Credit Cards Promise Free Cash Back Perks … But It’s Not That Simple

Who's actually paying for all of those generous incentives? Credit Cards Promise Free Cash Back Perks … But It’s Not That Simple Giphy

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Even if you don’t want a credit card, sometimes their enticing rewards can make it hard to resist signing up for one.

If you’ve ever wondered how credit card companies can afford to provide such seemingly generous cash-back incentives, you’ve come to the right place.

Read the fine print

In addition to providing new customers with low (or sometimes 0%) interest rates, many credit cards come with cash back rewards based on the types of purchases a customer makes.

Many companies offer 5% cash back in some circumstances, which might make you wonder if there’s a catch. Well … of course there is.

Although you can certainly get some of these perks, there are a few common ways that credit card companies protect their profits.

  • The amount of cash back might be limited to an annual maximum.
  • Only certain types of purchases may qualify for the highest rebate.
  • You’re simply sharing some of the fees already being paid by merchants.

Who’s actually paying?

It might not be surprising to learn that credit card companies aren’t in the business of handing out tons of money just to be nice. Instead, any cash back they offer is only a small fraction of the fees and interest that they accumulate.

In addition to the percentage paid by retailers who accept credit cards as a form of payment, most of the revenue comes directly from their customers.

Nearly half of all consumers who have a credit card carry a running monthly balance, which opens them up to an average interest rate that was a whopping 24.24% as of last month.

Tack on the late fees and other charges, and you can clearly see that credit card companies are raking in some serious dough even if they do send you a few bucks.

Chris Agee
Chris Agee August 9th, 2023
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