This is of very limited relevance to anyone who doesn’t have a Bank of Montreal Mastercard, so I will put it below a cut.
As holders of this credit card know, it includes two possible cash back options: a no fee 0.5% cash back choice and a 1.0% option with a $49 annual fee. Some people will look at those numbers and think immediately that if you spend more than $5,000 a year, you are better off with the second option. While intuitive, this is incorrect. The first $5,000 just pays the annual fee. You then need to ‘catch up’ on the money back that you would have earned spending $5,000 on the no-fee 0.5% option.
The break-even point is actually $10,000. At that point ($10,000 / 200) = ($10,000 / 100) – 50. Above $10,000 worth of credit card purchases per year, there is an advantage to choosing the 1.0% option.
Of course, one can find better options than either. Citibank offers a no-fee MasterCard with 1% cash back. I estimate that it takes about twenty minutes to apply: a worthwhile investment for an annual savings of $50.
I provide this information simply to be helpful, not because I have a financial interest in either company. Indeed, I am arguably the worst credit card customer ever. Not only have I never paid any interest, I tend to choose cards that force the issuer to share part of their kick from the merchant with me.