Cashback Rewards: How Canadians Can Maximize Their Savings
In Canada, cashback programs have grown increasingly popular as more consumers seek ways to stretch their dollars and get the most out of their spending.
Cashback credit cards and reward programs offer a simple yet effective way for people to earn money back on everyday purchases.
However, understanding how these programs work, and how to get the most out of them, requires a bit of strategy.
In this guide, we’ll take a closer look at cashback rewards, how they work, and how Canadians can optimize their use to maximize their savings.
What is Cashback?
Cashback is a type of reward offered by credit card companies and retailers that returns a percentage of the money spent on eligible purchases.
Essentially, when you use a cashback credit card or participate in a cashback program, you earn a small percentage—usually between 1% and 5%—of your purchase amount back.
This cashback can then be redeemed as a statement credit, direct deposit, or sometimes even a cheque.
Cashback can also come in different forms depending on the type of card or program you’re using.
For example, some credit cards offer flat-rate cashback across all purchases, while others provide higher cashback rates for specific categories like groceries, gas, or dining.
How Does Cashback Work in Canada?
In Canada, cashback programs function similarly to those in other countries.
The cashback percentage you earn typically varies based on the type of credit card or the specific promotion a retailer offers.
With credit cards, you’ll often find two types of cashback structures:
- Flat-rate Cashback Cards: These cards offer a consistent cashback rate across all purchases. For example, a card might offer 2% cashback on everything you buy, regardless of the merchant or category.
- Tiered Cashback Cards: These cards offer varying cashback rates depending on the purchase category. You might earn 4% on groceries, 2% on gas, and 1% on all other purchases, for example. These cards are great for people who spend heavily in specific categories.
For most Canadians, the cashback earned is automatically added to their credit card account at the end of each billing cycle.
You may be able to choose how you want your cashback: as a statement credit, direct deposit, or, in some cases, physical rewards like gift cards.
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Choosing the Right Cashback Program
Selecting the right cashback program depends on your spending habits. Canadians need to evaluate their spending patterns to determine which program will yield the most significant rewards.
1. Understand Your Spending Categories
Analyze where most of your money goes each month.
Are you spending a lot on groceries or gas? Do you frequently dine out or shop at specific retailers? Cashback programs that offer higher returns in these categories could be more beneficial to you.
Cards like the Tangerine Money-Back Credit Card allow cardholders to choose categories to earn a higher percentage back, making them ideal for people with predictable spending habits.
2. Evaluate Reward Caps and Restrictions
Some cashback programs have reward caps, meaning you can only earn cashback up to a certain limit before the percentage reduces or stops altogether.
For example, a card may offer 4% cashback on groceries but only up to $5,000 in annual spending.
After you reach that limit, you’ll earn at a lower rate. Always check for such restrictions before choosing a card.
3. Check Annual Fees
While some cashback credit cards have no annual fees, others offer higher cashback rates but come with a yearly fee.
You’ll need to decide if the potential cashback you’ll earn will outweigh the cost of the card’s fee.
A general rule of thumb is to only choose a card with an annual fee if your cashback earnings will exceed the cost of that fee.
How to Maximize Cashback in Canada
Now that you have a basic understanding of how cashback works, here are some tips to help you get the most out of your cashback rewards.
1. Use Multiple Cashback Cards
One way to maximize your cashback is to use more than one card. For instance, you could use a flat-rate cashback card for general purchases and a tiered cashback card for specific categories.
By doing this, you ensure you’re getting the highest possible cashback rate on all your purchases.
Just be cautious of keeping track of which card to use where and managing multiple payment deadlines.
2. Pair Cashback Programs with Retail Promotions
Many retailers offer their own cashback rewards, particularly for loyalty program members. You can often stack these rewards with your credit card’s cashback program.
For example, if you’re a PC Optimum member, you can earn points that translate into cashback, in addition to earning credit card cashback on the same purchase.
3. Take Advantage of Sign-Up Bonuses
Many cashback cards in Canada offer lucrative sign-up bonuses that can significantly boost your cashback earnings in the first few months.
These bonuses often require a minimum spending threshold within a specified time frame (e.g., spend $1,000 in the first three months to earn $200 cashback).
Take advantage of these bonuses to accelerate your savings, but ensure the spending requirement fits within your budget to avoid overspending.
4. Use Cashback for Bills and Recurring Payments
Another effective way to rack up cashback is by setting up your credit card to pay for recurring bills like utilities, subscriptions, and mobile phone services.
Many Canadians overlook this strategy, but automating these payments ensures you’re continuously earning cashback without having to think about it.
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Considerations When Using Cashback Cards
While cashback programs are an excellent way to earn money back on your purchases, it’s essential to use them responsibly.
1. Pay Off Your Balance in Full
Cashback credit cards often come with high-interest rates.
If you carry a balance month to month, the interest you’ll pay could outweigh any cashback you earn. The best way to avoid this is by paying your balance in full every month.
2. Be Aware of Foreign Transaction Fees
If you frequently travel or shop online from international retailers, be mindful of foreign transaction fees, which can offset the benefits of cashback.
Look for cards that don’t charge foreign transaction fees if this is relevant to your lifestyle.
3. Check for Expiry Dates on Cashback
Although rare, some cashback programs may have expiration policies for unused cashback.
Make sure you understand if and when your cashback expires so you can redeem it before it’s too late.
Popular Cashback Credit Cards in Canada
To give you an idea of which cashback credit cards are popular in Canada, here are a few options worth considering:
- Tangerine Money-Back Credit Card: Allows you to choose two spending categories where you earn 2% cashback and 0.5% on all other purchases.
- BMO CashBack World Elite Mastercard: Offers 5% cashback on groceries, 4% on transit, and 3% on gas, among other benefits.
- RBC Cash Back Mastercard: A no-fee card that offers up to 2% cashback on groceries and 0.5% on other purchases.
Conclusion
Cashback rewards offer an easy way for Canadians to get more out of their everyday purchases.
By choosing the right cashback card and using it strategically, you can maximize your savings and even earn significant money back over time.
Just be sure to manage your spending wisely and pay off your balance in full each month to truly benefit from cashback rewards.
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