I have a regular debate about Visa Travel Rewards with a member of my family. We consistently try and hash out whether or not visa travel rewards are actually a benefit.
I wanted to draft three scenarios here, specifically evaluating Royal Bank's Avion Visa, to identify if the card is in fact providing a perk or costing you instead.
To start, we have to assume my card has an annual fee, which it does, of $120.
Then, let's assume, I pay no interest, because let's be honest, if I'm paying interest, it's easier to identify that the rewards aren't a benefit, rather being bought instead.
Scenario 1 - Using Visa Moderately Each Year
For this scenario we'll assume that I spend $15,000 on my card in one calendar year, earning 1 point per dollar, and ending up with 15,000 points for one flight (excluding taxes) within the province.
When I go in to book this type of flight through my rewards program, I can see that the payable taxes for the flight will be $85.06.
Essentially, my "free trip" through Visa will cost me the $120 annual fee plus $85.06 in taxes.
Resulting in a Total trip cost = $205.06.
If I source this flight independent of Visa, going through the airline directly, the cost, including taxes, will be $353.06.
Total Savings as a Result of Avion Points = $353.06 - $205.06 = $148.00
It's easy to feel like the entire trip price is being 'saved', but in reality, it's only a portion of the flight as the annual card fee and taxes have to be considered too.
Scenario 2 - Spending Plenty on Visa Each Year
For this scenario let's assume, you'd spend double the cost of one provincial flight ($30,000 = 30,000 points) within one year, therefore being entitled to two inter-provincial flights, the breakdown would be the following:
Flight Cost (for two flights) Using Points: Flight Taxes X 2 ($85.06 X 2 = $170.12) + Annual Card Fee $120 = Total Cost to Me $290.12
Actual Cost of Two Flights (through the airline direct) using Money and No Avion Points = $353.06 X 2 = $706.12
Total Savings as a Result of Avion Points = $706.12 - $290.12 = $416.00
Scenario 3 - Spending Little on Visa Each Year
If you don’t spend more than $15,000 per year and take two years to use your points, the benefits might not make sense. Using the same flight costs as determined in example 1, let's assume you use your points every second year, therefore paying two annual card fees before using any collected points.
Flight Cost Using Points: Flight Taxes $85.06 + (Annual Card Fee $120 X 2) $240 = $325.06
Actual Flight Cost (through airline) Using Money not Points = $353.06
Total Savings as a Result of Using Avion Points = $353.06 - $325.06 = $28.00
So, are the points worth it??
It seems that they are beneficial ONLY IF you never have interest payments, and when you'd spend at least $7,500 per year (earnings 7,500 points each year), as Scenario 3 demonstrates that the benefit is almost null at a savings of $28.00 over a two year period.
Hopefully, you can use the scenarios above to see if your credit card rewards are beneficial. If you carry a balance on your card and pay interest payments, it could be that you're paying to use points; in which case it likely makes sense to use a no-fee credit card instead.