Choosing the right credit card for you

Consider the rewards and benefits

If you usually pay off your credit card balance every month, then rewards and benefits may make an important difference for you when you choose a credit card. Before you decide, be sure to consider the following:

Actual value of the reward program

The value of any rewards and benefits you receive should be greater than any cost you pay to get them. Otherwise, they aren’t worth it.

Some cards offer rewards and benefits with no annual fee. If you are considering a card with an annual fee, make sure it offers you better value than a no-fee card. Before making a decision, compare its annual cost to the additional rewards and benefits that it offers over the no-fee card.

When you compare the rewards and benefits that different cards offer, estimate the value of the benefits realistically. Ask yourself:

  • How likely are you to use each benefit?
  • How long will it take you to earn a reward?
    For example, if you think you will earn 5,000 points a year, and the reward you want costs 50,000 points, you will take 10 years to earn enough points for it.
  • Do you already have access to the benefit some other way?
    For example, if the card offers insurance on rental cars, check whether your own auto insurance policy provides that coverage already.

Putting an actual dollar value on some rewards and benefits can be difficult. The examples below will give you an idea of how to do so.

Example: Cash-back reward

Eric pays an annual fee of $85.00 for his credit card. He pays his balance in full each month and he gets 1% cash-back on purchases. He purchased a total of $4,800.00 using the card in one year (an average of $400 a month).

Value of reward

Eric would receive $48.00 (1% of $4,800.00) at the end of the year. Comparing this amount to the $85 annual fee that Eric paid, this particular reward program would not be worth the cost, unless other benefits on the card provide more value to him.

Example: Insurance benefit

James pays an annual fee of $110.00 for his credit card. He’s renting a car for seven days, and he doesn’t have coverage for rental vehicles under his own insurance.

James’ credit card offers rental vehicle insurance for up to seven days per year. The vehicle rental agency that James will use charges $20.00 a day for vehicle insurance.

Value of reward

James would have paid $140.00 for car rental insurance if he had bought coverage from the rental outlet. He avoided the insurance costs by using the rental insurance provided by his credit card.

Comparing this amount to the annual fee of $110 for the card, James saved $30 with this reward.

If he doesn’t plan to rent a car next year, he should review whether the card would still be the right one for him.

Limitations

It’s very important to carefully read the terms and conditions of any rewards program or benefits you are considering. There may be restrictions and limitations that are not immediately obvious, and they may have an impact on the value and practicality of the rewards and benefits.

You can compare rewards and benefits using FCAC’s Credit Card Selector Tool.



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