return on all spending.

Transfering to other programs

The best use of Membership Rewards is goign to be to transfer to British Airways Avios. In the section on the RBC Avion, I mention that I value British Airways Avios at around $0.013 each even though it is very possible to get much better value out of them.

I have mentioned many times before that Aeroplan miles tend to be more difficult to use due to high taxes and fuel surcharges. If you are able to get good value from Aeroplan miles, this is an option as well.

 

Assuming that you value Membership Rewards at a rate of $0.013, this gives a return of $25.35 / month or $304.20 / year. This return does assume that you are strategically redeeming your Membership Rewards for good value.

 

Multiple Cards Scenario

If you are interested in carrying multiple cards, then I think the ideal scenario is to carry a “Base Spender” that gets a large return on all spending, and a “Category spender” that gets great return on specific categories.

Personally, my card portfolio is:

  • Scotiabank American Express Gold (Category Spender)
    • 4% return on gas, grocery and restaurant (where Amex accepted)
  • MBNA World Elite (Base Spender)
    • 2% return on all other spending

You do need to consider the annual fees on your cards and ensure that the gain you are getting is more than made up for the fees you are paying.

For the given spending profile, my card portfolio would yield a return of $40.80 / month or $489.60 / year.

Recap

Grant wants to re-evaluate his credit card portfolio. He currently has the BMO Air Miles mastercard but is frustrated with the poor returns and the annoyances associated with redemption. He wants to maximize his return on his spending.

I suggest the Scotiabank American Express Gold card and / or the MBNA World Elite card, depending on his spending profile.

 

Credit Card Annual Return Return % Annual Fee Sign-Up Bonus Redemption Notes
BMO Air Miles $105.26 0.702% $99 N/A Air Miles – Point of sale or flight rewards
Scotiabank Amex $402.00 2.680% >$99 First Year Free & $150 Scotia Points Statement credit against previously purchased travel American Express card not accepted everywhere
BMO World Elite $300.00 2.000% $150 First Year Free & $300 BMO Travel Points used directly to pay for travel through BMO Travel / Expedia.ca
MBNA World Elite $300.00 2.000% $89 First Year Free & $100 MBNA points Cheque mailed
RBC Avion $275.63 1.838% $120 15,000 RBC Avion Points Transferred to frequent flyer programs
American Express Gold $304.20 2.028% $150 First Year Free & 25,000 Membership Rewards Transferred to frequent flyer programs American Express card not accepted everywhere
Multiple Card Portfolio:
Scotiabank Amex Gold
MBNA World Elite
$489.60 3.264% $188 Combination Optimize return on each purchase

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4 comments on “From Average Air Miles Credit Card to Extreme Earners”

  1. Jay says:

    Great article! Very informative and I’ll share your link on our website.
    The numbers are good to see – our readers are new to this so many are just starting to understand this whole process.
    If I were to have one question it would be regarding a couple getting 1 or more credit cards.
    Now, we know with AMEX they give referral bonuses when you refer someone – let’s say your spouse or boy/girlfriend.
    Would this would change the return % on those cards to a better rate?
    Assuming say 1 referal bonus of 10,000 points, what would that change the Amex Gold card % return to?
    Are there other cards listed that have the “referal” option? That is a huge selling point for us.
    We did a whole “Amex” page at our site for that.
    Thanks again for that informative article, and keep them coming – we love your site.

    http://borderfreetravel.com/big-ricks-deals/

  2. Jay says:

    I should probably spell referral the same every time. lol.

  3. Extreme Lounging says:

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