For those not paying attention, credit card companies are currently engaged in an aggressive “perks war,” offering massive sign-up bonuses to attract new customers and increasingly generous rewards for those using their cards.
I was literally able to subsidize a significant portion of our summer travel expenses this year simply by signing up for new credit cards. My wife and I received approximately $450 toward our flights through bonus miles just for opening a card and using it a few times. We then received another $300 credit toward tickets to Universal Studios by signing up for a credit card sponsored by the park.
All told, we put nearly $750 into our pockets simply by using credit cards for purchases we were already planning to make. As the saying goes, there is no such thing as a free lunch. Somebody is paying for the rewards being given. To some extent, all consumers are, but the largest share of those costs is borne by people who carry large credit card balances and those who do not use credit cards at all.
According to a 2026 Federal Reserve survey, about 45% of adult credit card holders carried a balance for at least one month during the previous year, meaning nearly half paid interest to the bank. With rates often exceeding 20% annually, it is easy to see how these companies can afford to offer these rewards from the revenue generated by those charges.
It may be easy to see how those carrying a credit card balance help subsidize the rewards being offered, but you may be questioning my statement that people who do not even use credit cards may also be footing the bill. Those costs are simply more hidden. They come in the form of merchant interchange fees. An interchange fee, often called a swipe fee, is the percentage of each credit card transaction that a business pays to the card issuer for processing the payment.
According to The Wall Street Journal, the typical credit card interchange fee today is about 2% to 2.5% of the purchase amount. Premium rewards cards like the ones I signed up for often carry even higher fees. While cardholders do not pay these charges directly, the merchants do, and they generally build those costs into the prices they charge all customers for their goods and services. In that way, people who pay with cash or debit cards help cover the cost of rewards while receiving few, if any, of the benefits.
A recent Harvard Business School study estimates that this results in approximately $30 billion of wealth being transferred annually from consumers who do not use credit cards to those who do. That is roughly equivalent to increasing the average sales tax burden by about 16% for consumers who pay in cash.
The irony is that many of the consumers helping fund these rewards are the least likely to benefit from them. Lower-income households are more likely to pay interest on credit card balances or rely on cash and debit cards, yet still face the higher prices created by these processing fees. None of this means consumers should avoid rewards cards. For those who pay their balances in full each month, these programs can provide meaningful benefits. However, it is worth recognizing that those rewards come at a cost, one that is often paid by those who can least afford it.
(Past performance is no guarantee of future results. The advice is general in nature and not intended for specific situations)