How Do Banks Benefit From Credit Cards

So far you must have come across a number of blogs and articles highlighting just how beneficial credit cards are to consumers.

They allow you to use the money that the bank is lending you and return it when it is convenient. They offer rewards, cash back, bonus points, bonus miles, discounts, and what-not!

How Do Banks Benefit From Credit Cards

That makes us wonder, are credit cards beneficial for banks as well? Of course! Cards carry major significance for the bank and its profit. We will tell you how banks benefit from credit cards.

Credit Cards Generate Interest Payments

Consumers are always suggested not to delay their payment later than the due date. This incurs interest charges and this is one source from which the banks make most of their income. Any cardholder who carries a balance from one month to the other would have to pay interest.

You can avoid this by setting up automatic pay off each month. Alternatively, you can also mark the date on the calendar or set up monthly reminders to avoid paying interest.

But on the Other hand, Banks also release lots of credit card mail offers. Which has a lot of benefits for the consumers.

Additional Fees Associated With Credit Card Use

No credit card comes free of cost. In some cases, you have to pay a processing fee, maintenance charges, and most credit cards charge an annual fee as well. Besides these, there is a foreign transaction fee, cash advance fee, a fee for credit limit increase, and penalty charges on late payment.

Although you may come across a credit card that has a relatively low expense, there is no plastic that is completely free of such charges. One way to minimize these charges is to look for a credit card that offers some sort of rewards that can make up for the fees that you are paying.

A Good Example of mail offers is Indigo Mastercard mail offer From Celtic Bank.  However, keep in mind that most reward cards come with high APR so you need to make sure that you never carry a balance next month.

Fees From Credit Card Payments

Did you know that banks make a profit when a customer uses their card to clear a payment? When a retailer accepts a credit card payment, a portion of it is transferred to the card issuer.

In most cases, this interchange rate is around 1.75% of the total bill. Similarly, credit card networks such as Mastercard and Visa also charge retailers up to 0.12% per transaction.

Wrap Up

Credit cards are perfect tools for credit rebuilding. They also make sure you always have the cash to use when needed. The bank will give you an ample amount of time to pay off the debt later.

However, they can be costly in terms of interest charges and annual fees. There is a lot you can do to ensure you get the most out of the credit card that you own. Making timely payments and in full can help you boost your credit score and eventually apply for a card that is cheaper to maintain and offers better rewards.