A $150 annual fee can feel insignificant when a credit card promises airport lounges, travel insurance, bonus points, and enough perks to make boarding Zone 5 feel luxurious.
Then another year passes. You used one lounge visit, forgot about the insurance, and earned points on purchases you would have made anyway. Suddenly that premium card deserves an annual performance review.
The Financial Consumer Agency of Canada recommends doing exactly that. Estimate the rewards and benefits you actually receive, then subtract the annual fee.
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Find the breakeven point
Start with benefits you can put a real dollar value on. Take a credit card with a current annual fee of $150. Let’s say it includes six complimentary airport lounge visits and doesn’t charge the typical 2.5% foreign-transaction fee on foreign-currency purchases.
Then add lounge visits you genuinely would have purchased, rewards actually redeemed, and insurance coverage you would otherwise pay for. For instance, don’t assign $300 of value to airport lounges if you normally bring a sandwich and sit at the gate.
Furthermore, premium cards often package several useful benefits together. The trouble is duplication. Your workplace benefits may already include travel medical coverage. Another card might provide rental-car insurance. A bank account could rebate part or all of your annual credit-card fee. Those benefits still have value, but only if the premium card saves you money you otherwise would have spent.
Follow the bank
Those annual fees also explain why banks want customers using more than a basic chequing account. Premium cards, rewards programs, investments, mortgages, and banking packages can deepen the relationship and generate more fee income over time.
That brings me to Bank of Nova Scotia (TSX: BNS). Scotiabank owns the Scene+ loyalty program with partners and operates banking, wealth management, capital markets, and international businesses. Its strategy increasingly focuses on deeper customer relationships across Canada, the U.S., and Mexico.
A cross-selling strategy and the shift toward a North American corridor as central to Scotiabank’s turnaround as the latest results show progress. Third-quarter adjusted net income rose to a record $2.97 billion, while adjusted return on equity (ROE) reached 14.2%, clearing management’s medium-term 14% objective. Canadian Banking earnings increased 12%, helped by stronger revenue, margins, and fee income.
Considerations
The improvement hasn’t gone unnoticed, though. At $130.08, Scotiabank trades around 14 times forward earnings, well above the multiples investors could buy the stock for several years ago. The quarterly dividend of $1.14 provides a yield around 3.5%.
That’s still strong for investors building around Canadian dividend stocks, but valuation leaves less room for mistakes. International execution remains another risk. Reported International Banking earnings improved in the third quarter, yet constant-currency results were weaker. The turnaround needs to keep producing better returns, not just better headlines.
Therefore, investors should consider applying the same discipline to Scotiabank that they use when buying stocks in Canada. That’s to understand what you’re paying and what you’re getting.
Bottom line
Your premium credit card doesn’t earn its annual fee because the benefits page is long. It earns it when benefits you actually use exceed what you pay. Add your rewards, foreign-exchange savings, lounge visits, insurance, and credits from the last 12 months. Subtract the annual fee and any other costs.
If the number disappoints you, the fancy card in your wallet may be performing worse than the bank stock behind it.
