How Banks Can Offer 2% Cash Back Cards, and Will They Last?

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When I think about 2% cash back cards, I think of Saturday Night Live’s First Citywide Bank of Change.

A lot of people don’t realize that change is a two-way street. You can come in with sixteen quarters, eight dimes, and four nickels – we can give you a five-dollar bill. Or we can give you five singles. Or two singles, eight quarters, and ten dimes. You’d be amazed at the variety of the options you have.

…All the time, our customers ask us, “How do you make money doing this?” The answer is simple: Volume.

Ron Lieber covers the economics of 2% cash back credit cards and is skeptical that they can make money, and thus skeptical that they’ll last.

Banks need to pay for marketing the cards initially, pay for the rewards, service the accounts and cover losses when people don’t pay their bills.

The revenue, however, is not always predictable. Merchants pay fees to accept cards, but different merchants pay different amounts.

One suggestion is that they can make money monetizing the data from purchase transactions, and that can cover the spread between their earnings and rebates.

Lieber mentions several of the best products:

  • Barclaycard Arrival+ World MasterCard “The Barclaycard puts 10 percent of your points back into your account when you redeem, giving it an effective yield of 2.2 percent on every dollar you spend” when you redeem for travel. That’s the highest return you’ll get, outside of Bank of America’s Travel Rewards when you have $100,000 or more invested through the bank.

  • Fidelity Investment Rewards American Express has no annual fee and requires funds to be deposited into a Fidelity brokerage account.

    Fidelity helps pay for the reward on this card, which has paid out $925 million in its history

    Lieber got Fidelity to commit not to reduce earnings for 18 months, “so anyone who starts using that card now will be safe until November 2016, at least.”

    Ms. Collins, the Citi spokeswoman, said Citi’s redemption procedures were “consistent with industry practices.” If people buy things and pay for them within the same billing cycle, she said, they will receive all of their 2 percent rebate in that same period.

Lieber asks Capital One “why Citi could afford 2 percent cash back while Capital One’s cash-back cards pay only 1.5 percent,” and surprisingly CapOne failed to mention that their Spark for Business offers 2% back. (Although pointing this out could underscore that their Venture products are less generous than their business offerings.) They do offer ‘double points’ on all purchases, making their Venture product close to as good as Barclay’s Arrival+ product (which also gives you a 10% rebate on travel redemptions).

Unmentioned is the Discover Miles card which is a 1.5% back product — but doubles the rebate in year one, giving a 3% return. Of course Discover acceptance is limited.

Lieber points out that if you want premium cabin international airline awards, miles and points cards are likely better.

These cards are not for everyone. World travelers with plenty of flexibility can collect frequent-flier miles via their card spending and redeem them for business- or first-class airplane tickets to far-flung locales that would otherwise cost many thousands of dollars. I have personally received an effective 10 percent rebate on my card spending by doing this in the past, though it becomes much harder if you are anchored to school vacation calendars for 20 years.

This is why I do not actually have a cash back card. I want miles. Even for unbonused spend, my valuation of miles and points suggests that I should be using my Starwood Preferred Guest American Express Card and not a cash back card. And I believe that the Chase Sapphire Preferred Card remains the best overall rewards card.

Nonetheless, if you would redeem points for economy tickets a cash back card is usually best. Although, of course, for short distance trips you can’t really beat British Airways points — since awards start at just 4500 points each way when travel is under 650 miles.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

More articles by Gary Leff »

Editorial note: any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any card issuer. Comments made in response to this post are not provided or commissioned nor have they been reviewed, approved, or otherwise endorsed by any bank. It is not the responsibility of advertisers Citibank, Chase, American Express, Barclays, Capital One or any other advertiser to ensure that questions are answered, either. Terms and limitations apply to all offers.


  1. Cash has restrictions, no blackout dates and doesnt expire. Much better than miles which are often used on a whim.

  2. Just a hypothesis, but I think it’s likely that the allure of ** FREE CASH NOW ** blinds a lot of customers and induces them to overspend on these cards, earning the issuers money on interest and fees when the costumers can’t pay down the whole balance every month on time. These cards will last, no doubt in my mind. It’s like churning, some financially well-disciplined folks profit a ton, but it’s not for most.

  3. Cashback is better for the vast majority who don’t know how to game the system or don’t really need suites to Dubai. As Leiber notes (something never covered in this blog) miles are extremely difficult to redeem for saver awards for those of us who require multiple tickets are are limited to high demand school vacation periods.

    And once again we ignore the JCB Marukai card which offers up to 3% cash back + promos (though I guess they don’t issue to mid-Atlantic residents).

    If average reader spends $50k annually (assuming no manufactured spend) that’s 50k miles or $1000-1500 on 2-3% cash back card. The miles won’t even get you 2 economy tickets to Mexico or Hawaii (assuming you could find space during peak dates). But the cash might…and you would also have a shot at upgrades.

  4. First off, for anyone who does not pay off the entire balance in full every single month, a low APR blows away any rewards. Beyond that, for the vast majority of card users, cash back beats any other reward programs. Most card users simply to not charge enough on their cards to earn a reward in a reasonable amount of time.

    The JCB Marukai is offered only in the western states (where there are actual Marukai stores) , and even in those states, far fewer customers qualify with JCB than for other cards.

  5. Banks can afford the 2% and be profitable. They just make up any shortfall laundering money and gaming Libor rates.

  6. I don’t think it’s either or situation. You need both:
    Cash back for flexibility (mandatory expenses)+Miles/Pts/Status earning.
    Miles/Pts card for opportunistic high value travel (It doesn’t need to be Business/First clas travel as I have gotten upto 19cents/Mile in Economy for Peak/Direct flights)..

  7. The cards you mention in the article carry anything from an 11%-22% interest rate. While many people don’t carry a balance, a huge number DO. It’s the one thing usually missing from these “Oh those poor credit card companies, how do they ever make any money with us consumers taking them for such a ride” articles. They’re doing just fine.

  8. All the people here pay in full Not everyone does. Even a few months on Citi Double cash at high interest earns them huge money. Many people will continue to charge on that card while carrying a balance. They dont know they are generating more interest for the bank and costing themselves more money. That is because the “average” person only holds a few cards anyway. The same thing about 2% cards can be said about 50K point bonuses for signups. All the same thing.

  9. I’ve signed up for a few miles cards to get the bonuses but after that it’s really pretty pointless, sure I can keep using my Citi American Airlines card and earn 1 mile per $1 spent but American constantly has big sales for their miles and if I buy the biggest packages with bonus miles offered, they always cost less than 2 cents per mile (even with tax/fees) so long term, I’m not only getting the flexibility of cash with my 2% card but I’m earning more than how much I’d pay to simply buy the miles if/when I want.

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