Debunking rewards: Three myths and three facts about loyalty programs | Canada Voices

With the promise of discounts, perks, and more, there’s no doubt that Canadians love loyalty programs. But despite their popularity, many question if these programs are a marketing gimmick with no real value for consumers. To determine if loyalty programs are worth the hype, you separate the myths from facts.

Myth: Loyalty points aren’t worth it

It’s easy to brush off one bad experience and label loyalty programs useless, but they can offer good value depending on how you use them. The name of the game is earn and burn.

The best loyalty programs allow you to earn points easily, but that’s only half the equation. How you burn those points is equally important. If you find redeeming your points easy, you know you’re part of a good program.

Once you start to feel that you’re not getting much value from your rewards, it’s time to research to see if a different program is a better fit for you.

Fact: Not all points have the same value

Loyalty points vary in value depending on the program and redemption. To calculate the value of your points, use the following formula:

(value of redemption – any taxes/fees) / points spent = cost per point (CPP)

For example, with American Express Membership Rewards, you can redeem 1,000 points for a $10 statement credit that can be applied to any purchase made with your card – including travel. That gives you a CPP of 0.01 (1 cent). With BMO Rewards, you need 150 points to redeem $1 in travel – a CPP of 0.0067 (0.67 cents).

Complete this year-end check-up for maximum savings from your loyalty programs

Now, let’s say you’re comparing the BMO eclipse Visa Infinite Privilege Card to the American Express Cobalt Card since they both earn you five points per dollar spent on groceries and dining. At first glance, you may think they have a similar value, but since one BMO Rewards point is worth 0.67 cents and one American Express Membership Reward is worth 0.01 cents, the Cobalt Card comes out ahead since you’re earning five cents back in points on grocery and dining purchases, vs. 3.5 cents with the BMO Card.

Myth: Rewards are always difficult to redeem

This myth is rooted in older loyalty programs. For example, limited seats were available on points before Air Canada required Aeroplan. Under the new Aeroplan, any available seat on Air Canada can be booked with points.

Redeeming points or miles is easy these days, as most loyalty programs offer multiple ways to use rewards. That said, many travel loyalty programs are moving towards dynamic pricing, where the cost of redemptions changes based on supply and demand. And the cost of groceries has gone up, but not your points – so it may appear harder to get value.

Fact: Points expire

Travel loyalty points typically expire after 12 to 24 months of account inactivity. The easiest way to keep your account active is to earn or redeem points. Another option is to donate points, which is inexpensive and resets the timer.

For bank loyalty programs, you only need a credit card that earns you the same points and is in good standing to keep your points active.

With most fast food rewards programs, you get 12 months from the time you earned your points to use them, or you lose them. Since you can’t extend the expiration date, use them on anything.

Myth: Additional taxes make points not worth it

When you redeem airline rewards – such as Aeroplan and WestJet Rewards – for a flight, you must pay the taxes, fees, and charges in cash. These fees cover airport fees, taxes, and security charges, which are outside the airline’s control.

That said, depending on the program, the fees may increase. With WestJet Rewards, they often add a charge called “Other ATC” to international flights. This fee appears intentionally vague and can add hundreds of dollars. Since you only use your WestJet dollars on the base fare, it can result in fares where the cash you’re paying is significantly higher than the rewards you can use.

With Aeroplan redemptions, you’re defaulted to a points and cash option. However, you can choose to pay for everything in points. This is great for people who want to save money, but it also means you’ll get a lower CPP.

Aeroplan offers great value even when paying taxes, but you need to calculate the CPP first to determine your best option.

Fact: It’s easy to earn points

Each program has different ways of earning points, so pay attention. For example, grocery loyalty programs often reward points through targeted or in-store offers. With airlines, the higher the fare, the more points you accumulate.

For a quicker points haul, consider using a co-branded credit card. Additionally, many loyalty programs have partners, allowing you to earn extra points through daily spending.

Loyalty programs are constantly changing, so occasional research is required. By focusing on two or three programs, you’ll reap the rewards.

Barry Choi is a personal finance and travel expert at moneywehave.com. He was previously affiliated with American Express, BMO, Air Canada, and WestJet but currently has no relationship with any of the brands mentioned.