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How travel rewards cards work

By Barry Choi

Credit card rewards can take the form of cash back, points or miles — sometimes a combination. Travel rewards credit cards earn points or miles with every purchase instead of cash.

The type of rewards you get depends on the travel credit card you have. Additionally, how you can use those rewards depends on the loyalty program you’re a member of.

As far as usage is concerned, travel rewards credit cards are similar to any other credit card. You charge your purchases, and then you get your statement when your monthly billing period is up. It is especially important to pay off your balance with rewards cards because interest charges can erode the rewards you earn.

In other words, as long as you’re on top of your bills, you can earn some sweet travel rewards without doing anything extra.

Types of travel credit cards to consider

Generally speaking, there are three different categories of travel rewards credit cards. Knowing how they differ will help you determine what card is best for you.

General travel rewards credit cards

If you’re not loyal to one specific airline or hotel chain, then a general travel rewards program is something that will interest you. The points you earn can typically be used for any type of travel redemption, such as airfare, hotels, car rentals, cruises, and even vacation packages. Since your points don’t belong to one specific program, you have more options.

Some general travel rewards credit cards only allow you to use your points when booking travel through their online portal, while others let you use your points for any travel purchases you charge to your card.

Airline rewards credit cards

Airline credit cards allow you to earn points or miles for a specific airline. What’s interesting about airline credit cards is that the points you earn can usually be used on any airline that’s part of their network.

For example, Aeroplan is the loyalty program for Air Canada, but you can use your points for a flight on any carrier that’s part of the Star Alliance network. There are also some general travel rewards programs, such as Air Miles, that also earn miles and can offer some additional value.

Depending on the tier of your airline rewards credit card, you may get additional perks such as free checked bags, priority boarding and increased status. Having an airline credit card is highly lucrative if you frequently fly with one airline or network.

Hotel rewards credit cards

While some people love the idea of free flights, getting a luxury stay at a nice hotel appeals to other people. Some would argue that hotel rewards are better than airline rewards since some hotel chains have a greater reach. For example, Marriott has over 7,000 properties in 130+ countries, so no matter where you’re travelling, it won’t be hard to find a room where you can use your points.

Hotel rewards credit cards will also typically include benefits that will make your stay more comfortable. For instance, you could get early check-in and late check-out. You could also get free high speed WiFi or enhanced status.

» MORE: Popular loyalty programs for Canadians who love to travel

What additional rewards come with travel credit cards?

Besides the main rewards categories that come with travel credit cards, consider the additional perks that are included. These extra perks can often be the thing that helps you choose one card over another.

Consider the following benefits that often come with travel rewards credit cards:

• Free checked bags. Airlines charge anywhere from $30-$60 per checked bag, each way, so getting free checked bags can save you a fair amount of money.
• Airport lounge access. Some credit cards include airport lounge access, plus free annual lounge passes. These benefits could easily have a value of over $300, so it can offset any annual fee you might pay.
• Travel insurance. Depending on the credit card, an extensive travel insurance package could be included. This could cover things such as medical expenses, trip cancellation, lost luggage, and more.
• No foreign transaction fees. Many credit cards charge a 2.5% fee when you make a purchase in any currency that’s not Canadian dollars. If your card has no foreign transaction fees, then you’re just paying the straight exchange rate.
• Extended warranty. Many credit cards will lengthen your warranty up to one additional year as long as you charge the full cost of the purchase to your card.
• Price protection. If you find a lower price after making a purchase, some credit cards will give you back the difference as long as it falls within a specific time period.
• Concierge service. A credit card concierge can help you with basic tasks such as booking travel, ordering fits and securing event tickets.

As you can see, the list of additional benefits you can get with your travel rewards credit cards can be pretty extensive. Some of the best travel credit cards in Canada will have many of the above benefits, but not all of them. Always prioritize the perks that are important to you when applying for a card.

» MORE: How to apply for a credit card and get approved

What is a travel credit card’s earn rate?

The earn rate on a travel credit card is the number of rewards points or miles you earn on each dollar spent.

Some cards offer a flat rate, which means you earn the same amount of rewards on every purchase. For example, you may earn 2 points for every $1 you spend with your card.

Most rewards credit cards have a tiered rewards structure when making purchases. The type of structure can vary quite a bit between cards. For example, you may have an accelerated earn rate on purchases made in certain categories, such as travel, groceries, gas and drugstores. All other purchases will use the lower base earn rate.

Ideally, you want to choose a credit card with an accelerated earn rate that is aligned with your spending habits.

Additionally, travel credit cards may deliver additional points or miles when you make purchases with their main partner, if they have one. For example, an Aeroplan credit card gives you an accelerated earn rate on Air Canada purchases, and Amazon Rewards gives you a bonus when making purchases on Amazon. Some loyalty programs even have a network of partners where you can earn additional points or miles.

Using travel rewards

How to calculate the value of credit card rewards

Knowing how to calculate the value of your points or miles is essential since not every redemption value is the same. By establishing a baseline value for your points, you can decide if specific redemptions are worth it — even if you’re not getting the maximum value.

The formula used to determine the value of one point is as follows:

Cash value of the redemption X 100 / number of points required = Cost per point

Let’s say you want to fly from Vancouver to Toronto, and it’s going to cost $585 in cash, or 25,000 Aeroplan points, plus $75 in taxes. You would use the following formula. Note that since you have to pay $75 in taxes, you’d have to subtract that amount from the cash value for an accurate assessment.

$510 X 100 / 25,000 = 2.04 cents per point

This formula can be applied to any redemption regardless of the loyalty program. For example, let’s say you want to redeem 13,400 points for a $100 gift card. Your formula would be the following:

$100 X 100 / 13,400 = .75 cents per point

Assuming these redemption options are available with the same program, the flight is a better bang for your points.

Do travel rewards points ever expire?

It doesn’t matter how long you’ve been a member of a loyalty program or how many points you’ve accumulated; you can lose everything if you’re not paying attention.

Generally speaking, most loyalty programs that belong to an airline or hotel have a defined expiry date of 12 – 18 months. However, that only applies if there’s been no account activity in your account during that time. If you earn or redeem just one point during that time, your clock would reset. Even if you’re not travelling anytime soon, you could make a small redemption or donate some points to ensure you don’t lose the rest of your points.

When it comes to bank credit card rewards programs, it’s unlikely your points will expire as long as your credit card account is in good standing. Your account would only fall out of good standing if it becomes delinquent or your credit card is used for fraudulent activity.

» DON’T WAIT: 7 tips for paying off your credit card every month

How to redeem travel credit card rewards

Some credit card rewards programs only allow you to redeem your points or miles through their rewards portals, while others may allow you to redeem your points for any purchase made after the fact.

Rewards programs offered through a bank typically have their own website where you can make redemptions. They’ll usually have separate tabs where you can choose from travel, gift cards, merchandise, and financial rewards. While this can be handy, you’re typically limited to their offerings. For example, you wouldn’t be able to book an Airbnb via their site. That said, some general rewards programs allow you to redeem travel purchases that weren’t made through the bank’s website as long as you charge the expenses to your credit card

Airline and hotel loyalty programs will almost always allow you to redeem your points or miles directly on their website or mobile app. When doing a search for flights or hotels, you’ll likely see a click box that says “use points.” The prices displayed will then be in points, so you’ll know exactly what you need to make a redemption.

» TRAVELLING?: Discover the best ways to use your credit card overseas

How do I determine the right travel credit card for me?

Every credit card is good for at least one thing, so deciding on which card is best for you can be difficult.

Before you apply for a new rewards credit card, ask yourself the following questions:

Is there a welcome bonus?

If you’re trying to decide between several travel cards with similar rewards, the tiebreaker can often be the sign up bonus. Some credit cards offer a generous welcome offer that covers the annual fee or jumpstarts your earning with thousands of free points or miles.

What is the earn rate?

Every credit card has a base earn rate, but just about all of the best travel credit cards in Canada have an increased earn rate for specific bonus categories. However, if you have a general travel credit card, you could earn extra points on categories such as groceries, gas, pharmacies and more. The earn rate is essential since choosing a card that lines up with your spending can quickly increase the number of points or miles you earn.

Is there an annual fee?

If you’re firmly against the idea of paying an annual fee for your credit card, then you’ll instantly narrow down your choices. That said, travel credit cards that have an annual fee typically come with more benefits that could be worth more than that yearly fee.

» MORE: When is an annual fee worth it?

How flexible are the rewards?

Having a lot of points is meaningless if it’s hard to redeem them. Look for a loyalty or rewards program where you know you’ll be able to use your points without much trouble. What you’re looking for are programs where there are no blackout dates and many different redemptions options. You’ll also want to consider if the program has any transfer partners, as that’s another way to use your points. Additionally, knowing if and when your points expire is key to making sure you don’t lose your hard-earned rewards.

What additional benefits do I want?

Besides the type of rewards, welcome bonus and earn rate, the additional benefits included will often help sway your decision. Travel insurance, airport lounge access, no foreign exchange fees, etc. can all be pretty valuable.

» MORE: Types of credit card insurance to know

Making the most of your travel credit card

If you’ve decided that a travel rewards credit card is for you, there are a few tips you can follow to ensure you get the most out of your card.

• Always pay your bills in full and on time, so you don’t pay any interest.
• Make sure you meet the minimum spend requirement to get your welcome bonus.
• Pay attention to your earn rate and use your rewards card on purchases that earn extra points.
• Research your rewards program so you know what you can do with your points or miles.
• Always calculate the value of your points before making a redemption.
• See if your loyalty program has a partner network where you can earn additional points.

Although choosing a travel credit card may require you to do some research, the value you get is often worth it. Getting free stuff on points feels great, especially if it’s something you’ve been saving a long time for.

» MORE: How to stack credit card rewards