This is kind of a broad topic. They're talking specifically about premium travel cards with membership fees. If you spend a lot on travel, and the points benefits you get exceed the fee, then it's...
Exemplary
This is kind of a broad topic. They're talking specifically about premium travel cards with membership fees. If you spend a lot on travel, and the points benefits you get exceed the fee, then it's worthwhile. For example, I have Delta's Reserve card. It's somewhere around $500 a year, but comes with lounge access and a round-trip companion pass in addition to miles for spending. The companion pass alone more than pays for the cost of the card, and the rest is just icing on top.
But not all cards have a fee. Most card companies have free cards that still earn you points for your purchases. Chase has a decent one that has 5% back on rotating categories and 1% back on everything else. Amazon's card gives you 5% back on Amazon if you have prime and 2% back on restaurants and gas. Those can be worth it depending on your spending habits.
But one thing that all of these cards have in common is that none of them are worth it unless you're going to pay off your balance, in full, every month. I'm fortunate enough to be able to do that, but it doesn't make any kind of financial sense to get 1-2% back on your purchases in exchange for having to borrow those funds at 25% interest.
Exactly. I have 4 rewards cards. Three of them are cashback-style cards with no annual fees, netting me anywhere from 1-5% back, depending on the card and spending categories. For example, I have...
Exactly. I have 4 rewards cards. Three of them are cashback-style cards with no annual fees, netting me anywhere from 1-5% back, depending on the card and spending categories. For example, I have a Chase Amazon Visa. That's 5% back on all Amazon purchases. The last card, an airlines reward card has a $95 fee. I have it so I can get a free checked bag. I fly often enough that it's a worthwhile value.
All my cards get paid off at the end of each month so I can reap the rewards (admittedly, I wasn't always able to do that). That said, I'm not a huge spender. I just looked at my end of year summary on one card last night; I spent around $4400 on it last year. At 1% back, that's only $44 that I earned. That's not a lot, but I was going to spend they money anyway, as that card mostly has utilities and subscriptions. And that's how I look at all these. It's a chance to get some money back on things I have to pay for anyway. My main, daily rewards card gives me 1.5% back on all purchases. If I spend $10k on it, which I probably did, that's $150 I get back. I'm not going out of my way to buy things to hit some bonus payout. It's just my normal everyday purchases: groceries, gas, general shopping, games on Steam, restaurants and bars, etc.
If I had to guess, I'm probably getting like $200-500 total back each year. That's not a lot, but it's also about how much I'm earning in interest on my savings account. So I'm doubling my annual earnings. Hell, before we entered this higher interest rate environment, the rewards cards were earning better than most savings accounts! Sure now, we're seeing 4-5% APY on no-min/no-fee savings in the US, but pre-pandemic, that wasn't the case. 1-2% or less far more likely.
If you are an American with decent credit and you are not earning 2% back on all the purchases you make (by using a basic 2% rewards card with a $0 annual fee,) you are simply passing up the...
If you are an American with decent credit and you are not earning 2% back on all the purchases you make (by using a basic 2% rewards card with a $0 annual fee,) you are simply passing up the opportunity to receive free money for zero effort. Full stop. My basic 2% card paid me $600 for using it in 2023, and this is with zero effort.
The actual hobby of churning is an entirely different story. You have to have a good amount of cash on hand and be very organized and meticulous with the different schemes/offers you're taking advantage of. But if you're interested in absurd amounts of rewards in cash, many free plane tickets, free hotel rooms, etc., you have $20K in cash to transfer between different savings accounts, and you're dedicated enough to stay on top of it, you can rake in thousands and thousands of dollars in rewards after the annual fees pay for themselves.
I don't churn anymore because I got bored of keeping track of it, but when I was into churning I would fly domestic for free 3-4 times per year, earn $1000+ in savings account bonus deals per year, and earn 2-10% back on every purchase I made. I was making $60k salary at the time and so was my husband, so not exactly incredibly wealthy. We're just frugal and organized with our finances.
Basically churning can be a fun and lucrative hobby if you're interested and focused on it, but it takes work.
And basic 2% cashback cards should be used by anyone who has good enough credit to get one, there's no effort or risk involved with that. (Obvious disclaimer though, if you're not financially stable or responsible enough to pay off the credit card balance each month, then that's a budgeting issue that needs to be addressed before thinking about credit card rewards.)
I don't churn to this degree, but I will take advantage of introductory 1-year 0% APY offers and use it as a free loan on big and planned purchases. I'll treat it just like a loan and pay it off a...
I don't churn to this degree, but I will take advantage of introductory 1-year 0% APY offers and use it as a free loan on big and planned purchases. I'll treat it just like a loan and pay it off a little each month.
Most cards that do this also offer a couple hundred dollars if you spend some amount in the first month. So, I'm getting paid to get a free loan. That's one heck of a deal. Try going to a bank and asking to get paid $200 for an unsecured loan!
The bank-associated (SoFi) 2% card I’ve been using lets you cash out the points at full value into the bank’s checking or savings account (the latter of which as of this writing pays 4.6%...
The bank-associated (SoFi) 2% card I’ve been using lets you cash out the points at full value into the bank’s checking or savings account (the latter of which as of this writing pays 4.6% interest) which is pretty cool and a bit different from typical point redemption systems. It does come with the caveat that your paycheck be direct deposited in the associated checking/savings account though.
I make a decent chunk on those points as it is, but could be making more. I need to comb through subscriptions and whatnot and move some stuff over from my old Chase 1.5% card.
Of course rewards are great if you pay your balance in full (and avoid APR) and generate more rewards than your yearly fee, if applicable. But other commenters have already covered this. What I'd...
Of course rewards are great if you pay your balance in full (and avoid APR) and generate more rewards than your yearly fee, if applicable. But other commenters have already covered this.
What I'd like to add: we live in a world increasingly unwilling to use cash for transactions. Everything you buy at every store (at least national chains) has a markup to cover the transaction fee the retailer pays to credit card processing companies.
Last I checked, that processing fee was between 3.5-6% depending on the contract and size of the retailer.
So, point being, you're not really "earning money" or "saving money" ... you're just clawing back a portion of the added cost of your purchases due to credit card processing fees.
Doesn't change that you should still chase rewards points. It's just a bit of tyranny of our digitalized world that I wish people were more aware of and did not accept as the cost of doing business.
Yeah, I think this is really the most accurate way to look at things. I kind of wish the government was more directly involved in banking. Not only do we pay more due to credit card merchant fees,...
Yeah, I think this is really the most accurate way to look at things.
I kind of wish the government was more directly involved in banking. Not only do we pay more due to credit card merchant fees, there is a population that doesn't have access to banking services, and it seems that it's frequently the most poor of people who get exploited by financial services which do service them.
I really should have been more specific about what I meant, because there are two distinctly different things I mentioned wanting. The first is offering free basic banking services; I'm talking...
I really should have been more specific about what I meant, because there are two distinctly different things I mentioned wanting. The first is offering free basic banking services; I'm talking about basic things like having an account to hold money and the ability to deposit checks. The other thing I want is an instant electronic cash-transfer system that can take the place of credit cards. Neither of these need to involve credit whatsoever, and I'd actually prefer they didn't since I don't like the idea of poor people owing money to the government.
I would also like UBI, but that feels like an increasingly impossible dream the more time passes.
There's a few things in life I think make good sense to not need the profit motive. In no particular order, and not exhaustive: non-investment banking services mass transit health care
There's a few things in life I think make good sense to not need the profit motive. In no particular order, and not exhaustive:
The short answer is “probably not” — unless you’re wealthy, self-disciplined and are totally on it with your finances. But the richer you are, the better the payback could be.
I can't access the article because it's paywalled. Maybe the article outlines a case where credit card points or miles is actually beneficial, but I'm going to go ahead with my own intuition and...
I can't access the article because it's paywalled. Maybe the article outlines a case where credit card points or miles is actually beneficial, but I'm going to go ahead with my own intuition and say that the answer here is no, credit card reward programs are not worthwhile. I view them the same as I do "free shipping" from online merchants. I know that shipping isn't free, and the costs are just being hidden from me by being buried elsewhere. It's the same with the credit card points. We're ultimately paying a little bit more for every purchase we make so that we can have these reward programs. But, much like free shipping, these reward programs are enticing on a primal level, so they provide a competitive advantage for payment processors that have them, so all payment processors need to have them.
I think it depends on how you look at it. You're right that ultimately, we're collectively paying for those points since the price of CC merchant fees is built into the price. The only way that I...
I think it depends on how you look at it. You're right that ultimately, we're collectively paying for those points since the price of CC merchant fees is built into the price. The only way that I see this ever changing is if merchants either charge an extra fee to use a CC, provide a discount for cash, or don't accept CCs at all (which is probably the most harmful and limiting action a merchant could take today). Very few retailers seem to be doing stuff like this. Many service-based companies (contractors, home improvement, etc) seem to be willing to add fees for CCs. I actually wrote my first check in many years for a countertop company to save $180 in CC fees on a $6k job.
As we pay more irrespective of the use of a rewards credit card, isn't it better to at least get a 1-2% cashback (or more usually cash-equivalent) than to not have it? I agree that it's sensible...
We're ultimately paying a little bit more for every purchase we make so that we can have these reward programs.
As we pay more irrespective of the use of a rewards credit card, isn't it better to at least get a 1-2% cashback (or more usually cash-equivalent) than to not have it?
I agree that it's sensible to cap credit card fees (as most countries in Europe have done).
Absolutely. As an individual, you're paying the cost so your optimal outcome is to take the benefit as well. But, as a society, these programs only exist because they must, but don't actually...
As we pay more irrespective of the use of a rewards credit card, isn't it better to at least get a 1-2% cashback (or more usually cash-equivalent) than to not have it?
Absolutely. As an individual, you're paying the cost so your optimal outcome is to take the benefit as well. But, as a society, these programs only exist because they must, but don't actually provide any net benefit.
I’m not convinced we pay much more, if we pay more at all, for most transactions when we pay with credit cards. It’s just another overhead cost and generic retailers are applying some standard...
I’m not convinced we pay much more, if we pay more at all, for most transactions when we pay with credit cards. It’s just another overhead cost and generic retailers are applying some standard markup - 2x is common - or selling stuff at MSRP. Low margin businesses price differently, e.g. food service and grocery, but interchange fees are still just another overhead cost.
Interchange rates are available online. Here’s MasterCard’s. They’re significant, but they aren’t that high, and doing business in cash has its own costs. Ensuring tills have enough of each denomination, inaccuracies in change making, closing out drawers, making deposits, etc. all have costs too.
Just a guess though. I’m sure there’s Econ or Business paper out there about the marginal impact of interchange fees.
I think 1.5% is really high given the actual service that Mastercard/Visa/AMEX are performing (a massive spreadsheet plus a lot of anti-fraud and disputed transaction resolution). You can see this...
I think 1.5% is really high given the actual service that Mastercard/Visa/AMEX are performing (a massive spreadsheet plus a lot of anti-fraud and disputed transaction resolution). You can see this as well if you look at their accounts (e.g. Mastercard made US$9.9 billion on US$22.2 billion of revenue)!
It might be really high. But it might not be, too. Below are a few abstracts from a warp speed search for relevant lit. I might have to poke around it more out of curiosity later. Source Source Source
It might be really high. But it might not be, too. Below are a few abstracts from a warp speed search for relevant lit. I might have to poke around it more out of curiosity later.
In this paper we empirically address the issue of whether reductions in card payment interchange fees have a significant impact on prices paid by consumers... Relying on Rochet and Tirole’s (RandJEcon 33:549–570, 2002) model of this sector as a two-sided market, we identify the two channels through which interchange fee reductions may influence retail prices: the impact on cards’ demand and on the merchant service charge, which may be passed through to retail prices. We use Spanish sectoral data to estimate the resulting system of equations. Our results imply that a 1% reduction in the level of the interchange fee leads to a long run 0.17% reduction in the retail price index. Such outcome is almost exclusively the result of the interchange fees being passed through as lower prices by merchants, as we find that they have a negligible impact on payment cards’ usage.
This paper assesses the impact of the IFR. Based on a literature review and data analysis, it concludes that the IFR has led to a drop in interchange fees – in some cases below the maximum defined in the legislation in all EU member states. The decrease in the interchange fee is largely reflected in lower charges for merchants, although the reduction is – at least partially – offset by higher scheme fees charged by international four-party card schemes and by higher fees for cardholders.
This essay surveys the economic literature on interchange fees and the debate over whether interchange should be regulated and, if so, how. We consider, first, the operation of unitary payment systems, like American Express, in the context of the recent economic literature on two-sided markets, in which businesses cater to two interdependent groups of customers. The main focus is on the determination of price structure. We then discuss the basic economics of multi-party payment systems and the role of interchange in the operation of such systems under some standard, though unrealistic, simplifying assumptions. The key point of this discussion is that the interchange fee is not an ordinary price; its most direct effect is on price structure, not price level. We then examine the implications for privately determined interchange fees of some of the relevant market imperfections that have been discussed in the economic literature. While some studies suggest that privately determined interchange fees are inefficiently high, others point to fees being inefficiently low. Moreover, there is a consensus among economists that, as a matter of theory, it is not possible to arrive, except by happenstance, at the socially optimal interchange fee through any regulatory system that considers only costs. This distinguishes the market imperfections at issue here for multi-party systems from the more familiar area of public utility regulation, where setting price equal to marginal cost is theoretically ideal.
A couple weeks ago on r/neoliberal, there was a discussion on credit cards and rewards. The argument the OP was making was that credit cards rewards are regressive and a form of rent-seeking. It...
A couple weeks ago on r/neoliberal, there was a discussion on credit cards and rewards. The argument the OP was making was that credit cards rewards are regressive and a form of rent-seeking. It wasn't the most well-received argument, and there was a lot of back and forth, but it did lead to interesting discussion and viewpoints.
I can see regressive, but in terms of rent, strictly speaking credit card rewards carve out the economic rent issuing banks receive and give it to consumers. It’s the issuing bank trading margin...
I can see regressive, but in terms of rent, strictly speaking credit card rewards carve out the economic rent issuing banks receive and give it to consumers. It’s the issuing bank trading margin for volume. Their margin is preset based on negotiations with the card networks, merchants, and regulators - rewards eat into that margin but incentivize more customers.
Booooo paywall. Credit card points are absolutely worth it, but like others here have said, you must NEVER carry a balance. I use my credit card for everything, I have one with a $99 per year fee....
Booooo paywall.
Credit card points are absolutely worth it, but like others here have said, you must NEVER carry a balance. I use my credit card for everything, I have one with a $99 per year fee. I pay this off in full every month, no exceptions. Seriously, if you for even one second think you won’t be disciplined enough to pay it off in full every single time, then don’t even think about doing this.
That being said, it is awesome. For my $99 per year, I get at least $300 in airline tickets on a conservative year, free checked bags, free DashPass membership (although DD is so expensive even with the pass I try not to use it). I have gotten up to $800 in airline tickets on years where I planned my spend carefully.
Be sure to take into account your lifestyle. If you are struggling in life, can’t take PTO from work, etc, flight benefits are not going to be much use to you. You would benefit more from a card that gives extra rewards from grocery store purchases or gas. When I was younger and in that situation, that’s the card type I used the most (again, paying it off every single month, keep track of your spending so you don’t spend more than your paycheck. You REALLY don’t want to pay that 29.99% interest rate).
There are plenty of websites with guides on how to choose the best credit card to generate points for your lifestyle, ThePointsGuy and NerdWallet to name a few. Credit card points can be very rewarding if you have successfully matched the correct card type to your spending habits and, I can’t say this enough, pay off the balance in full every single time.
NYT had an interesting podcast episode (don't remember the show) about credit card reward programs. The takeaway was that the population of credit card users was split into two groups: The larger...
NYT had an interesting podcast episode (don't remember the show) about credit card reward programs. The takeaway was that the population of credit card users was split into two groups:
The larger group: (3/4 pop) loses on average $100 per year.
The smaller group: (1/4 pop) receives on average $300 per year of benefits.
As you said, if you pay your card off every month you do make money. But you need to be diligent.
I don't fly much at all so I use cashback cards:
General use card nets me $1k a year in cash back
Grocery only card has a higher cashback percentage but only works for top spending category. Probably nets another $500 or so.
It may be useful to know that credit cards are not merely methods of payment. They are marketing. Stores use credit cards to advertise (that's often why there are "rewards" for certain purchases.)...
It may be useful to know that credit cards are not merely methods of payment. They are marketing. Stores use credit cards to advertise (that's often why there are "rewards" for certain purchases.) It's the same reason there are coupons and loyalty programs. Stores give discounts to customers who play the game, and charge a little more to customers who don't play. The credit card transaction fees that stores pay can also be thought of as giving discounts to certain customers (how much depends on the credit card).
How much you play that game depends on your interests. I mostly don't play, but last year I paid my credit card bill for several months with many years of credit card points that had built up (and I had been ignoring).
If you want to know more, Patrick McKenzie wrote a good article: How credit cards make money. Previously posted on Tildes here.
One of my credit cards has a really weird advertising thing where they have a page with discounts for various businesses, which is nice because it combines with any other promotions they might be...
One of my credit cards has a really weird advertising thing where they have a page with discounts for various businesses, which is nice because it combines with any other promotions they might be doing and you still get the same amount of points for the transaction. It's very rarely things that I actually buy, but it feels pretty good when it lines up with my habits or when I'm gift shopping.
I own a business and make as many vendor purchases as possible on my credit card for the points. I generate enough points to take my family on a vacation each year, plus a personal trip when...
I own a business and make as many vendor purchases as possible on my credit card for the points. I generate enough points to take my family on a vacation each year, plus a personal trip when there's a concert I want to see.
Part of me feels guilt that the system is 100% built in my favor compared to the average consumer, so I'll regularly give away flights / hotel stays to people who need it. My city is somewhat remote so when people need specialist doctors they usually have to fly to a bigger city for a few days, I have a favorite hotel right downtown near the hospital I book a few times a year. One of my favorites was when I flew a (mostly) stranger first class across the country to visit some family they were missing but couldn't afford to see
Pretty happy with my credit card. No annual fees, free airport lounge access, and mile conversion rate of about 0.72 USD spent per mile. I've already used it to pay for a roundtrip international...
Pretty happy with my credit card. No annual fees, free airport lounge access, and mile conversion rate of about 0.72 USD spent per mile. I've already used it to pay for a roundtrip international flight. That was 29,000 miles, so the equivalent of about 20,880 USD spent. The flight would have cost around 700 USD, so the return on my spending was around 3%. It was money I would have spent anyway, and I always pay my balance in full, and points don't expire, so even if it takes me a while to rack up enough points it's fine.
I don't go out of my way to buy more stuff to get points, but if I eat out with friends and no one else is interested in earning points, then I volunteer to use my card for the group's bill and my friends just pay me back individually 😂
Edited to clarify: My credit card points don't expire, but most miles do. I just convert the points to miles before booking my flight. My credit card lets me choose between a few miles programs.
Here in the Philippines, I know of a couple other banks aside from mine (EastWest) offering this type of card (lounge access with no annual fee)-- AUB and Metrobank.
Here in the Philippines, I know of a couple other banks aside from mine (EastWest) offering this type of card (lounge access with no annual fee)-- AUB and Metrobank.
This is kind of a broad topic. They're talking specifically about premium travel cards with membership fees. If you spend a lot on travel, and the points benefits you get exceed the fee, then it's worthwhile. For example, I have Delta's Reserve card. It's somewhere around $500 a year, but comes with lounge access and a round-trip companion pass in addition to miles for spending. The companion pass alone more than pays for the cost of the card, and the rest is just icing on top.
But not all cards have a fee. Most card companies have free cards that still earn you points for your purchases. Chase has a decent one that has 5% back on rotating categories and 1% back on everything else. Amazon's card gives you 5% back on Amazon if you have prime and 2% back on restaurants and gas. Those can be worth it depending on your spending habits.
But one thing that all of these cards have in common is that none of them are worth it unless you're going to pay off your balance, in full, every month. I'm fortunate enough to be able to do that, but it doesn't make any kind of financial sense to get 1-2% back on your purchases in exchange for having to borrow those funds at 25% interest.
Exactly. I have 4 rewards cards. Three of them are cashback-style cards with no annual fees, netting me anywhere from 1-5% back, depending on the card and spending categories. For example, I have a Chase Amazon Visa. That's 5% back on all Amazon purchases. The last card, an airlines reward card has a $95 fee. I have it so I can get a free checked bag. I fly often enough that it's a worthwhile value.
All my cards get paid off at the end of each month so I can reap the rewards (admittedly, I wasn't always able to do that). That said, I'm not a huge spender. I just looked at my end of year summary on one card last night; I spent around $4400 on it last year. At 1% back, that's only $44 that I earned. That's not a lot, but I was going to spend they money anyway, as that card mostly has utilities and subscriptions. And that's how I look at all these. It's a chance to get some money back on things I have to pay for anyway. My main, daily rewards card gives me 1.5% back on all purchases. If I spend $10k on it, which I probably did, that's $150 I get back. I'm not going out of my way to buy things to hit some bonus payout. It's just my normal everyday purchases: groceries, gas, general shopping, games on Steam, restaurants and bars, etc.
If I had to guess, I'm probably getting like $200-500 total back each year. That's not a lot, but it's also about how much I'm earning in interest on my savings account. So I'm doubling my annual earnings. Hell, before we entered this higher interest rate environment, the rewards cards were earning better than most savings accounts! Sure now, we're seeing 4-5% APY on no-min/no-fee savings in the US, but pre-pandemic, that wasn't the case. 1-2% or less far more likely.
If you are an American with decent credit and you are not earning 2% back on all the purchases you make (by using a basic 2% rewards card with a $0 annual fee,) you are simply passing up the opportunity to receive free money for zero effort. Full stop. My basic 2% card paid me $600 for using it in 2023, and this is with zero effort.
The actual hobby of churning is an entirely different story. You have to have a good amount of cash on hand and be very organized and meticulous with the different schemes/offers you're taking advantage of. But if you're interested in absurd amounts of rewards in cash, many free plane tickets, free hotel rooms, etc., you have $20K in cash to transfer between different savings accounts, and you're dedicated enough to stay on top of it, you can rake in thousands and thousands of dollars in rewards after the annual fees pay for themselves.
I don't churn anymore because I got bored of keeping track of it, but when I was into churning I would fly domestic for free 3-4 times per year, earn $1000+ in savings account bonus deals per year, and earn 2-10% back on every purchase I made. I was making $60k salary at the time and so was my husband, so not exactly incredibly wealthy. We're just frugal and organized with our finances.
Basically churning can be a fun and lucrative hobby if you're interested and focused on it, but it takes work.
And basic 2% cashback cards should be used by anyone who has good enough credit to get one, there's no effort or risk involved with that. (Obvious disclaimer though, if you're not financially stable or responsible enough to pay off the credit card balance each month, then that's a budgeting issue that needs to be addressed before thinking about credit card rewards.)
I don't churn to this degree, but I will take advantage of introductory 1-year 0% APY offers and use it as a free loan on big and planned purchases. I'll treat it just like a loan and pay it off a little each month.
Most cards that do this also offer a couple hundred dollars if you spend some amount in the first month. So, I'm getting paid to get a free loan. That's one heck of a deal. Try going to a bank and asking to get paid $200 for an unsecured loan!
They will laugh at you, then unironically try to sell you on exactly one of these credit cards
The bank-associated (SoFi) 2% card I’ve been using lets you cash out the points at full value into the bank’s checking or savings account (the latter of which as of this writing pays 4.6% interest) which is pretty cool and a bit different from typical point redemption systems. It does come with the caveat that your paycheck be direct deposited in the associated checking/savings account though.
I make a decent chunk on those points as it is, but could be making more. I need to comb through subscriptions and whatnot and move some stuff over from my old Chase 1.5% card.
Of course rewards are great if you pay your balance in full (and avoid APR) and generate more rewards than your yearly fee, if applicable. But other commenters have already covered this.
What I'd like to add: we live in a world increasingly unwilling to use cash for transactions. Everything you buy at every store (at least national chains) has a markup to cover the transaction fee the retailer pays to credit card processing companies.
Last I checked, that processing fee was between 3.5-6% depending on the contract and size of the retailer.
So, point being, you're not really "earning money" or "saving money" ... you're just clawing back a portion of the added cost of your purchases due to credit card processing fees.
Doesn't change that you should still chase rewards points. It's just a bit of tyranny of our digitalized world that I wish people were more aware of and did not accept as the cost of doing business.
Yeah, I think this is really the most accurate way to look at things.
I kind of wish the government was more directly involved in banking. Not only do we pay more due to credit card merchant fees, there is a population that doesn't have access to banking services, and it seems that it's frequently the most poor of people who get exploited by financial services which do service them.
I really should have been more specific about what I meant, because there are two distinctly different things I mentioned wanting. The first is offering free basic banking services; I'm talking about basic things like having an account to hold money and the ability to deposit checks. The other thing I want is an instant electronic cash-transfer system that can take the place of credit cards. Neither of these need to involve credit whatsoever, and I'd actually prefer they didn't since I don't like the idea of poor people owing money to the government.
I would also like UBI, but that feels like an increasingly impossible dream the more time passes.
There's a few things in life I think make good sense to not need the profit motive. In no particular order, and not exhaustive:
Archive.is link.
I can't access the article because it's paywalled. Maybe the article outlines a case where credit card points or miles is actually beneficial, but I'm going to go ahead with my own intuition and say that the answer here is no, credit card reward programs are not worthwhile. I view them the same as I do "free shipping" from online merchants. I know that shipping isn't free, and the costs are just being hidden from me by being buried elsewhere. It's the same with the credit card points. We're ultimately paying a little bit more for every purchase we make so that we can have these reward programs. But, much like free shipping, these reward programs are enticing on a primal level, so they provide a competitive advantage for payment processors that have them, so all payment processors need to have them.
I think it depends on how you look at it. You're right that ultimately, we're collectively paying for those points since the price of CC merchant fees is built into the price. The only way that I see this ever changing is if merchants either charge an extra fee to use a CC, provide a discount for cash, or don't accept CCs at all (which is probably the most harmful and limiting action a merchant could take today). Very few retailers seem to be doing stuff like this. Many service-based companies (contractors, home improvement, etc) seem to be willing to add fees for CCs. I actually wrote my first check in many years for a countertop company to save $180 in CC fees on a $6k job.
As we pay more irrespective of the use of a rewards credit card, isn't it better to at least get a 1-2% cashback (or more usually cash-equivalent) than to not have it?
I agree that it's sensible to cap credit card fees (as most countries in Europe have done).
Absolutely. As an individual, you're paying the cost so your optimal outcome is to take the benefit as well. But, as a society, these programs only exist because they must, but don't actually provide any net benefit.
See link from @JCPhoenix above.
I’m not convinced we pay much more, if we pay more at all, for most transactions when we pay with credit cards. It’s just another overhead cost and generic retailers are applying some standard markup - 2x is common - or selling stuff at MSRP. Low margin businesses price differently, e.g. food service and grocery, but interchange fees are still just another overhead cost.
Interchange rates are available online. Here’s MasterCard’s. They’re significant, but they aren’t that high, and doing business in cash has its own costs. Ensuring tills have enough of each denomination, inaccuracies in change making, closing out drawers, making deposits, etc. all have costs too.
Just a guess though. I’m sure there’s Econ or Business paper out there about the marginal impact of interchange fees.
I think 1.5% is really high given the actual service that Mastercard/Visa/AMEX are performing (a massive spreadsheet plus a lot of anti-fraud and disputed transaction resolution). You can see this as well if you look at their accounts (e.g. Mastercard made US$9.9 billion on US$22.2 billion of revenue)!
It might be really high. But it might not be, too. Below are a few abstracts from a warp speed search for relevant lit. I might have to poke around it more out of curiosity later.
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A couple weeks ago on r/neoliberal, there was a discussion on credit cards and rewards. The argument the OP was making was that credit cards rewards are regressive and a form of rent-seeking. It wasn't the most well-received argument, and there was a lot of back and forth, but it did lead to interesting discussion and viewpoints.
I can see regressive, but in terms of rent, strictly speaking credit card rewards carve out the economic rent issuing banks receive and give it to consumers. It’s the issuing bank trading margin for volume. Their margin is preset based on negotiations with the card networks, merchants, and regulators - rewards eat into that margin but incentivize more customers.
Booooo paywall.
Credit card points are absolutely worth it, but like others here have said, you must NEVER carry a balance. I use my credit card for everything, I have one with a $99 per year fee. I pay this off in full every month, no exceptions. Seriously, if you for even one second think you won’t be disciplined enough to pay it off in full every single time, then don’t even think about doing this.
That being said, it is awesome. For my $99 per year, I get at least $300 in airline tickets on a conservative year, free checked bags, free DashPass membership (although DD is so expensive even with the pass I try not to use it). I have gotten up to $800 in airline tickets on years where I planned my spend carefully.
Be sure to take into account your lifestyle. If you are struggling in life, can’t take PTO from work, etc, flight benefits are not going to be much use to you. You would benefit more from a card that gives extra rewards from grocery store purchases or gas. When I was younger and in that situation, that’s the card type I used the most (again, paying it off every single month, keep track of your spending so you don’t spend more than your paycheck. You REALLY don’t want to pay that 29.99% interest rate).
There are plenty of websites with guides on how to choose the best credit card to generate points for your lifestyle, ThePointsGuy and NerdWallet to name a few. Credit card points can be very rewarding if you have successfully matched the correct card type to your spending habits and, I can’t say this enough, pay off the balance in full every single time.
NYT had an interesting podcast episode (don't remember the show) about credit card reward programs. The takeaway was that the population of credit card users was split into two groups:
As you said, if you pay your card off every month you do make money. But you need to be diligent.
I don't fly much at all so I use cashback cards:
It may be useful to know that credit cards are not merely methods of payment. They are marketing. Stores use credit cards to advertise (that's often why there are "rewards" for certain purchases.) It's the same reason there are coupons and loyalty programs. Stores give discounts to customers who play the game, and charge a little more to customers who don't play. The credit card transaction fees that stores pay can also be thought of as giving discounts to certain customers (how much depends on the credit card).
How much you play that game depends on your interests. I mostly don't play, but last year I paid my credit card bill for several months with many years of credit card points that had built up (and I had been ignoring).
If you want to know more, Patrick McKenzie wrote a good article: How credit cards make money. Previously posted on Tildes here.
One of my credit cards has a really weird advertising thing where they have a page with discounts for various businesses, which is nice because it combines with any other promotions they might be doing and you still get the same amount of points for the transaction. It's very rarely things that I actually buy, but it feels pretty good when it lines up with my habits or when I'm gift shopping.
I own a business and make as many vendor purchases as possible on my credit card for the points. I generate enough points to take my family on a vacation each year, plus a personal trip when there's a concert I want to see.
Part of me feels guilt that the system is 100% built in my favor compared to the average consumer, so I'll regularly give away flights / hotel stays to people who need it. My city is somewhat remote so when people need specialist doctors they usually have to fly to a bigger city for a few days, I have a favorite hotel right downtown near the hospital I book a few times a year. One of my favorites was when I flew a (mostly) stranger first class across the country to visit some family they were missing but couldn't afford to see
Pretty happy with my credit card. No annual fees, free airport lounge access, and mile conversion rate of about 0.72 USD spent per mile. I've already used it to pay for a roundtrip international flight. That was 29,000 miles, so the equivalent of about 20,880 USD spent. The flight would have cost around 700 USD, so the return on my spending was around 3%. It was money I would have spent anyway, and I always pay my balance in full, and points don't expire, so even if it takes me a while to rack up enough points it's fine.
I don't go out of my way to buy more stuff to get points, but if I eat out with friends and no one else is interested in earning points, then I volunteer to use my card for the group's bill and my friends just pay me back individually 😂
Edited to clarify: My credit card points don't expire, but most miles do. I just convert the points to miles before booking my flight. My credit card lets me choose between a few miles programs.
What card doesn't have an annual fee and still gives you lounge access?
Here in the Philippines, I know of a couple other banks aside from mine (EastWest) offering this type of card (lounge access with no annual fee)-- AUB and Metrobank.
Wow, that's awesome.