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Banks have been spending an exuberant amount of money on credit card rewards over the last several years. This trend has had a positive impact on consumers who are in the market for a new payment card. We took a dive into the data behind the credit card rewards market to develop a better understanding of how it's evolving and how much consumers are benefiting from this trend.
How Much In Rewards Have Consumers Collected from Banks?
American Express, Discover and Capital One—some of the largest credit card issuers in the country—spent a combined $12.9 billion on credit card rewards in 2017. This marks a 59% increase over 2011, and it speaks to the increasing rewards war that has been raging among card issuers this decade. However, this is just a small part of the money spent on rewards throughout the industry. Other large issuers, like Citibank and JPMorgan Chase, do not disclose how much they are spending on rewards per year. But in a recent SEC filing, Chase did disclose its total rewards liability—that is, how much its cardmembers have accumulated in rewards and are waiting to redeem. As of 2017, Chase users have a combined worth of $4.9 billion in unredeemed credit card points.
Our analysis also included a look at spending per cardmember. Last year, the banks we examined above spent, on average, $78 per active account. American Express lead the pack, with an annual cardmember spend of $121 per account, while Discover put up just $41 per account. While this shows a positive gain for card users, it is presently unclear whether consumers are being charged more in interest and card fees than they are gaining.
Cities With the Most and Least Credit Card Rewards Participation
Nationally, 69% of households are estimated to participate in at least one credit card rewards program. This can encompass any credit card account that provides a sign-up bonus, ongoing rewards or promotions to its cardholders. Select parts of the country have far more households participating in credit card rewards than others. We examined data for 318 cities across the U.S. where the population was above 100,000. Californians seemed the most rewards-obsessed. For example, more than 70% of households in Fremont, San Mateo and Santa Clarita enrolled in at least one credit card rewards program.
For the most part, cities in southern states like Texas, Florida, Georgia and Mississippi saw lower participation. However, a few northern cities also saw low participation—namely, Detroit along with a few cities in Ohio. Detroit placed last, with just 43% of households using rewards.
Households with Rewards
Average Card Debt
|2||San Mateo, CA||78%||32,535||10,512|
|4||Daly City, CA||76%||25,118||9,787|
|5||Santa Clarita, CA||76%||47,780||11,731|
|6||Highlands Ranch, CO||76%||29,426||9,994|
|8||Huntington Beach, CA||75%||58,520||10,482|
|11||Thousand Oaks, CA||74%||35,131||8,293|
We looked at several metrics to determine whether any factors tied these cities together and whether anything could explain the rewards participation, or lack thereof. The biggest correlation was present between rewards participation and median household income. The two had a strong, positive correlation of 0.85. The more affluent a city was, the more likely it is to have a high number of households with rewards cards. Fremont, the city where most households have a at least one rewards card, had the fourth-highest median income on our list.
It should also be noted that high credit card rewards participation correlates to a high level of debt. There was a 0.72 correlation between average credit card debt in a city and its credit card rewards participation rate. However, it should be noted that higher card debt can be a result of many factors, and it isn't necessarily caused by rewards. For example, more affluent cities may spend more in general, which would inflate the total credit card balances for that region.
Consumer Advice: How to Take Advantage of Rewards Credit Cards
Consumers who want to start using credit card rewards should proceed with caution. While there's an opportunity to earn a free vacation or score hundreds of dollars in cash-back rewards, there are some risks involved. First and foremost, consumers should be careful with accruing debt. Avoid charging purchases to a credit card unless you know you can pay them off by the end of the month.
You should also consider a card's annual fee before signing up for a rewards card. Take time to figure out whether it makes sense to pay it. How much you spend on a card typically determines if it’s worth paying an annual fee. Charge less than $12,000 a year on your card? Then you should stick to a credit card with no annual fee. Those who spend more could consider getting a card that offers benefits and charges an annual fee. The following chart explains how annual spending impacts whether an annual fee is worth paying. In this scenario, Card A charges a $50 annual fee and offers 2% cash back, and Card B does not charge an annual fee and offers 1.5% cash back.
Card A Net Rewards
Card B Net Rewards
|$5,000||(2% x $5,000) - $50 = $50||(1.5% x $5,000) = $75||Card B|
|$10,000||(2% x $10,000) - $50 = $150||(1.5% x $10,000) = $150||Tie|
|$15,000||(2% x $15,000) - $50 = $250||(1.5% x $15,000) = $225||Card A|
Finally, consumers need to consider which type of rewards card is best suited for their financial lifestyle. There are three main types of rewards cards: cash back, generic travel and co-branded travel. The last one is only worth considering if you're an avid traveler who is loyal to one particular hotel or airline brand. Generic travel cards excel for consumers who spend a lot on entertainment, travel and restaurants. Cash-back cards typically have no annual fees, and they're best for rewarding everyday purchases, like gas and groceries.
When choosing a card, it's best to focus on specific features and prioritize the ones that are most important to you.
Rewards spending by issuer was sourced using balance sheets the companies submit to the U.S. Securities and Exchange Commission (SEC). We looked through 10-k and 8-k filings for the largest credit card issuers by loan amount. Ultimately, rewards spend was reported only by three of the top six issuers: Discover, American Express and Capital One. To obtain spending per cardmember, we pulled the number of active cardmembers by bank from PaymentSource.com.
For data on credit card rewards participation by city, we turned to estimates provided by S&P Global Market Intelligence. Participation was obtained by dividing the number of households enrolled in at least one credit card rewards program by the total number of households for that city. We also considered cities where the population was at least 100,000. Median income and debt data were also obtained through the Market Intelligence platform.