Banks are getting very generous with credit card rewards. The amount they paid out in rewards points and cash back more than doubled from 2010 to 2016, according to an analysis from MagnifyMoney.com.
Between lucrative sign-up bonuses and high cash-back rates for spending in certain categories, rewards credit card holders could be making a killing off of credit card issuers. Of course, the banks know what they're doing. American credit card debt recently topped $1 trillion, an all-time high.
But if you handle your finances responsibly, you can benefit from the increase in rewards spending from credit card issuers. Here are the banks paying out the most in credit card rewards, ranked by how much they paid throughout 2016.
1. Chase: $7 billion
Chase has been aggressively courting new customers with new products and big sign-up bonuses for its credit cards. Last year, Chase launched the Chase Freedom Unlimited and the Chase Sapphire Reserve. The launches resulted in an acceleration in rewards payouts reaching about $7 billion in 2016.
The Chase Sapphire Reserve originally came with a 100,000 Chase Ultimate Reward Point sign-up bonus. CEO Jamie Dimon said that credit card alone cost the company $200 million to $300 million in profits during the fourth quarter last year.
Outside of its Sapphire and Freedom products, Chase offers several compelling co-branded credit cards. It has deals in place with Southwest Airlines, United Airlines, Hyatt Hotels, Marriott Hotels, Amazon, and Disney, just to name a few.
2. American Express: $6.8 billion
American Express held the crown for paying out the most rewards until last year. Amex's branded charge cards and credit cards offer thousands of Membership Rewards Points for signing up. But Amex's co-branded product line got just a bit smaller after losing its deal with Costco to Citigroup. As a result, the company's credit card rewards expense fell to $6.8 billion last year.
American Express could see an uptick again next year after acquiring Citi's portfolio of Hilton co-branded credit cardholders. The company will launch two new Hilton cards in early 2018.
Meanwhile, the Chase Sapphire Reserve has put pressure on American Express to increase the value of the Platinum Card® from American Express. Earlier this year it added $200 worth of Uber credits per year, and it expanded the categories where cardholders can earn 5x points. It did raise the annual fee $100 to offset the added expense, though.
3. Capital One: $3.2 billion
Capital One has seen its rewards expense steadily climb over the last few years. It paid out just $1 billion in 2011, and that number grew to $3.2 billion last year.
Capital One has a fairly limited lineup compared to its competitors. Its line of Venture travel cards and its Quicksilver cash-back credit cards represent the bulk of its rewards credit card portfolio. The flat-rate rewards for those cards have resonated with customers, however, resulting in an increase in total customer spending. Capital One's interchange fees (the fee charged every time you swipe your card) net of its rewards expense is still up $1.1 billion since 2011.
4. Citibank: $2.5 billion
Citi has increased its rewards spending 333% since 2010 with a significant tick up last year after winning the Costco credit card portfolio from American Express. It paid out about $2.5 billion in rewards last year.
One of Citi's biggest winners is the Citi® Double Cash Card, which it launched in 2014. The card offers 1% cashback when you use your card and an extra 1% back when you pay your bill, effectively providing 2% back. That's one of the best in class flat cash back rates available.
As mentioned, Citibank is losing its Hilton credit card portfolio to American Express, so it could see growth in rewards moderate. Offsetting that is the relaunch of the Citi Prestige® Card, which offers a big sign up bonus and increases the potential redemption value of Citi ThankYou Points.
5. Bank of America: $1.7 billion
Bank of America's rewards expense was about $1.7 billion in 2016, according to estimates calculated by MagnifyMoney. Its lineup consists of its own cash-back and travel-rewards credit cards and several co-branded cards from smaller travel partners like Alaska Airlines, Amtrak, and more.
Earlier this year, however, Bank of America launched the Bank of America® Premium Rewards® credit card. It's designed to compete with higher-end cards like the Chase Sapphire Preferred, and offers a big sign-up bonus, travel credit, and TSA Pre✔ reimbursement. It also offers 2x points on travel and dining and 1.5 points everywhere else. And those points are boosted by Bank of America's Preferred Rewards program.
With the launch of the new premium credit card and its focus on attracting high-value clients through the Preferred Rewards program, Bank of America could see its rewards expense climb next year.
6. Discover: $1.4 billion
Like Bank of America, Discover has also mostly eschewed the big sign-up bonuses and aggressive marketing of some of its bigger competitors. As a result, Discover's rewards expense has only increased from $1 billion in 2012 to $1.4 billion in 2016.
While other competitors have developed a range of new products, raised sign up bonuses, and partnered with companies on co-branded credit cards, Discover has maintained a tiny portfolio of cards. While it offers some compelling options, the lack of change in its lineup means it's reliant on increasing credit card spending to fuel its profits (and the rewards it pays out).
A competitive market
With the rise in credit card rewards spending at most issuers, it's a good time to be a credit card user. The competition ensures you'll be able to find a card or a combination of credit cards that will help you maximize rewards for the way you spend your money. As long as you stay on top of your finances, pay your bill on time, and avoid unnecessary fees, you can earn quite a bit from credit card rewards.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Adam Levy owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon and Walt Disney. The Motley Fool recommends American Express, Costco Wholesale, Hyatt Hotels, and Marriott International. The Motley Fool has a disclosure policy.