how is 6% cash back possible

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bisbicos
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how is 6% cash back possible

Postby bisbicos » Thu Nov 10, 2011 1:34 am

Hey guys I was wondering how is it financially possible for company's like Amex to offer 6% cash back. Or pended with 5% back on gas.
Credit Cards
American Express: Fidelity Rewards (2% cash back) 9.5k
Zync NPSL
Discover: Discover More (5% rotating categories) 12k
Mastercard: Chase Freedom (5% rotating categories) 4.6k
Visa: Citi Forward (5x pts on restaurants) 15.7k
Citi Dividend (5% rotating categories) 5.6
Capital One Journey (1.25% cash back) 1.25k
BofA AAA (5% on gas) 2.5k
PenFed Platinum Rewards (5% on gas 3% groceries) 7.5k

Future Cards
US Bank Cash +
Chase Ink


shaddix
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Postby shaddix » Thu Nov 10, 2011 11:10 am

most people use the one card for everything

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bisbicos
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Postby bisbicos » Thu Nov 10, 2011 3:00 pm

Let me rephrase that. How can Amex afford to pay 6% back to its customers. Especially the ones who do not carry a balance. From what I understand Amex recieves a percentage fee from retailers around 4% or so. So how can they offer such high cash back amounts to its customers? Won't they be loading money
Credit Cards
American Express: Fidelity Rewards (2% cash back) 9.5k
Zync NPSL
Discover: Discover More (5% rotating categories) 12k
Mastercard: Chase Freedom (5% rotating categories) 4.6k
Visa: Citi Forward (5x pts on restaurants) 15.7k
Citi Dividend (5% rotating categories) 5.6
Capital One Journey (1.25% cash back) 1.25k
BofA AAA (5% on gas) 2.5k
PenFed Platinum Rewards (5% on gas 3% groceries) 7.5k

Future Cards
US Bank Cash +
Chase Ink

shaddix
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Location: alabama

Postby shaddix » Thu Nov 10, 2011 3:27 pm

Sorry. It's likely that those of us who use only the optimal card for the particular situation, are losing the banks money. For example I only use citi forward card for restaurants movies and books, for which it is best. I will only be using my blue cash preferred for groceries, for which it is best. I am certain that amex is going to lose money by giving me a BCP card.

Most people, however, only use one or two cards for everything. They will pay their phone bill with their amex card and get 1% cash back thus making amex $. They will buy a new computer off newegg with their amex card at 1% cash back making amex $. Those people are subsidizing those of us who take maximal advantage of cashback credit cards.

If everyone was like us, who used cashback cards properly and only for their strong categories, the banks could definitely not afford to offer such high cashback %s.

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bisbicos
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Postby bisbicos » Thu Nov 10, 2011 4:35 pm

I kinda thought that was the case. Wasn't sure though.

This website has definitely helped me maximize my rewards. I also only use my forward card when it gets me 5x
Credit Cards
American Express: Fidelity Rewards (2% cash back) 9.5k
Zync NPSL
Discover: Discover More (5% rotating categories) 12k
Mastercard: Chase Freedom (5% rotating categories) 4.6k
Visa: Citi Forward (5x pts on restaurants) 15.7k
Citi Dividend (5% rotating categories) 5.6
Capital One Journey (1.25% cash back) 1.25k
BofA AAA (5% on gas) 2.5k
PenFed Platinum Rewards (5% on gas 3% groceries) 7.5k

Future Cards
US Bank Cash +
Chase Ink

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Pete838
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Postby Pete838 » Thu Nov 10, 2011 10:07 pm

Credit card companies earn money one of three ways:

1) Cardholder Fees- Annual fees, late payment fees, over limit fees
2) Interest- A percentage of the balance you owe every month
3) Transaction Fees- A share of each purchase that is collected from the merchant

Rewards programs don't typically pay 6%, and when they do it is under very limited circumstances. For instance, the Blue Cash Preferred pays 6% at grocery stores, 3% on gas and department stores, and 1% on everything else. "Everything else" is a big category.

You start off paying $75 for the annual fee. To recoup this in rewards you have to spend about $1,300 in grocery stores, or double that on gas. But at the same time AMEX is making 3-4% on the transaction fees collected from the merchant. Until you've spent several thousand dollars at rewards eligible stores they are still well in the black. But how many people carry a balance, and end up paying way more than the reward in interest payments? Sure, there are a lot of responsible people that pay in full every month, but there are also a lot of people with emergency car repairs and no way to pay for it but plastic. And once something is paid for with plastic it is very easy to guiltlessly revolve the balance.

American Express (et all) are very good at what they do, and the rewards programs wouldn't be there if it wasn't a money maker.
Freedom is never more than one generation away from extinction. We didn't pass it to our children in the bloodstream. It must be fought for, protected, and handed on for them to do the same.
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jeffysdad
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There's a lesson in this thread for people angry at the banks

Postby jeffysdad » Fri Nov 11, 2011 7:31 am

Be responsible; save your money. Spend modestly and wisely. Seek the highest safe return for your savings and take full advantage of CC offers. Never carry a balance (unless it's a real emergency). For too long banks have made their money from consumer laziness, accidents, irresponsibility. Banks will never take the high road on their own.
American Express: Blue Cash Preferred (groceries, 6%; gas, department store, 3%); Gold Delta SkyMiles (Delta Air Lines, 2 miles/dollar, free checked bag).
US Bank: Cash+ (utilities, phone, internet, restaurant, 5%; drugstores, 2%).
FIA Card Services: Fidelity Amex (everything, 2%); Fidelity Visa (everything, 1.5%).
Chase: Freedom (rotating, 5%); Amazon (Amazon.com, 3%); PriorityClub (IHG hotels, 5 points/dollar); Sapphire (not in use).

*All cards are registered with PriorityClub IDine program for 8 points/dollar at participating restaurants.

FutureBillionaire
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Postby FutureBillionaire » Mon Nov 14, 2011 3:23 pm

This was a very well written answer. I came to that conclusion a little while back as well. I am still trying to get all the best card that give me the most bang for my buck.
Gas: Discover It, Penfed Platinum Rewards x2, Chase freedom, Citi TYP
Plane tickets: CSP
Groceries: AMEX BCP, Penfed Platinum Rewards,Citi TYP
Clothes: Express, Amex BCP, Discover IT
Amazon: Citi Forward, Cash +
Restaurants: Citi Forward, Chase Freedom, Discover IT, CSP
Hotels and other travel: Discover Escape, CSP
Movies: BofA travel rewards visa signature(fandango), Discover IT, Citi Forward, Freedom
Bars, clubs, tomfoolery: CSP, Citi Forward, Discover IT, Freedom
Balance transfers: Kroger 123 rewards
Bill Pay: Chase Ink Plus, Citi Forward
Everyday spending: Bofa Accelerated cash rewards amex, Discover Escape

naomibatac
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Postby naomibatac » Tue Nov 15, 2011 8:43 pm

The best credit cards offers are provided by the different banks and card issuing companies to entice consumers to buy their credit cards. Some offers may benefit you and some may not. Therefore, it is best that you select the offers that best suits your needs. Also, credit card companies will not offer something if they will not gain, after all they exist because of the profits they make. As long as we get some gains, then it is better than using cash for our purchases. However, discipline is very much needed in order not to get into any debt problems.
[size=60]I don't have any relationship to the credit cards or companies discussed here. I am solely a regular member of this forum with no direct financial rewards from this site. My opinions are solely mine.[/size]

A mom of 3 and currently living life, and working for credit card helpline, a company dedicated to helping people get out of credit card debt.



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