Sargent.eth

Apparently I assumed incorrectly that people reading my post understood how credit card rewards work. The average reader seems to think that rewards are funded by interest, and card bonuses are their moral reward for not carrying a balance and paying interest. In their imagination, they are getting something for nothing, and would prefer this arrangement continue giving them free money at the expense of other, less deserving people. This is not the case. Some facts that suggest this is not how things work: - interest rates are actually lower on rewards cards, and this disparity is greatest for high-FICO customers. It is not the case that rewards are an inducement to lure customers into higher interest products. - most rewards are captured by customers who don't revolve balances, while only about a quarter go to the customers actually paying interest. Why would sophisticated banks calibrate their reward programs to waste most of the marketing spend on worthless customers? In reality, the cash flow is that every time you use your card, you're prepaying ~2-3% in fees, from which you later receive ~1-2% worth of rewards. Before you paid the bank any interest, you already represented an incredibly high-margin sale. It is not a fluke that their system rewards your participation. They will happily play this game all day with you. So it's highly unlikely that you're some exception getting out more than you put in. Even if you're one of the net subsidy recipients, as typically told, you'd still benefit from abolishing the game. And the thing is, this parallel economy of selling you marked up airfare is totally optional to the maintenance of an electronic payments system. That rewards are sustained more through fees, than through interest, can be seen in countries that regulate fees. When the EU capped fees at 0.3% in 2015, rewards programs largely disappeared, suggesting it was the fees that made them possible, and not interest income.