Some credit cards offer bonuses on spending in particular categories, such as cashback bonuses or "free" upgrades. These credit cards tend to come with an annual fee. A consumer may consider this fee to be worth paying if they believe it “pays off”. For example, see some of the answers at Why would someone get a credit card with an annual fee?.

There are suggestions and perhaps some evidence that people spend more when paying with credit cards than with cash. For example, see Do people tend to spend less when using cash than credit cards?. Might it depend on the card?

Do people spend more when using a card that comes with (cashback) bonuses, compared to using a card that doesn't? Intuitively, I would think yes, or credit card companies wouldn't offer those bonuses; but that may not be backed up by available evidence.

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    Merchant fees would be their primary source of income, and there would be a lot more charge cards. And don't forget the vast number of debit cards currently in use.
    – RonJohn
    Commented Jan 11, 2021 at 18:34
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    This is a question about psychology and economics, not personal finance.
    – chepner
    Commented Jan 11, 2021 at 18:35
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    I don't think it's entirely the case that cards with bonus categories and/or cash-back tend to have annual fees. Most if not all of mine have such things, none have annual fees. Whether they increase spending is a matter of individual psychology. Personally, the only "increase" is that when one card is offering 5% back on gas purchases as their quarterly category, I tend to fill up both my vehicles in the last few days of the period.
    – jamesqf
    Commented Jan 11, 2021 at 18:38
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    You are probably right. I'm sometimes accused, rightly so, of voting to close, when a question is in the gray area. In this case, it seems to me that the change needed in the question wording is so minor, that I'd just let this one though. Either way, I'll stay away from actually voting, whether to close or reopen if closed. Commented Jan 12, 2021 at 14:04
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    If the community decides it fits better on Economics, then please do migrate it. I thought it fit here because the related question on card vs. cash discretionary spending is located here and wasn't closed as off-topic.
    – gerrit
    Commented Jan 12, 2021 at 14:07

3 Answers 3


Do card bonuses lead to increased discretionary spending compared to more basic cards?

In general, yes. Here's a study that proves most people do spend more. (Download the entire study here.)

However, it highly depends on the card owner's personality. As someone who has migrated from cash only, to cards with no benefits, to cards with points and/or cash back, I can tell you from personal experience that as soon as I transitioned from cards with no benefits to cards with points and/or cash back, the amount that I spent on the card went way up. However, the total amount of money that I spent generally did not change. The reason is, as soon as I switched to a CC with benefits, I had incentive to stop using cash and start using the card, for nearly everything I purchased that would accept a card. After a while I stopped carrying cash except $20 for emergencies. Furthermore, when I went out to lunch with my friends or coworkers, I would always be paying with card, so I'd always offer to pay for the whole check and they'd just give me cash to cover their meal. Note this comparison is only between cards without benefits and cards with benefits. My personality is not such that I would ever purposely spend more to get 2% (or more) back. I think of the cash back as a discount. The only exception to this (that I can think of) is I once had a travel points CC and I was very close to getting 2 free plane tickets to Hawaii when I was about to travel there, so I used my CC to buy some Amazon gift cards to put me over the edge. (But I didn't splurge on the Amazon cards- they lasted about 6 months before I used them up.)

Now, comparing a CC in general to cash only makes a much bigger difference, primarily because it enables you to purchase things you normally wouldn't have enough cash for. This includes me too, since although there were times before I used a CC that I would go to a bank or ATM to get more cash and then return to the store, the hassle typically wasn't worth it except for very specific items. The problem many people run into here is that not only do they not have the cash on them, they oftentimes don't have the money in their bank account either, and that's when the trouble begins.

Do people spend more when using a card that comes with (cashback) bonuses, compared to using a card that doesn't? Intuitively, I would think yes, or credit card companies wouldn't offer those bonuses;

In general, banks make money on every purchase you make (usually somewhere in the 2.5-4% range), so offering perks is a way to gain new customers (competition with other cards) and help retain them (with unspent points/cash). The value of new customers is extremely high considering every customer is either barely profitable, or extremely profitable if they ever pay interest, draw cash, have a late payment, or extend their banking relationship further with the bank.

Side note: none of my credit cards, even those with 2% cash back on all purchases, have any annual fee.

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    I'm going to say, this is an excellent, well articulated, answer. The question itself invites such anecdotal answers, or opinion. I didn't and won't, vote to close, but I am thinking this question risks closure as opinion based. A fact based answer would probably need to offer a study with reasonable data to cite. Commented Jan 11, 2021 at 21:30
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    @JTP-ApologisetoMonica Agreed. You in particular have some (perhaps humorously unintuitive) anecdotal evidence for this too, in that I believe you mentioned you once spent tens of thousands on a credit card to earn points in an arbitrage scheme you discovered with purchasing gift cards. ;)
    – TTT
    Commented Jan 11, 2021 at 21:37
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    I got that card in '12. I need some new material, a new experience worth writing about. Commented Jan 11, 2021 at 22:44
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    Ha! I remember that study, from page 15 - "Those cardholders that do not carry debt substitute spending and debt accumulation on this card from other cards. Those that do not carry debt do not increase their overall card balance as a result of participating in the cash back program." When I cited that quote to show that zero balance card holders don't spend more, an arch nemesis replied "The study was shifting from non-reward to reward cards. The person studied already is used to spending 10-12% more on their cards." (Good grief) Commented Jan 12, 2021 at 0:15
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    This also makes a good point about why it's to the card issuer's benefit to offer cash back (or whatever), even for users whose spending doesn't change. If the card charges 3% processing fees, and offers 1% cash back, then they make 2% profit on the spending that goes on the card rather than cash.
    – jamesqf
    Commented Jan 12, 2021 at 17:48

It's not true that credit cards that offer cashback bonuses tend to come with an annual fee. There are many credit cards that offer a sign up bonus as well as cashback with no fee, every day of the year. Some offer cash back across the board on all expenditures while others offer bonuses that may vary in amount and/or by category.

I doubt that there is any objective way to measure what people will spend if there's a bonus or not, other than they'll spend the bonus. Those who budget will stay within their means whether there's a bonus or not. Those that rack up credit card debt are going to keep spending regardless of the bonus. AFAIC, the bonus is just gravy that will be spent above and beyond what a person would normally spend.

Credit card companies make money from transaction fees charged to the merchants who accept payment via credit card, from balance transfers, late payment fees, cash advances, and of course the big one, the usurious finance fees.

Sign up bonuses and cash back rewards amount to peanuts compared to the earnings from the aforementioned sources as well as others not mentioned. Consider it to be a customer acquisition cost.


From a CC company's profit perspective the question is does it increase purchases enough to offset the cost? I agree the answer is yes but can think of more than one reason.

  1. Some spend more thinking of the rewards.
  2. Some use the specific CC instead of another form of payment to get the reward.

Both increase the $$ of purchases and CC fees paid but only the first might increase total discretionary spending. They also may profitable purely from #2 but my guess is #1 also helps.

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