Picture two neighbors, both swiping the same credit card at the same grocery store. One pays her bill in full when the statement arrives and pockets 2% cash back on every purchase. The other carries a $6,000 balance from month to month, paying roughly $1,400 a year in interest at today’s average rate. (That figure is illustrative, assuming a roughly constant balance at the current average APR above 23%.) Both earn rewards. Only one is actually coming out ahead.
That gap sits at the center of a record-breaking number: American credit card issuers distributed approximately $47.5 billion in rewards during 2024, according to figures consistent with the trajectory documented in the Consumer Financial Protection Bureau’s 2025 biennial credit card market report. Cash back, airline miles, hotel points, statement credits. The total has climbed sharply over the past decade, and it now represents one of the largest marketing expenditures in consumer finance. But the money doesn’t appear from nowhere. A growing body of federal research shows that the rewards flowing to cardholders who pay in full each month are substantially funded by the interest charges collected from the roughly half of cardholders who carry a balance.
The average purchase APR on credit cards now exceeds 23%, per the CFPB’s report, which covers data through the end of 2024. Total revolving credit card debt stood above $1.1 trillion at year-end, according to the Federal Reserve’s G.19 statistical release. For the neighbor carrying that $6,000 balance, the interest alone wipes out any rewards value many times over.
Where the money actually flows
Every time a consumer taps or swipes a credit card, the merchant pays an interchange fee, typically between 1.5% and 3.5% of the transaction. Issuers frequently point to interchange as the engine behind rewards programs, and it is a significant revenue stream. But it doesn’t cover the full cost.
A September 2022 Federal Reserve analysis of credit card profitability, the most recent public Fed research on the topic, found that issuer profits are driven primarily by the credit function (interest income) rather than the transaction function (interchange revenue net of rewards payouts). In plain terms, the swipe fees merchants pay do not, on their own, cover the points and cash back distributed to all cardholders. The gap is filled by finance charges collected from people who revolve debt month after month.
Economists call this a cross-subsidy. Cardholders who pay in full, known in the industry as “transactors,” generate interchange revenue for issuers but cost them rewards dollars. Cardholders who carry balances, known as “revolvers,” generate the interest income that makes the entire system profitable. The richer the rewards program, the more the issuer depends on revolvers to fund it.
Who benefits and who pays
The split is not random. Premium rewards cards with the most generous point structures tend to require higher credit scores and often charge annual fees ranging from $95 to $695. Their target customers are higher-income households that spend heavily and pay in full. These cardholders collect outsized rewards while contributing relatively little to issuer interest income.
On the other side, cardholders who revolve balances tend to have lower incomes and thinner financial cushions. The CFPB’s market report documents that subprime and near-prime borrowers face the highest APRs and are the most likely to carry persistent debt. They earn some rewards on their spending, but the interest they pay overwhelms any value they receive. A cardholder paying roughly $1,400 a year in interest while redeeming $150 in cash back is losing ground every billing cycle.
The net effect is a quiet wealth transfer. Households that can afford to pay in full accumulate free travel, statement credits, and perks. Households that cannot afford to clear their balances absorb the cost through interest rates that have climbed steadily over the past decade and now sit near historic highs.
Rewards that don’t always deliver what they promise
Even for cardholders who earn rewards, the value is not guaranteed. In a 2024 circular on rewards program practices, the CFPB warned that issuers can devalue points after consumers earn them, impose blackout dates that limit redemption, and allow technical glitches that prevent cardholders from accessing accumulated value. The agency flagged these practices as potential violations of federal standards against unfair, deceptive, or abusive conduct.
A cardholder who charges thousands of dollars expecting a specific return in miles may discover the redemption rate has been quietly reduced before booking a flight. Complex program terms, tiered earning structures, and expiration policies add friction that benefits issuers. The industry term for points that go unredeemed is “breakage.” Issuers are not required to disclose breakage rates publicly, but it represents pure profit for the card company and a dead loss for the consumer who earned those points.
No public dataset tracks how much rewards value is lost to devaluation and breakage each year. Analysts can piece together estimates from issuer financial statements and investor presentations, but the numbers are not standardized. What the CFPB’s findings make clear is that the gap between rewards promised and rewards realized is real, and it falls hardest on consumers least equipped to navigate complex program rules.
The limits of what regulators have measured
Several important questions remain unanswered in the public record. Neither the Fed’s profitability research nor the CFPB’s 2025 report breaks out the precise dollar split between total interest income collected from revolvers and the total rewards cost borne by issuers in a single comparable table. The $47.5 billion rewards figure is directionally supported by the structural evidence and consistent with the growth trajectory documented in prior CFPB reports, but no single government release confirms it to the penny. Readers should treat it as a well-grounded estimate, not an audited total.
Also absent: direct survey data on whether cardholders understand the cross-subsidy. The Fed’s surveys and the CFPB’s Terms of Credit Card Plans data focus on pricing and balances, not on consumer awareness of how the rewards economy works. How many revolvers knowingly accept the tradeoff in exchange for access to credit, and how many would change their behavior if the underlying economics were more transparent? That question has not been answered at scale.
Lawmakers have taken notice of the broader interchange system, though not specifically the revolver-to-transactor subsidy. The Credit Card Competition Act, reintroduced in Congress in recent sessions, would require large issuers to offer merchants a choice of at least two payment networks for routing transactions, potentially lowering interchange fees. Supporters argue this would reduce costs passed to consumers through higher retail prices. Opponents, including major card issuers, warn it could lead to reduced rewards. As of June 2026, the bill has not advanced to a floor vote in either chamber.
How to tell which side of the ledger you are on
For the roughly 50% of cardholders who carry a balance, the math is stark. Interest charges at current rates will almost certainly exceed the value of any rewards earned, especially once devaluation and redemption barriers are factored in. The single most valuable financial move for a revolver is not chasing a better rewards card. It is paying down the balance. A useful exercise: compare the total interest charges on your most recent annual statements against the rewards you actually redeemed over the same period. Not the points you earned on paper, but the ones you converted into real value. If interest outpaces redemptions, the rewards program is costing you money.
For cardholders who pay in full every month, the rewards are genuinely valuable. But they exist within a system that depends on other people’s debt. That doesn’t mean transactors should stop using a cash-back card. It does mean the system is less meritocratic than it appears. The perks are not funded by savvy financial behavior alone. They are funded, in large part, by the interest payments of people who are struggling to get out from under their balances.
The public evidence assembled by the Fed and the CFPB maps the direction of these transfers clearly, even if some of the exact dollar figures remain out of view. The $47.5 billion in annual rewards captures the scale. The less visible number, the one that matters more to millions of American households, is the total interest paid by revolvers who will never see a proportional return.
