Do credit card rewards actually pay? Run the numbers

Yes, if you pay the statement balance in full every month. A flat 2% card pays $480 a year on $2,000 of monthly spending, and a flat 1% card pays $240. If you carry a balance, rewards usually lose: at 22.15%, the Federal Reserve's latest average rate for card accounts that paid interest, an average balance of just $1,937 costs $480 a year in interest, the whole year of 2% rewards.

What each rate is worth on $2,000 a month

That is $24,000 a year, a realistic total for someone putting groceries, fuel and bills on one card. The figures below are spend multiplied by rate.

The headline 5% card ties the flat 2% card, and only if you spend the full $1,500 in each quarter's bonus category. Spend $750 in the category and it earns $360. The 5% applies to a capped slice of spending in changing categories, not to everything. A flat card earns its full rate on every dollar with no tracking, no activation and no caps.

These cap and category structures are illustrative. Check the terms of any card you consider, since issuers change them.

The comparison that settles it

The Federal Reserve G.19 release of September 8, 2026 reports a second quarter 2026 average card rate of 22.15% for accounts assessed interest and 20.94% for all accounts. Using 22.15%, with interest compounding daily at the APR divided by 365, here is what carrying a balance costs.

Over a full year, 22.15% compounded daily is an effective 24.79%. Divide $480 by 0.2479 and you get $1,937. Carry an average of $1,937 all year and you pay $480, which cancels a 2% card's rewards on $24,000. Carry $1,000 and you pay $248.

The Consumer Financial Protection Bureau found the same pattern in industry data. In its 2023 credit card market report, covering 2022, consumers who revolved a balance paid 94% of the interest and fees but earned 27% of the rewards. Consumers who paid in full paid 6% of interest and fees and earned 73% of the rewards.

What else reduces the return

• Annual fees. A $95 fee on $480 of rewards leaves $385.
• Redemption value. Cash back is worth face value. The CFPB's May 2024 issue spotlight on rewards says major issuers typically value a point at about one cent, and redemption options can be worth more or less.
• Lost rewards. The same report says that every quarter, 4% of accountholders lose access to at least some of their rewards, through forfeiture, expiration or revocation.
• Category caps and activation. A rotating category that needs quarterly activation pays nothing in a quarter you forget.
• Spending more to earn more. Spending an extra $1 to earn 2 cents is a 98 cent loss.

Comparing a fee card with a no-fee 2% card

Put both cards on the same $24,000 and subtract the fee. Assume the fee card pays 3% in its bonus categories and 2% on everything else, so it earns $480 plus 1% of whatever lands in the bonus categories.

The break-even is $95 divided by 1% of the $24,000, which is $9,500 of bonus-category spending, or 39.6% of the total. Below that share, the no-fee card wins. Look at three months of statements to find your own share.

Sign-up bonuses

A bonus can exceed a year of ongoing rewards, so it is the largest one-off return a card offers. It comes with a minimum spend inside a window. Spending more than you otherwise would to reach it turns the bonus into a loss, so chase only a bonus you would hit on normal spending.

On taxes, the IRS has said in a private letter ruling that a rebate based on a percentage of credit card purchases is not gross income under section 61 (PLR 201027015). A private letter ruling applies to the taxpayer who requested it and others cannot rely on it as precedent. Bonuses that require no spending can be treated differently, and an issuer that reports one sends a Form 1099-MISC. Ask a tax professional about your case.

How to work out your own number

1. Take your actual monthly card spend from a statement, not an estimate.
2. Multiply by the flat rate for a simple card, or split by category for a tiered one.
3. Multiply by 12 and subtract any annual fee.
4. Compare that with what a no-fee 2% card earns on the same spending.
5. Check your carried balance. Multiply your average balance by your APR; if the result is more than step 3, rewards are not your problem.

The true cost of a purchase tool helps with the last comparison, and the statement close optimizer shows how payment timing changes the balance that accrues interest.

A setup that fits most people

1. One no-fee flat-rate card as the default for everything.
2. Autopay the full statement balance, not the minimum.
3. Add a second card only if one category is a large share of your spending.
4. Review once a year, and downgrade a fee card whose benefits you did not use.

Rather than closing an old card, ask to downgrade it to a no-fee version of the same account. That keeps the account age and credit limit, which help your score.

Frequently asked questions

Sources

1. G.19 Consumer Credit, release of September 8, 2026 (Terms of Credit table), Board of Governors of the Federal Reserve System. Checked October 2026.
2. CFPB Report Finds Credit Card Companies Charged Consumers Record-High $130 Billion in Interest and Fees in 2022, Consumer Financial Protection Bureau. Checked October 2026.
3. Credit card rewards issue spotlight (May 2024), Consumer Financial Protection Bureau. Checked October 2026.
4. Private Letter Ruling 201027015, Internal Revenue Service. Checked October 2026.