Travel Reward Credit Cards

Travel reward credit cards make up a substantial part of Canadian banks' credit card earnings, fostering customer loyalty through points that function as a form of virtual currency. For instance, the TD Aeroplan program, akin to similar offerings from other banks, provides incentives based on spending. However, the perceived value of these rewards merits’ deeper consideration, given the associated costs and potential financial implications.

Qualifying and annual fees

As an example, the TD Aeroplan Infinite card requires a minimum gross personal income of $60,000 or a household gross income of $100,000 to qualify, with an annual fee of $139 and an interest rate charge on unpaid balances at the start of 2024 of 20.99%.  

The value of an air mile

With each $1 spent, cardholders earn 1 travel mile. Flight rewards may begin when earning as little as 10,000 miles to 20,000 miles. Estimates in early 2024 were that 1 mile was worth 2.23 cents. Aeroplan is a coalition loyalty program owned by Air Canada, purchasing miles to reward customers. While the exact cost remains undisclosed, it's estimated at about 1.4 cents per mile. Aeroplan manages the accumulated mileage but also gains valuable consumer purchasing information. Notably, a significant percentage of accrued miles go unredeemed, offering Aeroplan potential extra profit, termed breakage. Recent legal restrictions limit card issuers' ability to cancel miles, providing added consumer protection. 

The cost of the free flight

Considerations about these rewards involve examining their true cost. Apart from sign-up bonuses (e.g., 15,000 miles), annual factors include the $139 fee, the high interest rate on unpaid balances, and the mile-to-value ratio. Assessing the net benefit involves deducting the annual fee from the estimated mileage value, assuming no interest costs. However, if it takes longer to accumulate the required miles, the net benefit diminishes due to the annual fee. This analysis underscores the importance of understanding personal spending habits and considering the impact of unpaid balance interest charges before opting for such loyalty cards. 

Banks do offer alternative cards, like the Emerald card at TD, with a lower fee ($25 annually) and reduced interest rates based on credit ratings. Awareness of these cards' administration fees, consideration of spending habits, and vigilance regarding unpaid balance interest charges are crucial when contemplating these loyalty cards.