I recently fell into the rabbit hole of exploring credit card portfolios. I’ve always thought that credit cards were bad and spooky, so I stuck to debit cards for the longest time. While I still think that credit cards have an evil side to them, I’ve been missing out on lot of benefits by not using them. And considering that most of North America uses credit over debit, I should probably join in.
Conditions
This post is about what I found to be optimal for myself and will not be applicable to everyone. First, this is an article for credit cards in Canada. My goal with cards is to travel, rather than get cashback. It is technically true that collecting points and spending them for travel is better “bang for buck” than simple cashback, which means that I am part of the middle in the bell curve (to an extent).
Ideally, I want a card for each of the big 3 payment networks (Visa, Mastercard, Amex). The deck should be focused on accumulating points for flights, and no foreign exchange fee would be nice. Personally, I don’t really care much for airport lounges. Relevant benefits such as travel insurance are important.
And of course as a reminder, always pay the full balance every month. Never fall into credit card debt. Don’t let the illusion of shiny points and cashback lure you into spending more than you can afford/want, or when cheaper alternatives exist. Chasing credit card rewards should only be done when you’re going to spend money whether you have the card or not.
Core Deck
Amex Cobalt
This is the core piece of the deck. If you are aware of this card, you probably saw it coming when I mentioned I want to travel.
The Cobalt earns 5 Amex points for every dollar spent on food/drinks and groceries, which is where most of my expenses are. There are also smaller multipliers for transit and subscriptions. The card costs $13 per month, or $156 per year. Each point can be redeemed for $0.01 at a minimum, so the break-even point is $260/month of food and groceries. However, you can “cheat” by buying gift cards (Amazon, car fuel, etc.) at 5x qualifying stores to get more points. I already spend more than the minimum anyways, so the card is a net benefit to me. The earning rates effectively make the Cobalt a 5% cashback card for food and groceries.
The points earned will be converted to Aeroplan points, which will be used for covering flight costs. Converting Amex points to Aeroplan points and redeeming for flights gets the most value from the points; I heard it can be almost up to 10% earnings if you search carefully.
The biggest downside of the card is that it is an Amex card, so merchant acceptance is the weakest. If I were in a more rural place, then this card would not be viable. The card was also nerfed several times because it is really good. The 5x earning rate was reduced to 1x for non-Canadian food/grocery purchases, which makes the Cobalt not worth using outside of Canada, due to foreign exchange fees.
TD Aeroplan Visa Infinite
From what I found, this is the best synergizing card with the Cobalt. It’s a Visa card, so merchant acceptance is much better. It also earns Aeroplan points directly on money spent. The card provides flight bonuses such as discounted points redemption rates, free checked bags for Air Canada, NEXUS application rebate, and importantly: good travel insurance.
The travel insurance part is important because the card’s insurance will apply even if Aeroplan points are used. The Cobalt has insurance that only works if the full cost is charged to the card, with no Aeroplan points allowed. And the insurance is worse than TD’s. So the main purpose of this card is for when Amex is not accepted, and when booking travel tickets. I don’t see myself using this card for everyday purchases, which makes the card a bit of a one-trick pony.
The card also $140 per year unless you have over $5K in a TD account and charges FX fees. Considering the card is used in specific moments only, these are big drawbacks.
Rogers Red World Elite Mastercard
This card is almost close to perfect.
- It’s a Mastercard, so it completes the 3 payment networks
- It gives 2% cashback on everything
- If you redeem the cashback on a Rogers bill, the cashback is multiplied by 1.5x (so 3% effectively)
- It’s free
The only problem is that the card has foreign exchange fees. The cashback mostly offsets it, but there is still a slight net loss. Considering that I want to travel, not having to pay a fee would be nice. Still, this is a really solid card.
Substitutes
The three cards above complete the core of the deck. They cover the big payment networks, have good earning potential and travel benefits, and a little cashback. The only missing points are no foreign exchange fees, and optionally airport lounge access. Below are some potential replacement cards that could be swapped in, or used alongside the core deck.
Wealthsimple Visa Infinite
The Wealthsimple card offers 2% cashback on everything and has no foreign exchange fees. It costs $10 per month but can be waived if you have significant investments with Wealthsimple or have a direct deposit. The card is currently in beta testing. I really wish the payment network was Mastercard, which would have made the card perfect. Because of the fee, people that don’t use Wealthsimple would probably be better off using the Rogers card.
Scotiabank Passport Visa Infinite
Out of all the cards I considered, this is the only one that provides free lounge access. It also has no foreign exchange fees. The Passport costs $150 per year and can be rebated just like the TD Aeroplan. This card gives points for spending, but these have much weaker value than Amex points. Overall, the Passport is a decent card, but probably wouldn’t work for me.
Wealthsimple Mastercard
This one is an oddity, but I use it occasionally. This card gives 1% cashback on everything, is free, and has no FX fees. You can also withdraw money from an ATM and it won’t count as a cash advance, and you’ll get any ATM fee reimbursed. The reason this is possible is because the card isn’t technically a credit card; this means you won’t get the security benefits of a credit card. Oddly, this isn’t a debit card either. The card is closer to a prepaid Mastercard, from what I’ve heard. A weird pseudo-credit card, but it gets the job done as a free no-FX card.
The ultimate strategy
While researching credit cards, I found out just how overpowered US credit card are. Some of those cards have basically everything I want in one card for a reasonable annual fee, or most benefits for free. Premium US cards can do everything. Canadian cards get completely blown out of the water in comparison. And so I got a bit jealous; why does Canada get the worse deal, just like for everything else?
But then I found out how bad European cards are and wondered why. The reason ultimately boils down to what makes credit card rewards possible at all: fees. Card network companies (Visa, Mastercard, Amex, etc.) take a fee from the merchant for every transaction. The merchant doesn’t want to lose money, so the fee gets passed on to the consumer. The US can have some absurd fees, while Europe hardly has any. Canada is somewhere in the middle.
Credit card companies give a small part of their profit as cashback and points, which means the rewards US cardholders get is ultimately paid by them. Meanwhile in Europe, the thinner margin for card companies doesn’t let them give lavish rewards. It’s a more efficient system.
Therefore, the best solution is clearly to abandon credit card rewards and start using debit cards instead. Less merchant fees means less burden to the consumer, merchants get their money much quicker, and the erasure of credit card debt spirals. A cheaper and simpler world in theory, though probably prices are never coming down. We just need a system to make debit transactions more secure.
Or I start playing the US credit card game.