This Is How Credit Card Companies Hauled in $163 Billion in 2016

by The Ascent Staff | Nov. 20, 2018

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Nobody had a credit card when I was a kid. No one had credit card debt. But these big companies and banks wanted to know how to get more money out of people -- get them charging things.
-- Michael Moore 

The year 2016 was a bad year in terms of terrorist incidents, deaths of beloved celebrities, and summer movies -- but it wasn't so bad for credit card companies. According to industry research organization R.K. Hammer, credit card fee and interest income topped $163 billion in 2016. 

Sad man looking at his wallet, while dollar bills fly away.

Image source: Getty Images

Credit card companies make money off cardholders in a wide range of ways -- and their income has been experiencing solid growth for years. Fee income rose 6% year over year in 2016 and is expected to jump 6.5% in 2017.

Detailed dollars

Here's a breakdown of how cards generated that $163 billion in 2016 through fees and interest:

Interest Income $63.4 billion
Interchange income $42.4 billion
Cash advance fees $26.6 billion
Annual fees $12.5 billion
Penalty fees $12 billion
Enhancement income $6.3 billion

Source: R.K. Hammer data, via Bloomberg. 

Some of those categories are clear, while others may not be:

  • Interest income is what the card companies charge you if you keep a revolving balance.
  • Interchange income is what they receive in fees from merchants when you purchase something with plastic. The fees vary, but are roughly, on average, about 2% of the value of the transaction.
  • Cash-advance fees are levied on top of the interest that you're charged when you borrow money against your credit limit, and they're often in the neighborhood of 5% or $10 -- whichever is greater.
  • Annual fees are familiar to us. Annual fee income rose 8.7% between 2015 and 2016, as fancy rewards cards hiked their annual fees.
  • Penalty fees are charged when you're late making a payment. Exceeding your credit limit, or having a bounced payment, can trigger another fee. These fees can be as much as $37.
  • Enhancement income is made up of extra services that can come with your card, or are available through it, such as insurance products.
The word "fees" written on a blackboard, with the top of a man's head in front of it.

Image source: Getty Images

Fees are a booming business

The fees alone in the table above total about $100 billion. Check out the table below to see how they've risen in recent years:

2016 $100 billion
2015 $94.3 billion
2014 $90.3 billion
2013 $79.9 billion
2012 $82.5 billion
2011 $81.2 billion
2010 $78.4 billion
2009 $78.9 billion

Source: Robert Hammer, R.K. Hammer. 

Keep more of your money -- pay less in fees

There are lots of ways to pay less in fees and keep more of your dollars in your own pocket instead of in the pockets of credit card companies. For starters, know that the majority of cards out there charge no annual fee, making that fee easy to avoid. (Note, though, that some cards offer great perks, rewards, and/or cash back that can more than make up for even hefty annual fees. You just need to do the math for yourself to see what offers the most benefit.)

You can keep your interest costs low by favoring cards with low interest rates and ones that don't impose a "penalty APR (annual percentage rate)" of up to nearly 30% when you pay a bill late. Here are just a few of many cards that don't sport penalty APRs: 

Paying bills on time and not exceeding your credit limit will save you from being charged penalty fees, and avoiding cash advances will save you even more. These kinds of actions can also beef up your credit score -- which can yield all kinds of financial benefits, such as low rates for car and home loans. A strong credit score can also get you approved for a top-notch credit card offering great benefits. 

Our credit card expert uses the card we reveal below, and it could earn you $1,148 (seriously)

As long as you pay them off each month, credit cards are a no-brainer for savvy Americans. They protect against fraud far better than debit cards, help raise your credit score, and can put hundreds (or thousands!) of dollars in rewards back in your pocket each year.

But with so many cards out there, you need to choose wisely. This top-rated card offers the ability to pay 0% interest on purchases until late 2021, has some of the most generous cash back rewards we’ve ever seen (up to 5%!), and somehow still sports a $0 annual fee.

That’s why our expert – who has reviewed hundreds of cards – signed up for this one personally. Click here to get free access to our expert’s top pick.

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