Choosing a Credit Card

written by bryan on April 1st, 2007 @ 06:09 AM

Bethany and I are encountering a large number of shared expenses, so we decided that it’s probably a good idea to get a shared credit card. We both currently have 3 credit cards, two of which are never/rarely used. So the simple thing to do would be to get a spousal card for one of the unused accounts. Unfortunately, these unused cards are sub-optimal for frequent use.

We both pay off our bills in full every month; once every few years a payment may be missed through carelessness. So interest rate is not a factor in credit card choice. The primary factor is rewards and fee levels.

I’ve worked up a spreadsheet comparing the best credit cards from the six different companies we currently have cards with.

The hardest part of the task is to value each individual reward.

Rewards

The simplest rewards are the cashback programs. They usually give you $1 back for every $100 you spend. A dollar is worth a dollar, right? Not quite. They limit you in two ways: they only give you your rewards once a year, and you can lose all your rewards if something happens to your card. In my spreadsheet I’ve therefore valued a cashback dollar at 98 cents to make up for the opportunity costs of not having the dollar for an average of 6 months. There’s also a column in the table for “reward loss” because these programs are often structured as “up to” X%. This reward loss assumes that you spend enough to reach the highest tier. If you don’t, the card gets overpenalized. Penalizing a card for over-complication is fine with me!

Another common type of reward is store points. For example, 1000 points can be “spent” at the store. If this is a store you frequent, one dollar of store credit is worth pretty much a dollar. In fact, it can be valued as worth more than a dollar since you often can take advantage of special deals to get extra points.

In this vein, I’ve valued PC Points from President’s Choice at par, since I shop at Loblaws, Superstore and Hartman’s frequently.

Petro points are harder to value. I’ve used the 20000 points for $5 of gas deal for valuation. This is slightly unfair since they do have better deals in their catalog.

Costco points have been heavily discounted because they require a Costco membership and there is no Costco nearby. If you shop at Costco, they are likely worth well above par.

TD points are nominally worth 1.5 cents per dollar on the card, but I’ve discounted them heavily because they have to be spent at the TD travel rewards web site, limiting the freedom to comparison shop when booking flights, et cetera.

With 40000 aeroplan points, you can fly anywhere in the United States or Canada. I’ve arbitrarily valued this at $400. That’s probably generous. I’ve similarly valued Air Miles at 1600 points = $400. I’m unsure about these calculations; if anybody has any input, please comment! These valuations make it appear that the Air Miles offers are much better than the Aeroplan offers. These change over time; when I did a similar valuation ten years ago, the results were reversed.

Benefits

There are a couple of optional benefits that are important to me. The first is the collision/damage waiver (CDW) for rental cars, which can save lots of money if you rent cars, which we sometimes do. This is usually included with gold cards.

The AMEX “front of the line” benefit may also be useful if you live in a major city and go to shows.

The other “gold card” benefits are less important to me.

The Cards

Bethany and I have each had exactly one instance where we wished to use a Mastercard but the retailer only accepted Visa. Therefore we have a very slight preference for Visa.

Amex cards are less widely accepted and cannot be used without carrying a Visa or Mastercard as backup.

Results

For our situation, here are the results:

If you spend less than $8000 a year, President’s Choice is the winner, followed very closely by CITI Enrich.

Above $8000 a year, the winners are Amex cards. This is unsurprising, since they charge the merchants much more than the other cards do. The only surprise is that their lead is so slight. Air Miles cards also do well, followed by the low price winners.

I’ve attached a spreadsheet . Download and change the annual spending assumption and discount rates to your values and see what will work for you! The spreadsheet is saved in the Open Document Format. I’ve also converted it to Excel format for those of you still locked into Microsoft formats. There’s also a pdf, but I do recommend that you use the spreadsheet instead so you can play with the figures.

Comments

  • Farha on 21 Apr 10:40

    Bryan, thanks for sharing your info, but of course in looking at the spreadsheet I want to know how my card stacks up… and it is zeroed?! We use the CIBC Dividend Platinum. I’ve not done as extensive research as you, but I do know that, for us, it comes up better than the PC card and the Costco Amex.

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