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I was looking at interchange fees for Visa Signature and American Exprses credit cards today...just to see if the Schwab/Fidelity rewards programs are subsidized by the brokerages, or if the interchange is high enough so that FIA can still make a profit despite paying out such high cash back percentages.
I can see how Fidelity can give 2% back on their AmEx rewards card since they have higher interchange fees than the industry average, but how can Schwab give 2% back on Visa Signatures when the interchange sits just slightly above 2%?
Just wondering if it's a bait and switch or if the 2% rate is gonna be around for awhile.
PS. Another thought -- maybe the fact that interest rates are so low is a contributing factor. Since technically a credit card purchase is a 30- to 60-day interest-free loan from the credit card company to you, maybe the lowered cost of lending that money out is reducing their costs. If so, as interest rates rise, rewards returns would go down.
Thoughts?
I'd definitely agree that it's a relationship product, though I'm not sure that requiring a brokerage/checking account means it's subsidized.
Now that they've got the lowest index fund expense ratios of any brokerage out there (0.09% w/ no load and no transaction fees), it's not that expensive to have a brokerage with them.
@Anonymous wrote:
PS. Another thought -- maybe the fact that interest rates are so low is a contributing factor. Since technically a credit card purchase is a 30- to 60-day interest-free loan from the credit card company to you, maybe the lowered cost of lending that money out is reducing their costs. If so, as interest rates rise, rewards returns would go down.
Thoughts?
I'd say their profits aren't tied as much to the national rate, because as it goes up, the rates they earn on those consumers carrying balances on their cards go up at the same rate. Do you really think the CCCs make money on PIFers? The transaction fees they charge merchants just keep them from losing money on people like us. The real profit to the CCCs is in the people that have thousands of dollars in revolving debt with them.
So I wouldn't think that rewards would go down as the prime interest rate rises.
@thrasher865 wrote:
@Anonymous wrote:
PS. Another thought -- maybe the fact that interest rates are so low is a contributing factor. Since technically a credit card purchase is a 30- to 60-day interest-free loan from the credit card company to you, maybe the lowered cost of lending that money out is reducing their costs. If so, as interest rates rise, rewards returns would go down.
Thoughts?
I'd say their profits aren't tied as much to the national rate, because as it goes up, the rates they earn on those consumers carrying balances on their cards go up at the same rate. Do you really think the CCCs make money on PIFers? The transaction fees they charge merchants just keep them from losing money on people like us. The real profit to the CCCs is in the people that have thousands of dollars in revolving debt with them.
So I wouldn't think that rewards would go down as the prime interest rate rises.
Good point. I'd agree that the 2% rewards attracts many more people that don't PIF each month than do.
Hopefully other credit cards will be introduced to compete with the Schwab and Fidelity rewards programs, making it difficult for the 2% rewards rate to be lowered.
The Freedom Plus is only 1% on "other". I mix my Schwab card with Driver's Edge, BP, and Discover More to get some pretty good overall rewards.
@haulingthescoreup wrote:
Just a comment: wow, how things have changed! A year ago, posters were sneering at 2% rewards. Just goes to show, the CCC's can give, and the CCC's can take away.
I really wanted a Chase Freedom Plus, too.