how is 6% cash back possible

**bisbicos** · Nov 9, 11, 11:34 pm

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.

**shaddix** · Nov 10, 11, 9:10 am

most people use the one card for everything

**bisbicos** · Nov 10, 11, 1:00 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

**shaddix** · Nov 10, 11, 1:27 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.

**bisbicos** · Nov 10, 11, 2:35 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

**Pete838** · Nov 10, 11, 8:07 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.

**jeffysdad** · Nov 11, 11, 5:31 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.

**FutureBillionaire** · Nov 14, 11, 1:23 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.

**naomibatac** · Nov 15, 11, 6:43 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.

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