How can banks get away with offering 2.5% or even 3% cashback cards?
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If you mean why don’t they go bankrupt, it’s because banks don’t make money off interest from loans. They use the money stored in them to invest in the stock market and other rich person things
They charge retailers a fee every time you pay with a card, hence you see things like minimum purchase amounts for credit purchases. So they make money back that way, as well as they are in not required to keep something like 10% of cash liquidity for all the money they that is deposited in them from their customers. So they invest the other 90% in the stock market in order to make a profit.
So it really doesn’t cost them anything to offer a few cards with cash back as a way to draw in customers. Chances are those same customers give them money in some other way to compensate.
It’s what is known in industry as a loss leader.
The average charge for Credit Card balances is 15.91% as of January this year, and can go higher (like 20%) for people with bad credit.
Even if you have cash back, if you leave any money on the card throughout the year you are likely paying far more than you will ever get back on the card.
And that’s what they are counting on.
Also keep in mind that the store is charged a fee each time you pay with a card, so even though you may be financially savvy enough to pay off your card balance every month every purchase you make still costs a fee that ends up in the banks pocket. Those fees over the year add up to more than you get in cash back, you just never see them because it’s the store that’s paying.
Mostly due to the fact that many people don’t pay off their balance every month so they’re paying 15%+ of interest. Also, there is a transaction fee that stores are charged (sometimes businesses will pass that fee on to you directly but that’s derailing from the original question)
The business that you shop at pays transaction fees everytime someone uses a card, those fees cover the credit card offers. That’s why some places give you a discount for paying cash.
They’re trying to induce you to get into debt, so you will start being hit with interest fees.
People who get credit cards tend to overestimate how wealthy they will be in the future.
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