In a bid to garner a larger share of your wallet, credit card companies in Canada are getting more creative with how they allow you to accumulate rewards points. While credit card companies have long competed to offer unique bonuses in order to attract you to their plastic, the new trend is to feature specific spending categories that consumers can use to gain extra rewards.
What are rotating credit cards?
The idea behind rotating credit cards is that if you tend to spend most of your money in two or three key areas, then you can use these cards to earn more rewards than simply using a traditional card that would give a flat rate of rewards points or cash back across all of your spending.
Not all rotating credit cards are created equal, however. The best rewards credit cards allow you to choose the categories that you want, and lock in those selections until you want to change them. Many category-based cards have little caveats such as automatic rotation schedules (that may not fit your spending profile much of the time) or having to log in to your account every three months in order to re-confirm what specific categories you would like to select for the next time period.
Finally, when weighing the pros and cons of rotating credit cards versus a more traditional rewards credit card option, you should take “category caps” into consideration. Several credit cards in Canada only allow you to earn up to a pre-defined level of reward points in one of your “special categories” before reverting back to the baseline rate again.
Cash is always king
While the rotating category cards offer some unique opportunities to squeeze a few more freebies out of your credit card reward points, basic cash back cards shine in one key area: simplicity. When you choose a rewards credit card that doesn’t require you to worry about logging on quarterly to select certain categories or to pay attention to rotation schedules, you can worry about more important things – like how you’re going to pay off the card’s balance.
Straight cash back cards usually give a slightly higher baseline percentage on all purchases than rotating credit cards do. This is likely due to the fact they would have lower administration costs and don’t need to balance out higher-paying categories with lower-paying ones. For many people, this higher rate, when combined with the ease-of-use advantage, adds up to a better choice.
The best of both worlds
If you want to really maximize your credit card rewards, the optimal strategy is to carry both a rotating category card and a straight cash back card. The goal is to pay attention to your bonus categories each month and maximize the points earned there, while using your flat rate card for all of your other purchases.
The end result is a supercharged rewards system that takes advantage of the unique perks each card offers. This strategy requires users to consistently be aware of which categories they are earning bonuses in, and be fairly well organized when making purchases.
As always, when discussing credit cards, it’s important to mention that the rewards programs offered as incentives should be a secondary concern. Rewards always need to take a back seat to making sure you are paying off the full balance of your credit card each month in order to avoid large interest charges.