Earn 1% on your purchases is a typical line in many credit card ads. It sounds simple, right? We can assure you it’s not. The vast majority of credit cards are notoriously complex in their construction. Some cards have reward tiers, meaning you won’t earn that 1% until you’ve spent a certain amount, while others cap how many points you can earn. How you spend can even impact which card is right for you.
To help you find the best card we ran more than a 200 credit cards through a series of different scenarios, depending on your goals and spending patterns to name Canada’s Best Credit Cards of 2013. We looked credit cards issued by RBC, TD, Scotiabank, BMO, CIBC, National Bank, HSBC, Capital One, MBNA, President’s Choice, Canadian Tire Financial, American Express, Chase and Desjardins. We did not look at every card offered by each issuer.
This list is based on scenarios and assumptions built around how a typical holder might use the card and may vary from how you actually use your cards. Our data is current as of August 2013. In all cases we used a five-year average for rewards, dividing the benefit of any sign up bonus points across the five years. We only included sign up bonuses or teaser interest rates that were standing offers, excluding those with specific deadlines. We deducted annual fees from the value of the rewards.
For consumer cards, point calculations were completed across four different spending categories: $500, $1,000, $2,000 and $4,000. Extra rewards for various spending categories were calculated based on the following spending patterns:
Groceries: 20% of spending
Gas: 10% of spending
Pharmacy purchases: 10% of spending
Travel: 10% of spending
American Express sponsored stores: 10% of spending
Air Miles sponsored stores: 50% of spending
If extra rewards were given for gas from a specific retailer, we assumed all gas was purchased there. If extra travel rewards were given based on using a certain travel agency, in most cases we assumed all travel was booked through it. Other reward bonuses tied to specific retailers, such as extra points for spending money on specific restaurants, weren’t factored in.
For travel cards, we looked at how many flights you would earn, basing the value of the flights before taxes on the three-day average prices on 25 common routes. If the flights required redemption of miles or points, we used the average of the appropriate redemption schedules as published by the provider.
For merchandise cards we determined how many points/miles you would need to buy a basket of gift cards as well as at least one item from the cardholder’s catalogue. For merchandise we selected products that have a known price and tend not to go on sale.
The best low rate cards here were selected as having the lowest cost to the user. As a result, this calculation only looks at the interest and fees charged to a cardholder who carries a balance of $500, $1,000, $2,000 or $4,000 on an annual basis. Points, if offered on the card, were not factored in.
The best cards for small business follow a similar methodology to the consumer cards. Like consumer cards, we break out the best credit cards for small business into categories—low rate, cash-back and travel. Where the calculations for business and consumer cards differ is in the spending levels and the spending categories we use to control for how the typical cardholder might use these cards.
The spending levels for business cards was set at $5,000, $15,000, $25,000 and $40,000 to more accurately reflect the way these cards are used. While businesses are unlikely charging groceries on their cards, it’s quite common they will be renting cars. We give extra earnings for rental cars (10%) and other travel (10%).
The calculation for student cards was broken up to create two separate categories. For all student cards we lowered the monthly spending level to $250, $500, $1,000 and $2,000. To identify the lowest cost card for students we calculated the total cost of interest and fees across carrying a balance of $250, $500, $1,000 and $2,000. Of course we recognize that not every student will carry a balance on their cards so we also calculated the best rewards card for students. Given the limited choice available for students the rewards cards were grouped together in one category.