How Can American Express Afford to Pay the Most Generous Credit Card Rewards?

American Express has some of the best rewards programs out there, from Membership Awards to Starwoods Points, to simple banknote back.

To authenticate why, let’s assay two affairs at Joe’s Coffee Shop, one application your American Express card, and one application your MasterCard/Visa from one of the big issuers (Bank of America, Chase, Citibank, Capital One, Wachovia).

  • Scenario 1: You pay application Amex
  • Joe’s pays a ~2.4% transaction fee to Amex, on average, to action the transaction. American Express owns the network, the agenda company, and the sales arrangement to assurance up new shops, so they accumulate the absolute transaction fee.
  • Scenario 2: You pay application your bounded bank’s MasterCard/Visa
  • Joe’s pays a ~1.4% fee, on average, to action the transaction
  • This fee is breach 3 means between: (i) the sales alignment who signs Joe’s Coffee to use the MasterCard/Visa network, (ii) the MasterCard/Visa Network, and (iii) the coffer who issued you the acclaim card.

Not alone does American Express allegation a college transaction fee, they aswell accumulate the absolute fee instead of agreeable it 3 ways.

The blameless aeon goes like this – (i) American Express has the a lot of celebrated cardholders so they can allegation merchants more, (ii) American Express accuse merchants added so they can action bigger rewards, (iii) American Express offers bigger rewards so they can allure arch cardholders. We accept this is absolutely the acumen why Warren Buffet owns 12% of the company. And this is aswell why if you aces up an American Express card, you get to adore added rewards at the amount of Joe’s Coffees everywhere.

We ran some numbers and begin that the afterward no fee American Express cards rank well, based on our adding of annualized rewards and promotions, bare any annualized fees:

  • The Amex Blue Banknote pays 5% aback on your grocery and gas purchases and 1.5% on aggregate abroad afterwards you absorb $6,500 in a year. For aloft boilerplate spenders, this can calmly beat an all-embracing 2% accolade rate.
  • The Amex Costco True Earnings Agenda pays 3% aback on restaurants and gas, 2% on travel, and 1% on aggregate else.
  • The Amex Blue Sky is finer a 1.33% banknote aback card. You get 1 point for every $1 you spend, and you can account biking costs on your acclaim agenda account at a amount of 7,500 credibility per $100. This is one of the accomplished abject rewards ante accessible that we apperceive of.

Smart spending, and best of luck

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