I never use cash. I rarely ever carry around cash. My debit card has grown roots in my wallet. And it is the smartest money decision I’ve ever made.
Why Cash is Not King
The main reason I don’t use cash is because you don’t get a percentage of it back when you spend it. Once you spend cash, it’s gone and you’ve earned nothing for using it. If an option exists where you can get a return on your spending, it is illogical not to take advantage of it. If a credit card offers 2% back for every dollar your spend, that is like earning 2% in a savings account. But you earn 2% when you spend.
That’s a higher percentage than what most big banks in Canada provide in interest in a regular savings account! Don’t believe me? RBC offers a paltry 1.10% on their High Interest Savings Account (HISA). Ditto BMO. TD only provides the generous 1.10% if you hold more than $5000. Credit Unions aren’t much better with their HISAs: Vancity and Coast Capital both offer 1.10%. ING offers 1.35%. And the highest rate for a savings account in Canada is with People’s Trust, who offer 1.90%. None of those return 2%.
The Best Credit Card
For us, we did some extensive research into what would be the best credit card to use to get back the most return on our spending. After crunching many numbers, we decided on the Capital One Aspire World Travel MasterCard. I won’t go into any in-depth review of the card as there are many other places on the internet which discuss the merits of this card. Red Flag Deals has a good discussion on the card here. MoneySense has a good review of travel reward cards here.
The Capital One Aspire World Travel MasterCard works the best for those who travel. Even if you take a flight once a year or every couple years, this is a great card for redeeming for flights. The card returns 2% back if you redeem on air travel over $600. It can be a little more technical on how to get the full 2% on smaller travel, but read about those technicalities in the links above.
If you redeem out your points for straight cash, the amount you get back in cash from points works out to a 1.5% return on all spending. Not as great as the 2% for air travel, but still better than a lot of other cards out there.
This card has an annual fee of $120. This is a sticking point for a lot of people. But I’ve made a graph to demonstrate how the card basically pays for itself over 5 years:
In a hypothetical situation where you get the card and do not purchase anything on it for 5 straight years, you would either end up owing $37.50 in fees for 5 total years if you converted your points to cash or you would have $150 worth of travel credit.
This is how the math works:
This is purely a hypothetical situation as there is no use of the credit card. Under normal use, one would collect up much more points than the scenario I have described. I used this hypothetical scenario to illustrate in simple terms how the card works and why paying the annual fee doesn’t necessarily mean it costs you anything.
The bottom line is that this card returns either 1.5% cash back on all purchases or 2% back on air travel, depending on what you want to use your points for. The math makes sense and that is why we use it for all of our purchases.
5 Reasons Why Cards Trump Cash
As great as the rate of return on spending is for this credit card, there are a few other major advantages for using credit cards instead of cash or debit. Here are 5 reasons:
1) Cash Back
You usually have to save money in a savings account to receive money back in the form of interest. Credit cards can give you cash back in your hands for spending.
Baggage loss, travel delay, travel health, and other forms of insurance are usually included.
If you order something online and you never receive it, you can dispute the charge and get your money back. You are protected from fraud.
4) Build Credit
Helps you build credit for favourable future mortgages and loans.
Carrying cash, paper and metal, can be a hassle. It’s much simpler to have a single card for all payments.
First, I am in no way affiliated with Capital One or MasterCard and I make no money whatsoever for recommending this card. My opinion and recommendation of this card is based purely on the research I have done to choose a credit card that is the best for me and my family.
Of course, you have to be aware that credit cards offer these kind of incentives because they want you to senselessly spend so that you spend more than you earn. Then you have to pay +20% interest on the bills you can’t pay in full each month.
With great power comes great responsibility. Credit cards are not something that everyone either has the discipline to use or should use. But if you can wield the power responsibly, the payoffs are tremendous.
What are some of your thoughts on using credit cards for all purchases? Even with these sort of incentives, do you still prefer debit and cash? If so, what are your reasons?