Why I switched to a cashback rewards credit card

I have been an Air Miles collector for a long time.  Many people have asked me if Air Miles is the BEST reward program and I always disclose that I have not done a lot of research or comparisons in this area.

I did some analysis a while back and thought the Air Miles system was not too bad at the time.

Related article:   Is the Air Miles program a good deal?

BMO Air Miles World Elite Mastercard

BMO AirMiles World Elite MastercardRecently, I was offered the BMO Air Miles World Elite Mastercard which gives me 1 mile for every $10 I spend which is improved from my current Mastercard that gives me 1 mile for every $15 I spend.

When I look at my Mastercard bill over the past 12 months, We spent a whopping $87,132.  That means we were averaging $7261 per month of spending.  That's a lot of spending but in case you are not aware we consciously put all our spending on that single credit card

Related article:  A simple way to track spending 

If I repeat that spending moving forward, based on the new 1 air mile per $10 of spending, I will get 8713 Air miles for the same level of spending.

So what would 8713 Air Miles get me?

  • Based on the cash reward system, every 95 points gets you $10 in cash.  That means I would earn $91.  $91 is horrible return off $87,132 of spending.
  • Based on flight rewards, these points are probably worth closer to $1000
  • Based on merchandise, these points are worth about $800 to $850.

These points are based solely off my credit card spending.  One of the benefits of being an Air Miles collector is the ability to ‘double dip' and collect more air miles from preferred vendors.  I figure I get 4000 to 5000 Air Miles per year from other sources but I could get that regardless of the credit card.

This got me thinking about the cashback equivalent:

  • $91 on $87,132 of spending is the equivalent of 0.1% cashback.  That's horrible!!!!
  • $1000 on $87,132 of spending is like a 1.15% cashback
  • $850 on $87,132 of spending equates to a 0.975% cashback.

So, could I do better with a cashback card?

The new BMO CashBack World Elite Mastercard

BMO CashBack World Elite MastercardAfter doing this analysis and also reading a couple of articles on cashback rewards credit cards,  I realized that BMO has a cashback version of my World Elite Mastercard.  It earns 1.75% cashback on all purchases with no restrictions. That means on the same $87,132 of spending, I would get $1524 in cash back rewards which makes it a big winner over the Air Miles Rewards version.

I also looked around at some other cashback cards and there are lots to choose from.  Some cash back cards give better rewards (2% to 5%) for grocery purchases, gas purchases and restaurant purchases but the base rate is usually lower at around 1%.  Given that I am also a fan of simplicity, I think 1.75% is easy to understand and a solid reward value.  Both BMO World Elite Cards have an annual fee of $120 but currently this is waived for the first year.

The bottom line is I have already made the switch to my new BMO CashBack World Elite credit card.  It will hurt my special Onyx Air Miles status but in the end, I still think I will win with the simple, easy to understand a 1.75% cashback rewards credit card!

Any thoughts?

Best Credit Cards Canada

Written by Jim Yih

Jim Yih is a Fee Only Advisor, Best Selling Author, and Financial Speaker on wealth, retirement and personal finance. Currently, Jim specializes in putting Financial Education programs into the workplace. For more information you can follow him on Twitter @JimYih or visit his other websites JimYih.com and Clearpoint Benefit Solutions.

20 Responses to Why I switched to a cashback rewards credit card

  1. Jim, I also switched to the BMO CashBack World Elite Mastercard (I was already on their 1% CashBack card) and totally agree that cash back is the way to go!

    However, you did make a mistake (by a factor of 10) in one of your calculations. The AirMiles Cash Rewards would give you $917.18 worth of cash on $87,132 worth of spending (8,713 Cash Rewards Air Miles / 95 = 91.71 $10 rewards (not $91) which actually equals $917.18). This works out to 1.0526% cash back for AirMiles Cash (not 0.1 %).

    • I think Jim’s math is right, as it’s based on every ten dollars of spending to get one air mile. So it’s $87,132. / 10 (to get one air mile). That’s 8713.2 miles / 95 per ten dollars.

      • I also think Jim’s math is wrong. If “every 95 points gets you $10 in cash”, then 950 would get you $100, and 9500 miles would get you $1000….. Unless ‘points’ are not the same as ‘miles’ Jim! Help!! Could you clarify please!!

      • Yes so you divide 8713 / 95 and get 91.7 * $10 in Cash Back, for a total of $917.

        The conclusion is still valid – $1500 less the $120 fee is way better than any of the other alternatives.

  2. Jim,

    What happens to all of the CPP contributions from a person if they die before they ever get to receive it?

    • Willis

      I’m not sure why you asked this question about this article, but I’ll answer it anyway.

      CPP contributions go into a pooled account for all contributors, with some people receiving much more in benefits than they ever paid in and some people paying in much more than they ever receive in benefits.

      In your example, the person’s Estate may be eligible for a lump sum death benefit (max $2,500) and that might be all that would be paid. On the other hand, he/she might have left behind a surviving spouse and/or children who might be eligible for benefits. If not, his excess contributions would stay in the CPP account to be used for someone else.

  3. I really don’t understand why anyone would pay an annual fee…$120? Are you being paid to promote BMO? I have a cash back Mastercard that does have a base rate of 1% back but gives more for gas purchases, etc. But I pay nothing for the annual fee. I really don’t get why anyone would pay to spend their money!

    • CashBack rewards credit card

      I also paying a fee to have a credit card so I have an MBNA MasterCard that pays me… But it’s changed so much over the years and the CashBack information is cryptic at best. I’m pretty sure I get 1% on everything and no annual fee.

      And that’s the point I want to make. My card use to pay much better rewards. I’d get cheques every month; now every 2 or 3 months.

      TD now owns the MBNA card now. The first thing they did was cut the CashBack.

      I still use the MBNA with AirMiles, AeroPlan, CAA dollars, Esso Rewards.

      • Claude, are you aware that you can go on-line and set it so that you receive direct deposit right into your account? As soon as you reach a minimum of $50, they will deposit it into your account. I have MBNA too. They are the only credit card I know that offers the option to borrow money at .99% for up to one year, rather than going to the bank at more than triple this rate.

        • Good to know. Will look into direct deposit.

          But I’m very cautious about who has access to my bank accounts.

    • filleheureuse, I think it comes down to your spending levels. In Jim’s case, he might be getting $500-$1000 more in rewards because of the card he’s using, which more than makes up for the annual fee. Many of the no annual fee cards have limits to the rewards, which can include smaller percentages on the first X dollars, or a annual limit on how much they will pay out.

      These pricier cards also come with other perks, like extended warranties, loss/theft insurance for purchases, great travel insurance, airline lounge passes, concierge service, etc.

      Granted, people have to make sure they’ll actually use those services, and/or that the additional rewards make up for the annual fee.

      • Thanks, Tom Drake! I really didn’t understand why people paid for a credit card and certainly didn’t think about it, but now I’m thinking that I should probably look into which is the better deal for me.

    • One more “Anti-Points” comment :). Making sense of and collecting points is fine and sensible, and as mentioned below, I did it too. What was a surprise, beyond the “Points to Free-Stuff” conversion calculation, was when the points programs changed unexpectedly.

      Aeroplane changed (and not for the better). PetroPoints changed (also not for the better). Therefore, for me, cash back it is, and while I get that sometimes the “for fee” makes sense for others, it is “for free” for me every time…

      Mostly all the opportunity cost calculations as to point / benefit, etc., is not really worth it, most especially because the decision and logic can be negated with a change in (credit card) plan. Just my $0.05…

      Good day all – Gabor

    • If you are on a premium banking plan with BMO (min $6k balance in chequing account), than card fees up to $150 are credited to your account each year – effectively making the card free.

  4. I just made the switch from Air Miles to Elite cash back card myself. I have been an air miles collector for many years (1990’s?) but found recent changes made it less convenient. For example the expiry date makes if hard for family of 4 to save for a trip before they expire. Having to choose cash miles or dream miles upftont and can’t switch them is inconvenient and means can’t top up for flight if needed or might be stuck with dream miles can’t use.
    So like you decided to go for cash back card and chose bmo Elite. First year fee is waived so easy to try and see if I spend enough extra the cover the fee (no fee pays 1%, Elite costs $120 but pays 1.75% and includes 8 days of travel insurance & more). I too looked at other cash cards and the 4% on gas 1% on other was tempting but also liked the simplicity of 1.75%. No I don’t work for bmo but liked their product. Can even switch later to 1% cash back with no fee or something else…

  5. For a long time I had a BMO AirMiles credit card. But a few years ago I stopped trying to redeem my points for air travel. Too many restrictions and rules. And I realized that I can usually get much better value by carefully shopping around for best price on the trip I want and paying for it myself. So I gave up on redeeming my AirMiles for air travel. Instead, I redeemed for merchandise, mostly grocery store gift cards. And each time I redeemed the gift card, I would sock away the equivalent amount in my savings for air travel (or any other savings objective I might have.) If I redeemed those savings for air travel, the savings were stretched further because I could shop around for the best travel deal and not have the hassle of restrictions like blackout dates.

    Eventually I switched to a BMO CashBack card and applied the CashBack reward in the same way to my savings account to be used for whatever goal I had set, which might include air travel. The initial fee was $79 for 1% back on all purchases. Despite the fee, it was still worthwhile because I put all my spending on the CashBack card. It added up over the year.

    When I was recently offered the upgrade to the BMO World Elite card, I did an analysis of my previous years’ spending to see if it would be worth it because the fee would now be $120 for 1.75% back on everything. When I discovered that it definitely gave me greater NET cash rewards after deducting the annual fee, despite the increase to a $120 annual fee, I signed on to the BMO World Elite card.

    However, that may not be the case for everyone. It will depend on the level of spending you put on the card over the year. I even did a comparison between the BMO World Elite CashBack with $120 annual fee and the Walmart CashBack card that gives 1.25% on Walmart purchases and 1% on all other purchases and has NO annual fee. I still came out ahead with the BMO World Elite CashBack card. Again, that may not be the case for everyone but, for me, the majority of my spending would is non-Walmart spending and the 1% did not accumulate as much net cash reward in my case as the overall 1.75% reward from BMO, despite the BMO $120 annual fee.

    • I too recently quit using BMO Airmiles Mastercard for everything, for the reasons mentioned (flight restrictions etc.)
      I also didn’t think the added airport fees made booking flights a very good deal.
      Scotia Visa Momentum is the way to go. It’s pretty easy to make the $120 fee (1st year free) back with 4% on gas and groceries.
      It also has 2% back on drug store purchases and 1% on everything else.

  6. Hi Jim, love your website and advice…

    I had been an Aeroplan member, and a gas points collector but have rid myself of Aeroplan, and am using up the gas points, and once gone, then I’M FREE! 🙂

    I have one Cash Back card (Costco M/C), and it is free. Other than the lack of me paying $120/yr., it is reasonably competitive with the cash back rates.

    I too figured out that buying your own airfare is much preferred and cheaper in the end. I did however fill up yesterday for $0.975/l in the GTA (thanks points card)…

  7. Hi Jim, love your newsletter and have been to one of your seminars. Super. However, I do have to share this. It all depends what you use AirMiles for. I quickly did some math, checking AirMiles flights, comparing same flight on Air Canada. I quite often fly to Toronto from south of Calgary. So that includes the airfare for the small connector. Yes, I do have to pay the taxes, but I’m still way ahead of the game. In addition, I’ve saved wear and tear on my vehicle, time, gas and parking at airport costs for a week. I have never had a problem with restrictions, due to booking in advance.
    I’ve also used 1,000’s of AirMiles on merchandise for myself or to buy gifts. All delivered to my door, no shipping and handling. Could I buy some items cheaper on sale somewhere? Probably. But it’s a reward program. The items are free. Did I have to spend money to get something? Of course, but it’s money spent on everyday costs that I just put on MasterCard. So I went for the AirMiles Elite Mastercard when it was offered and it is paying off in spades in my situation. Here’s a tip for everyone. When you keep a minimum balance in your chequing acct with BMO, depending on bank plan you have, the fee is waived. Their premium plan, maintaining the minimum balance, waives the fee, PLUS in addition you get an annual fee rebate up to $150 on your Premium credit card. I’ve worked it out that by keeping that minimum balance, and getting n/c bank plan and n/c MasterCard fee, it should be like getting over 9% annual return on that money. Oh, almost forgot, you also get a $12 credit on your safety deposit box annual fee, if you have one. Check it out on bmo.com ( and no, I don’t work for Bmo if anyone wondering, I just stumbled across that while comparing the changes in bank plans.)
    Remember they don’t call you to offer it, consumers need to do a bit of homework from time to time. Hope everyone finds that helpful. I’m not normally the person who replies but felt I needed to here.

  8. It looks like the BMO ® CashBack ® World Elite ® * Mastercard only offers 1.5% cash back now for the same $120 fees. Is it still worth it compared to the Air Miles card?

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