Credit card issuers and their investors profit from interest on credit card debt, since interest is essentially the cost of borrowing their money from month to month. Interest charges are one of the main ways that credit card companies earn money, especially since most credit cards don’t charge annual fees.
Americans have over a trillion dollars in credit card debt, and credit card companies are able to profit off this debt by charging high interest rates. For example, new credit card offers charge a 23.1% APR on average, making them an expensive way to borrow. However, these high rates contribute to the lucrative perks and rewards that many credit cards offer, which you can still take advantage of while avoiding interest charges if you pay your credit card bill in full each month.
Interest is the main source of the credit card industry’s nearly 2% return on credit card assets, according to the latest Federal Reserve data. For more information on how credit card interest works, you can check out WalletHub’s full guide to interest rates.
This answer was first published on 11/27/23. For the most current information about a financial product, you should always check and confirm accuracy with the offering financial institution. Editorial and user-generated content is not provided, reviewed or endorsed by any company.
