When are credit-card rewards worth paying an annual fee?

By Special to MoneySense on August 1, 2019
Estimated reading time: 2 minutes

We crunched the numbers to help one couple decide whether to switch from their current no-fee card.

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For the last decade or so, Jim and Willina Collins have enjoyed a regular bonus by using their no-fee cash-back credit card to pay for many of their expenses, including holiday flight and accommodation bookings, gasoline, vehicle repairs, and insurance on their vehicles (the couple have a car and a truck for daily use, as well as a collection of vintage cars). Once a year, they enjoy a debit on their card statement, reflecting a small percentage of the total value of their purchases from the last 12 months. The couple are extremely diligent with money. They pay off the $1,000 to $2,000 they put on their card each month in full, including holiday bookings, which are always paid off before they leave for the trip. Their philosophy, says Willina, is that if you’re going to put a purchase on your card, “you’ve got to have the bucks to pay it.” Because they don’t allow a balance to accumulate, the debt-averse couple are able to take full advantage of the benefits of a cash-back reward card, without incurring interest charges. The couple have been approached with offers to switch to a cash back card with more benefits, but haven’t said “yes” yet because, as Willina puts it, “I don’t feel I should have to pay a fee.” The Scotia Momentum Visa Infinite Card is one cash back credit card that the Collins would be eligible for. (It was named “Best cash back card (with a fee)” for 2019 in MoneySense’s annual ranking.) Though the $120 annual fee may seem steep to avowed fee-avoiders like them, cardholders have access to a range of benefits, including hotel room upgrades and trip interruption insurance (something the Collins, who spend approximately $10,000 each year on vacations, might appreciate), complimentary concierge services, and of course, cash back on everything they spend, including 4% back on items bought at grocery stores and on recurring bill payments, and 2% back on gas and daily transit purchases. For those who switch to the card by October 31, 2019, the first year’s annual fee is free. To get an exact sense of the kind of savings the Collins might see by switching to this card, we crunched the numbers. (Our calculations assume they will use their card for purchases whenever possible and pay the balance in full each month.)

	Current Card	Scotia Momentum Visa Infinite Card
		Year 1	Year 2	Average Total Savings After 2 Years
SPENDING CATEGORY	Annual Cash Back	Annual Cash Back	Annual Cash Back
Grocery Stores	$60.00	$120.00	$120.00
Gas Stations	$90.00	$36.00	$36.00
Recurring Bills	$-	$112.72	$112.72
Drug Stores	$6.00	$12.00	$12.00
All other eligible purchases	$471.00	$442.82	$442.82

Subtotal	$546.00	$723.54	$723.54
Minus: Annual Fee	$-	- WAIVED -	$120.00

TOTAL ANNUAL CASH BACK	$546.00	$723.54	$603.54	$663.54