Are Credit Card Rewards Too Good to Be True?
The rewards themselves are real
There is no trick to the points and cash back: they are funded by the interchange fees merchants pay, and they are yours to keep. Someone who pays in full every month and earns 2 percent back is genuinely 2 percent ahead. So for a disciplined user, rewards really are close to free money on spending they would do anyway. The funding model is explained in how issuers make money on rewards.
The catches that trip people up
The profit for issuers comes from three places: interest on carried balances, annual fees, and the extra spending that rewards encourage. Any one of those can wipe out your rewards. A single month of interest can erase a year of points, an unused premium card can cost more than it earns, and spending more to earn is a net loss. That is the real catch.
How to stay on the winning side
Pay in full, choose a card whose value beats its fee, and never spend more to chase points. Do that and rewards are a legitimate gain, not a gimmick. To confirm a card actually earns more than it costs on your spending, run it through the rewards calculator, which uses honest 1-cent point values so nothing looks better than it is.
Frequently asked questions
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