The recent rise in interest rates has Canadians wondering how it might affect their credit card rewards programs. The impact is complex and depends on several factors, but let’s break it down:
The Connection Between Interest Rates and Rewards
Interest rates and credit card rewards are connected, but not in a simple, direct way. When interest rates rise, credit card issuers may see their profits decrease.
To compensate for this, they might be tempted to reduce the generosity of their rewards programs. This could take a few forms:
- Lower rewards rates: You might earn fewer points or cash back for every dollar you spend.
- Higher minimum spending requirements: You might need to spend more money each month to qualify for rewards.
- A combination of both: Issuers might reduce rewards rates and also raise minimum spending requirements.
Not All Issuers React the Same Way
However, it’s important to remember that credit card issuers are businesses competing for your business.
Some issuers may choose to maintain their current rewards programs or even enhance them in an effort to attract new customers.
This could be especially true for issuers offering cards with high interest rates, as they may be looking to offset the potential drawbacks of these cards by offering more attractive rewards.
How Cardholder Behavior Can Affect Rewards
Another factor to consider is how cardholders behave when interest rates rise.
When faced with higher interest charges, cardholders may become more focused on paying down existing debt rather than racking up points or cash back.
This could lead to a decrease in overall credit card spending, which could negatively impact the profitability of rewards programs for issuers.
Conclusion:
The impact of interest rate hikes on credit card rewards in Canada is complex and depends on a number of factors, including the specific actions taken by issuers and the behavior of cardholders. Here’s what you can do:
- Stay informed: Keep an eye on your credit card statements and issuer websites for any changes to your rewards program.
- Adjust your spending habits: If your goal is to maximize rewards, you’ll need to adapt to any changes made by your issuer. Consider using your card for everyday purchases that you would have made anyway and paying your balance in full each month to avoid interest charges.
- Shop around: If you’re unhappy with the changes to your current rewards program, consider shopping around for a new card that better suits your needs.