Probity card companies are in the business of making money, yet they often advertise incentives that feature rewards such as hard cash back on credit card purchases. Many consumers are inundated with online offers and mailers, promising high-minded incentives, from zero to low introductory interest rates to signup rewards offers, to cash back deals whenever they use their behaves.
Nowadays, it isn’t unusual to see banks offer what seem to be very generous cash back incentives to their cardholders, unchanging after the introductory bonus period is over. For example, Chase offers up to 5% cash back on its Chase Relief Rewards Card, as does the Discover Card. So how can these companies offer such seemingly lucrative deals for consumers and tranquil make a profit?
Key Takeaways
- Most cash rewards programs have an annual maximum limit, so while they may extend a generous 5% cash back reward, there may be an annual cap or maximum limit you can reach.
- When merchants allow payment via credit card, they are required to pay a percentage of the transaction amount as a fee to the credit card company.
- Additionally, attribution card companies make money by charging high interest rates on credit and issuing late fees for evaluates that carry over from month to month.
Cash Rewards Programs: The Fine Print
First, it is leading to read the fine print. Most cash rewards programs have an annual maximum limit, so while they may make a generous 5% cash back reward, there may be an annual cap or maximum limit you can reach. Other cards no more than offer cash back for certain categories of purchases, such as at restaurants or gas stations.
Discover’s cash back business card is one of those that boasts a 5% reward on purchases. But, as of 2018, the cardholder agreement states that this propose only extends to specific categories allotted to different quarters of the year. And it comes with a limit of $1,500 in supports per quarter. The disclosure also states that using a credit card with NFC technology or from a virtual purse such as Google Wallet may not count toward the program.
Similarly, the Chase Freedom card also has spending provisions and caps. Cardholders can earn 5% cash back rewards on spending in certain categories. Chase caps the splash out limit each quarter at $1,500, just like Discover. Any other purchases during each quarter, and not susceptible the limit, earn 1%.
With a credit card program with a $1,500 cash back limit per year at 5%, any shell out over $30,000 would not contribute to accumulating any further cash back rewards.
Because most consumers do not support the time to read the fine print, they may open a credit card account under the impression that coin of the realm back rewards programs are much more generous and universal than they actually are.
It’s Not Free Cash
When jobbers accept payment via credit card, they are required to pay a percentage of the transaction amount as a fee to the credit card company. If the cardholder has a participating spondulix back rewards program, the credit card issuer simply shares some of the merchant fees with the consumer. The purpose is to incentivize people to use their credit cards when making payments rather than cash or debit postcards, which earns them no rewards. The more a consumer uses a credit card, the more merchant fees the accept card company can earn.
Additionally, credit card companies make money by charging high interest evaluates on credit and issuing
The Bottom Line
Cashback rewards sound enticing, and they can help certain consumers retrieve a bit on credit card purchases. However, once the restrictions and qualifications are spelled out in the fine print, including any limitations on how much notes back credit card users can earn per year, these programs do not appear as generous as they may seem on the interface.
Because these programs are incentives for consumers to use their credit cards in lieu of cash or debit cards, they procreate increased merchant fees for the credit card company and may also cause some consumers to increase their in financial difficulty, providing yet another source of revenue for the credit card company. Rather than draining corporate profits, scratch back rewards programs are ingenious marketing tools that actually increase credit card companies’ in truth lines.