Category: Finance

I have been using the MBNA Smartcash (3% off groceries/gas (5% in the first 6 months), 1% off everything else, paid in $50 increments) for the last five months and I generally am impressed that it has worked as advertised. They have an online interface where you can review your transactions and it is a functional, no-frills site. The two $50 cheques they have sent to me so far come in the mail a couple weeks after the statement date, and slightly to my surprise, have not bounced or come with ridiculous conditions and such.

I am guessing they send cheques instead of crediting the account automatically because they anticipate a certain fraction of people will not actually cash in their $50 cheques.

I used to use the Starbucks Visa Duetto Card (sponsored by RBC) which gave you 1% in “Starbucks money” which I used as a luxury item since there is no way that I could have otherwise rationalized it. They (either RBC or Starbucks, depending on who you believe) canceled the cards this spring, so when doing my shopping for a better credit card, I settled on the MBNA one.

My only negative is that they send out cheques in the monthly statements, and I always put these through the paper shredder simply because writing cheques off a credit card is hideously expensive and also because of the fraud consideration. I also was very quick to get off of their telemarketing spam list since they were selling useless products (likely “balance protection insurance”), but after that they have been non-spammers.

Note I was not paid to write this, these are my germane thoughts as a retail consumer on the product in question.

I have still been somewhat on investment vacation mode – I have not been making any portfolio alterations, and have been letting time pass by.

It is a very, very, very important concept in investing that decision be made with the fullest of convictions, after research. It is usually a good way to lose money to “force” trades, or to try to reduce the cash balance to zero. When you see cash earn a short-term return of 2% sitting in an account, it is frustrating to know that you could invest it, minimally, in some preferred shares that yield 6.5%, but what inevitably happens is that when you want to utilize this cash, you will take a capital loss selling your preferred shares.

I think a lot of retail investors out there are chasing yield and are shying away from non-income bearing equity. You will continue to see inflows in bond and income funds, while equity will be shunned. This is something I will be eyeing a little more closely in terms of taking advantage of the matter.

The one huge advantage of cash is that it retains its principal value and is completely liquid to do whatever you want with it when the opportunity arises. Right now I am just not finding much in the way of opportunity, and hence, I wait patiently and enjoy the Canadian summer, as short as it is. This makes for boring writing, but boring is better than the alternative – permanent loss of capital.

For personal expenditures, some shopping around for a credit card that is aligned with ones’ spending profile will result in some savings. It will not be a life-changing amount, but it will be a perk. Some people like to collect airline miles and some like to collect points in their favourite retailers. As long as you cash in the rewards in a timely fashion, it will typically result in a 1-2% payback compared to the amount of money you spent on the card. In other words if you spend $10,000 a year on a credit card, typically you should be receiving something worth $100-200 had you paid for it in cash.

In light of the fact that credit card processors generally charge merchants over 2% for the privilege of having people use credit cards, they are still profiting, but the price you pay at retail inevitably reflects this premium. Merchants and people are essentially locked into using credit cards given that there is currently no differential payment (i.e. reduced prices for cash purchasers). You have to choose carefully in order to claim back the implied increase costs at retail. If you are not using a credit card that has some sort of “rewards” feature, then you are typically missing on a slight reduction in expenses.

Currently MBNA is offering a credit card that gives you 3% cash back in groceries and gasoline (5% for the first 6 months), and 1% on everything else. They pay it in $50 increments when you have accumulated the necessary credit. I have found this card quite beneficial to my own spending profile, which tends to be concentrated with the gas and grocery types of expenditures. The couple hundred dollars a year savings is certainly better than choosing a method of payment that does not give you a small kickback.

What will be interesting to see is if merchants start offering 2% discounts for cash purchases. The Government of Canada recently enabled this ability for merchants in their Code of Conduct that was adopted earlier this year. Item 5 is the most relevant.

Canadian Tire is the only major retailer that I know of that has some form of this – they give 1% Canadian Tire money for cash purchases. One wonders if other retailers will give point-of-sale discounts for cash purchases.