Credit card rewards work as a rebate: they are paid mainly out of interchange, a fee the merchant's bank pays the card issuer on each purchase, so the reward is money merchants already paid, not a gift. Cash back, points and miles are different ways of paying that rebate out, and each is worth what the issuer or partner lets you redeem it for. Interest on a carried balance quickly outruns the reward: at a 22.36% APR, an average balance of about $1,789 carried for a year cancels 2% back on $20,000 of spending.
Key takeaways
- For major issuers' general purpose cards, the CFPB found interchange income of about 1.8% of purchase volume in 2022, while rewards averaged 1.6 cents per dollar spent in 2022 and again in 2024.
- A points card that earns 1.5 points per dollar needs each point to be worth at least 1.33 cents to beat a flat 2% cash back card.
- Issuers and partners control what points and miles buy, so a 25% rise in the miles needed for a flight cuts the value of the same balance by 20%.
- Revolvers pay almost all card interest yet earn less than 30% of the dollar value of rewards, according to the CFPB's 2023 market report.
How credit card rewards are paid
On each card purchase the merchant pays a merchant discount rate, most of it interchange, a fee set by the card network (Visa or Mastercard) and passed to the issuing bank. The CFPB's 2023 credit card market report notes that networks set interchange schedules that vary by type of transaction, size of retailer and type of card, and that issuing banks receive the majority of the revenue.
The CFPB's May 2024 Credit Card Rewards Issue Spotlight describes rewards as an optional expense issuers use to win and keep customers and to raise spending, not something needed to extend credit or process a payment. Some issuers also cover the cost through other revenue such as annual fees or merchant-funded offers.
The numbers behind the model
In the 2023 market report, general purpose card portfolios at major issuers earned interchange of about 1.8% of purchase volume in 2022; after interchange expense and rewards, the net was 0.3% of purchase volume. So issuers typically earn more in interchange than they pay out in rewards, before any interest. The Spotlight adds that consumers earned more than $40 billion in rewards on major issuers' cards in 2022, and the CFPB's 2025 market report puts 2024 at $47.5 billion, with rewards cards accounting for 92% of general purpose card spending.
Why the rate depends on the card and the store
Interchange is not one flat percentage. Visa's published US interchange schedule (rates effective October 24, 2026) lists card-present consumer credit rates by merchant category and card tier. The table below shows two rows applied to a $100 purchase. These are the rates the merchant's bank pays the issuer; the merchant's total cost is higher once processor and network charges are added.
| Visa card-present row | Premium tiers (Infinite spend-qualified, Signature Preferred) | Traditional Rewards or other products |
|---|---|---|
| Restaurant, $100 purchase | 2.60% = $2.60 (minimum $0.04) | 2.10% = $2.10 (minimum $0.04) |
| Supermarket Tier I, $100 purchase | 1.65% + $0.05 = $1.70 | 1.20% + $0.05 = $1.25 |
The card's tier, not only the store, sets the fee, which helps fund richer rewards on premium cards. Visa's Signature and non-qualified Infinite tiers sit in between at supermarkets (1.55% + $0.05) and match the premium rate at restaurants. Visa revises the schedule periodically, so treat the table as a snapshot.
Interchange alone does not always cover a flat 2% reward. If a 2% card is issued at Visa's Signature or Traditional Rewards tier, a $100 purchase on the Product 2 retail line (1.65% + $0.10) brings in $1.75 while the reward pays out $2.00. Because of the fixed $0.10, the gap appears on any such purchase above about $28.57; at a restaurant (2.10%) or on an Infinite spend-qualified card (2.30% + $0.10) there is no gap. Where there is a gap, it has to come from other revenue such as interest, fees or higher-fee categories.
Debit cards run on a different budget
For debit cards from issuers with $10 billion or more in assets, Federal Reserve Regulation II, as the Fed describes it, limits interchange to $0.21 plus 0.05% of the transaction, plus $0.01 for issuers that meet fraud-prevention standards. In the Fed's 2023 interchange fee report, covered transactions averaged $0.23, or 0.47% of the value, against $0.52, or 1.21%, for transactions exempt from the cap (those at smaller issuers and on certain prepaid and government-program cards). That leaves far less room to fund rewards than the credit rates above. The Fed has proposed lowering the cap, and the rule's status can change, so check the Fed's Regulation II pages for the current level.
Cash back, points and miles
The CFPB Spotlight defines the three types. Cash back earns a portion of spending as a statement credit, deposit or other cash equivalent with an explicit dollar value. Miles earned on a co-brand airline card go to the linked loyalty account and are redeemed at a rate the airline sets. Points are an issuer's own currency, or one run by a non-airline partner such as a hotel chain, and can go to cash, travel portals, gift cards, or transfers to airline and hotel programs.
Earn rates are quoted per dollar, but value is set at redemption, by the issuer or partner, and can fluctuate. Bonus categories and sign-up offers raise the effective earn rate: in 2022 almost one in ten rewards dollars came from sign-up bonuses, according to the CFPB's 2023 report, and its 2025 report puts the average bonus earned at $311 in 2024, down from $326 in 2022.
A point's value, worked out
cents per point = (cash price - fees paid) / points redeemed x 100
break-even value = cash back rate / points earned per dollar
Illustrative example. Assume $20,000 of annual spending on two hypothetical cards: Card A pays 2% cash back, and Card B pays 1.5 points per dollar. Card B earns 20,000 x 1.5 = 30,000 points. Card A earns $400. The table assumes Card B's points transfer 1:1 into the airline program and that the whole balance can be used at the same value per point.
| Redemption of Card B's 30,000 points | Value per point | Dollar value | Versus Card A's $400 |
|---|---|---|---|
| Statement credit or cash | 1.00 cent | $300.00 | $100.00 less |
| Hypothetical portal at 1.25 cents | 1.25 cents | $375.00 | $25.00 less |
| Award flight priced at 25,000 miles for a $400 ticket with $12 in fees | 1.552 cents | $465.60 | $65.60 more |
The break-even is 2 / 1.5 = 1.33 cents per point. Card B comes out ahead only above that level, and only if the redemption you want is available at that price.
The third row also shows how devaluation works. The CFPB Spotlight quotes a cardholder describing a 25% jump in the miles needed for a $100 gift card. If the flight rose 25%, to 31,250 miles, the value per mile would fall to (400 - 12) / 31,250 x 100 = 1.2416 cents. At that rate the 30,000 points are worth $372.48 instead of $465.60, a drop of $93.12, or 20%, and they no longer cover even one such ticket. That is below the 1.33-cent break-even, so the flight no longer beats Card A's $400. Actual award prices vary by route and date.
Breakage and devaluation
Breakage is the share of rewards that are never redeemed. The Spotlight explains why it matters: forecast earnings often assume consumers will not redeem the full value of their rewards, and some companies discount the liability they report for outstanding rewards by an expected redemption rate. If devaluation or tighter revocation lowers that rate, the company keeps the savings.
The CFPB's 2025 market report measures part of this. Its quarterly measure of forfeiture, the share of general purpose cardholders who lose some of their rewards balance in a quarter, fell from 4.8% in 2019 to 2.8% in 2024. Since the end of 2021, the rate for subprime cardholders has risen to more than double the overall rate. The figure counts cardholders who lost any part of a balance; it is not the share of all points that go unused, which these CFPB reports do not give.
The Spotlight also describes value eroding without a visible loss: more points needed for the same redemption, a shift by many airline and hotel programs from award charts to dynamic pricing, cash back minimums such as $25, and partner control over prices and award inventory once points are transferred. It rests on several hundred complaints, so it shows the kinds of problems consumers report, not how often they occur.
What carrying a balance costs
Rewards are earned on spending, and interest is charged on the balance. The Federal Reserve's G.19 consumer credit release of November 6, 2026 shows an average rate of 22.36% on credit card accounts assessed interest at commercial banks (a preliminary third-quarter figure).
Illustrative example. The same $20,000 of yearly spending on a 2% card earns $400. With an average balance of $3,000 carried all year at 22.36%, simple interest is 3,000 x 0.2236 = $670.80, so the cardholder is $270.80 behind after rewards. Compounding and daily balances change the exact figure, not the direction.
| Average balance carried for a year at 22.36% | Yearly interest | Rewards on $20,000 at 2% | Net |
|---|---|---|---|
| $0 (paid in full) | $0.00 | $400.00 | +$400.00 |
| $1,000 | $223.60 | $400.00 | +$176.40 |
| $1,789 | $400.00 | $400.00 | $0.00 (break-even) |
| $3,000 | $670.80 | $400.00 | -$270.80 |
The break-even balance is 400 / 0.2236 = about $1,789, using simple interest on the average balance. The CFPB 2023 report found the same pattern across the market: cardholders who revolve debt pay almost all card interest and three-fourths of fees but earn less than 30% of the dollar value of rewards, and when a consumer revolves, interest and fees typically exceed the value of rewards earned. A Federal Reserve working paper by Agarwal, Presbitero, Silva and Wix, using US account data, estimated about $15 billion a year in redistribution through rewards, flowing from less to more educated, poorer to richer, and high- to low-minority areas. It is a staff research paper, not a Board position.
Frequently asked questions
Do rewards disappear if I close the card?
They can. The CFPB Spotlight reports complaints from consumers whose points, cash back or miles vanished when an account closed, and others whose balances on open accounts were revoked under expiration policies, often without prior notice. The rules sit in each program's terms, so redeem or transfer a balance before closing a card.
Can an issuer devalue points that are already earned?
In many cases the terms allow it. At the time of the Spotlight, many of the largest issuers reserved the right to change rewards programs at any time, for any reason, often without notice and in terms separate from the cardholder agreement. The CFPB states that the Consumer Financial Protection Act's ban on unfair, deceptive or abusive acts applies to rewards programs, but the Spotlight is a complaint review, not a rule that sets how points must be valued.
Do returns and gift cards affect my rewards or sign-up bonus?
They can. The Spotlight says banks often reverse rewards earnings on returns and reduce the spending that counts toward a bonus minimum, and that issuers typically do not count cash equivalents such as gift cards toward it. It cites a complaint in which a consumer spent just over $1,000 toward a $1,000 requirement, then a $20 return left $990 of eligible spending. The CFPB's 2023 report says about one in four cardholders eligible for a sign-up bonus in 2022 did not meet the requirements to earn it.
Does a rewards card make people spend more?
The Federal Reserve working paper cited above says it can. Using bank-initiated credit limit increases, the authors found that reward cards led to more spending and left less sophisticated consumers with higher unpaid balances. The research covers groups of cardholders, not any single person, and also found that banks charge lower interest rates on rewards cards than on comparable cards without rewards.
Is a point always worth one cent?
No. The CFPB Spotlight says major issuers typically estimate a point at about $0.01, but that its value varies by redemption option and is set by the issuer or merchant partner. Airline miles and hotel points each follow their own program's pricing.
A checklist for your own card
- Find the issuer's rewards terms and note the redemption options, minimums and what happens on closure.
- Calculate cents per point for the redemption you would actually use, and compare it with your card's break-even against a flat cash back rate.
- Estimate your yearly rewards (spending x earn rate) and compare it with interest, using your own APR, before counting the reward as a gain.
- Redeem or transfer balances you do not plan to use before closing the card, and keep records of bonus spending requirements.
This article is general education, not personal financial advice; terms differ by issuer and change over time.
Sources
- CFPB, Credit Card Rewards Issue Spotlight (May 2024)
- CFPB, The Consumer Credit Card Market (October 2023)
- CFPB, The Consumer Credit Card Market (December 2025)
- Visa, USA Interchange Reimbursement Fees (effective October 24, 2026)
- Federal Reserve Board, 2023 Interchange Fee Revenue, Covered Issuer Costs, and Covered Issuer and Merchant Fraud Losses
- Federal Reserve Board, Regulation II (Debit Card Interchange Fees and Routing)
- Federal Reserve Board, G.19 Consumer Credit (released November 6, 2026)
- Federal Reserve Board, Who Pays for Your Rewards? Redistribution in the Credit Card Market (FEDS, January 2023)
