Canadians are missing out on some major savings on merchandise, travel, and even chances to pay down their debt. And the answer to “why?” is right under their noses, or at least, right on their monthly bank statement.
According to a recent CIBC survey that reviewed if and how Canadians are using their credit and reward card points, one in five people didn’t know how many points they earned on their cards and 37% rarely or never redeemed their points. When you factor in that, for about half of those surveyed (47%), their primary credit card used for everyday purchases is a rewards card, which equals some major missed savings. While many Canadians that earn reward points say they’re as good as cash, 64% also say they don’t think of them as a financial asset.
Canadians are missing out on a big opportunity with these cards, says Jamie Golombek, the managing director, Tax & Estate Planning, with CIBC Financial Planning and Advice. "It's important to think of your points as any other asset, and use them to achieve a financial goal," he said. "Whether that's to help with the cost of a dream vacation, purchase an item you'd otherwise buy with cash, or possibly reduce your debt or boost your savings."
Dust off those reward points and redeem
On average, Canadian cardholders have about 48,800 points, and depending on the rewards program, those points could go far. Outside of the typical travel and merchandise benefits, Canadians could also use their points to help out with their daily finances as well.
For example, those 48,800 points could be used to pay up to $400 on the balance of a credit card, mortgage, or line of credit. The same amount could also be put towards a registered plan such as a TFSA, RRSP, or RESP. Most cardholders (68%) didn't know these are options when redeeming their points.
"With high debt loads and the potential for higher interest rates, using points towards paying down debt or building savings may also be a good option for some,” said Golombek. “These lesser-known financial opportunities that many cards offer can often get overlooked if you're socking away points without a plan to spend them or aren't sure what redemption options are available to you."
So how are people using their points? About 38% said they're saving those points for a big item or a vacation, while just 13% said they're regularly using them on everyday purchases. The remaining 49% are just collecting points with no plan in mind at all.
The finances and taxes of your reward points
CIBC also shared some “need-to-know” information about the potential financial and tax-related implications with rewards points. In a release, the bank offered these quick tips for consumers:
- Before redeeming points for an item, compare the retail cost of the item to the points required to redeem it. It may turn out that those points could be put to better use towards another purchase. Also, keep an eye out for any extra fees that may be applied for using your rewards to book tickets and travel accommodations.
- If you use your points for medical travel, you may be able to claim them for a medical expense tax credit.
- As mentioned above, you can use these points to pay down debt, but you can also donate them to some registered charities.
- When it comes time to file your taxes, you don’t need to claim points collected from personal earnings and used for personal use.
- If you collect points from business purchases, such as air points when you travel for business trips, you only need to claim them on your taxes if the points are converted to cash, another form of remuneration, or for tax-avoidance purposes. If the employer controls the points, they must be included on your T4 slip.
- Things get a bit more complicated when you’re a business owner and using business points for personal use, so it’s best to double-check before using those points!