With VISA being a public company now, they are looking for ways to spread their reach and make more money. One way is to compete with one of their arch rivals, American Express. AMEX cards are notorious for offering better rewards than the traditional VISA/Mastercard, but times are changing.

Introducing the new Visa Infinite credit cards. These prestigious cards are jam packed with travel features/insurances but with similar fees as the regular Visa travel cards (~$120/year). As these cards include travel insurances such as travel medical, trip cancellation/interruption, lost baggage, and car rental collision, the annual fee will pay for itself in a single vacation. Qualification for these cards is a little more challenging however as they require at least $60k/year income or $100k/year family income.

It seems that some of the big banks have jumped onboard offering specialized versions of the Infinite VISA, but which bank offers the best Visa?

Note that MDJ is not affiliated with the cards mentioned below.

As you can see from the table above, RBC has a lot of question marks next to it. Their Infinite “black” Visa is offered to private clients, aka: high net worth clients, for a lower fee than non private clients. The exact details haven’t officially been released to the general public just yet. I have read that the high annual fee is justified by offering a free Priority Pass membership along with a TabletPlus membership. RBC must be attempting to replicate the prestigious American Express Centurion Black credit card, but exclusively for Canadians.

The TD and CIBC Visa Infinite credit cards are very similar. Although the CIBC Aeroplan rewards may potentially have a higher return than the TD travel rewards, the TD card has the advantage of reward flexibility, trip cancellation insurance, purchase insurance, extended warranty and free travelers cheques.

I can see these cards being huge for existing Aerogold and TD card holders as they can convert and receive an abundance of new perks for the same annual fee. For me, unless I start traveling extensively, I’m sticking with the no fee credit cards.

33 Comments

I got home from work yesterday to find my wife watching Oprah on TV. As I entered the family room, my wife exclaimed, “you’ve gotta see this… it’s right up your alley.”

“Oh yea?” I replied intrigued with my wife’s tone of voice.

“It’s all about money!” she explained knowing the keyword that would peak my interest.

While I’m not Oprah’s biggest fan, I do enjoy some of Oprah’s shows when they involve the topic of money. This episode featured Suze Orman and some regular folk who had some serious money/debt issues.

This particular couple were dressed well, from California, had a large family of 8, nice house and a decent gross income of $100k/year (~$5500/month take home). Sounds great from the outside, but that’s the end of the optimism, here’s what lies beneath the exterior:

• No medical insurance for the themselves OR the kids.
• $135,000 in credit card debt.
• Two mortgages totaling $658,000.
• Large mortgage with payments of $1800/month, but payments will increase to $3300/month in a few months.
• They have 3 cars, 2 of which are leased, the other one they own. The cost is $1700/month.
• Wife spends $300-$400/month at Starbucks (It was the wifes morning routine).
• $60/week on tanning and manicures
• $4k on hair extensions in the past 2 years.
• Constantly shopping.
• The wife would regularly buy brand new clothes for the kids, then have a garage sale a month later to sell the “used” items at pennies to the dollar. (This one blew me away)

As they explained their situation in detail, I literally cringed. How can one family be so irresponsible with money? Don’t they realize that they have kids to take care of? From watching the show, it seemed that the couple had very poor communication between them. As a result, the wife was practicing financial infidelity on a regular basis. The couple also had a bad case of the “keeping up with the Joneses” disease which can be contracted when living in an middle/upper class area.

Looking at the income to expenses, their mortgage and car payments take up the majority of their income. This is not including groceries (6 kids anyone?), car maintenance/gasoline costs, power/utility bills, insurance, clothes for the kids or credit card debt servicing. It’s easy to see how they have racked up $135k in credit card debt with their irrational spending habits.

How will they get out of this mess? You can be sure of one thing, it won’t be easy. Suze Orman explains (or demands) that they need to sell their house NOW before the payments go up or the house will be taken from them (I agree). She also suggested that they move out of California due to higher lifestyle and taxation costs and that both parents get part time jobs as it would provide medical benefits. Even with these drastic measures, it will take this family a long time to dig themselves out of this one, but the bright side is that they will be moving in the right direction.

My world now is about building wealth. Seeing that family on TV got me wondering about how other people view money and how the lack of money knowledge can destroy lives. The world really needs more financial education.

What would you suggest to fix their financial mess?

46 Comments

I’ve been getting quotes for own occupation disability insurance from various insurance agents and they all promote the “return of premium” feature as being the best thing since sliced bread. Whenever a sales person promotes a product aggressively, my suspicion sensor trips and sets off an alarm. In my experience, heavily promoted financial products are usually a better deal for the sales person than for the consumer. Back to the task at hand, is return of premium worth the extra monthly charge? Lets start off with the basics.

What is Return of Premium (ROP)?

Return of Premium is where you pay an extra fee / month for the “potential” of getting some money back after x amount of years. In my case, I would get 50% of my premiums returned to me in 7 years providing that no claims are made.

An Analysis

Say that instead of purchasing the ROP, we invested the amount instead. Below is a table consisting of the premium payback that I was quoted, the payback after inflation, and the invested payback if we were to put the money into the markets instead.

Assumptions:

• 2.5% inflation.
• 2.5% return on the markets after inflation and taxes.
• 0.25% return on the savings account after inflation and taxes.
• The cost of the ROP is $276.07/year or $25.05/month. Lets assume that I’m frugal and I pay the annual “value” price.

Table: Return of Premium vs Investing

Conclusions

Judging from the table (and my assumptions), it appears that the return of premium payout does not justify the annual fee.

If (and only if) no claims were made over the 37 years of disability premiums, the ROP would pay a total of $9829.17 after inflation. If we were to invest the annual fee instead, returning 2.5 % after inflation and taxes, we would end up with $12,950, a difference of $3,120.83 in today’s dollars. In fact, if the money was simply put into a savings account returning only 0.25% after inflation and taxes, the savings account would come out ahead by $2,140.83.

To put the final nail in the coffin, a factor not accounted for in the table is the “risk” taken when purchasing the return of premium as it assumes no claims are made. If a claim is made, it would would result in a $0 payback!

My conclusion? Instead of ROP, it should be called RIP (off). Before accepting any “extra features” on insurance products, or any product for that matter, make sure to run the numbers first.

15 Comments