Cash Discount Or Credit Card Rewards: Which Do You Prefer?

The Canadian Federation of Independent Business (CFIB) believes that credit cards cost consumers and small businesses more in the long run.  Since the credit card companies charge 2-3% every time a credit card is swiped, merchants mark up their prices and everyone pays more.

Clearly something is wrong with this practice and the federal competition bureau is investigating whether or not to allow merchants to refuse higher cost “premium” Visa and MasterCard credit cards, or allow merchants to tack on a surcharge to credit card transactions.

Related: What’s more important than earning rewards?

Surcharging is currently prohibited in Canada, but retailers are able to offer a discount to consumers who pay by cash or cheque.

Cash discount

I came across this sign in a Canmore, AB restaurant.  It’s a refreshing contrast from the signs that CFIB provides for small merchants to display that try to encourage (or shame) customers to use debit or cash.

Let’s be clear – I’m a huge fan of credit card rewards because I prefer to use the method of payment that gives me something back.  Using a rewards credit card is like getting a discount on every purchase.

I carefully research the best rewards cards so that I know how to earn the most back on every transaction, from groceries and gas, to travel and other merchandise.

But if more retailers offered a cash discount, I would absolutely take advantage of it.  The 3% discount that the restaurant offered is as good (or better) than most rewards cards on the market, so it makes perfect sense for consumers to take that deal.

Surcharging is not consumer friendly.  Displaying signs that make customers feel bad because they forgot to bring cash is not consumer friendly.  Offering a cash discount – even as low as 1 or 2 percent – becomes a true win-win for consumers and retailers in the battle against the evil credit card companies.

What’s your take: Do you prefer to get a cash discount or earn credit card rewards?

What’s More Important Than Earning Rewards?

With a blog dedicated to finding the best loyalty programs and rewards cards, you might think rewards are the most important thing in the world to me.  But that couldn’t be further from the truth.

Here’s what matters more to me than earning and redeeming rewards points:

Saving money

There’s no point earning 1 or 2 percent cash back buying something at one retailer when you could’ve saved much more at a different retailer.  A perfect example is Safeway, which offers the Air Miles program.  A basket of goods at Safeway costs more, on average, than the same basket at other supermarkets.

Related: My best financial tip: Spend wisely

Once a month, CTV compares grocery prices at major Calgary stores.  All coupons and membership programs are included.

They priced out 35 items at Safeway, Co-op, Sobeys, and Superstore.  The best deals were at Sobeys and Superstore, where the grocery basket cost $144.09 and $144.16 respectively.  At Co-op, it cost $147.69.  It was most expensive to shop at Safeway, where the grocery basket cost $165.77.  That’s 15 percent more than the cheapest store!

Even the most loyal Air Miles collector has to admit they’d be better off shopping at Sobeys or Superstore.  Funny enough, after Sobeys bought Safeway it plans to change its Club Sobeys program and adopt Air Miles at its stores across Canada.  Watch for prices to increase accordingly.

Sticking to a budget

Critics of rewards programs argue that members spend more because they’re trying to earn more points and rewards.  To fight this psychological tendency, I make sure that my spending is dictated by my monthly budget, and that I’m not a slave to any rewards program.

Related: 4 dumb reasons for not getting a rewards credit card

I keep detailed tabs on my spending by category and try to stick to a pre-determined budget every month.  When I make a purchase, I use the method of payment that gives me the most points or cash back.

Since retailers don’t give out discounts for cash paying customers, and using debit can actually cost money depending on your bank plan, I use a rewards credit card to save more on my purchase.

Not paying interest

Trading a 1 or 2 percent reward for 18 or 19 percent interest doesn’t make a lot of sense.  Rewards credit cards are best suited for a disciplined spender who diligently pays off his or her balance in full every month.

I funnel all of my spending through a credit card and take advantage of the interest-free grace period, which essentially gives me a cash float for the month.

My paycheque goes into my account, where I keep a $1,500 minimum balance to waive the monthly bank fees.  There’s no need for overdraft protection or to carry a small cash emergency fund – it’s already there.

I set up account alerts so that I remember to pay my credit card bill on time at the end of the month, then rinse and repeat.

Final thoughts

Sometimes it feels a bit obsessive to pore over rewards programs and credit card perks to try to find the best deals.  But the effort is justified when I see that this year alone I’ll redeem points or cash back for nearly $1,000.

Related: Where to find the top rewards credit cards today

That said, all of the rewards in the world wouldn’t matter if I didn’t try to save money on every purchase, track my spending and stick to a budget, and avoid paying credit card interest at all costs.