How Credit Card Companies Make Money (And How to Keep More of Yours)

You swipe, tap, or insert your credit card dozens of times a month—but have you ever stopped to think, “How do credit card companies actually make money?”

Spoiler: It’s not just from late fees.

At Wealthy Swipe, we love pulling back the curtain on how money really works. So today, let’s break down the sneaky (and not-so-sneaky) ways credit card issuers turn your spending into their profits.

1. Interest Charges: The Golden Goose

If you’ve ever carried a balance, you’ve lined the pockets of banks with interest charges. Here’s how they get you:

• APRs that sting – Most cards charge 15%–30% interest annually. Carry a £2,000 balance at 24% APR? You’ll pay £480 a year just in interest.

• Daily compounding – Unlike a mortgage or car loan, credit card interest compounds daily, meaning you pay interest on your interest. Ouch.

In 2023, Americans owed over $1.13 trillion in credit card debt (Federal Reserve). That’s a lot of interest payments.

2. Interchange Fees: The Hidden Tax on Every Swipe

Ever wonder why some small businesses prefer cash? Because every time you use a credit card, the merchant pays a 1.5%–3.5% fee (called an interchange fee).

Here’s where that money goes:

• Card networks (Visa, Mastercard, Amex) take a cut.

• Your bank (Chase, Barclays, etc.) pockets the rest.

In the UK alone, businesses paid £1.3 billion in card fees in 2022 (Bank of England). So next time a shop has a “minimum spend for cards” policy, now you know why.

3. Annual Fees: Paying for the Privilege

Not all cards charge annual fees, but the fancy ones (Amex Platinum) can cost £500+ per year.

Banks love these because:

• Many people don’t use the perks enough to justify the fee.

• Even if you do, the bank often gets kickbacks from partners (airlines, hotels, etc.).

Pro tip: Do the math before upgrading. A £550 annual fee only makes sense if you’re getting £600+ in value.

4. Late Fees & Penalty APRs: The “Oops” Tax

Miss a payment? Get ready for:

• Late fees (up to £30 in the UK, $40 in the U.S.).

• Penalty APRs (jumping to 29.99% in some cases).

The Consumer Financial Protection Bureau found that U.S. banks collected $14 billion in late fees in 2022.

How to avoid it? Set up autopay (at least the minimum).

5. Foreign Transaction Fees: The Travel Trap

Using your card abroad? Many banks charge 2%–3% extra per purchase. Even online shopping from overseas retailers can trigger this.

Fix: Get a no-foreign-fee card (like Monzo, Starling, or Chase Sapphire).

6. Cash Advances & Balance Transfers: Fees on Fees

• Cash advances = Instant debt with 5% fees + 25%+ APR (interest starts immediately).

• Balance transfers = Usually 3%–5% fee (even on “0% APR” offers).

Banks love these because they’re high-margin profit streams.

7. Data & Partnerships (The Silent Money Maker)

Your spending habits are gold to banks. They use them to:

• Target ads (e.g., pushing travel cards if you book flights often).

• Sell co-branded cards (like airline or hotel cards).

They’re not selling your data directly—but they’re definitely monetizing it.

How to Beat the System

Now that you know how credit card companies make money, here’s how to keep more of yours:

✅ Pay in full every month (avoid interest like the plague).
✅ Use no-annual-fee cards (unless rewards outweigh costs).
✅ Never take cash advances (seriously, just don’t).
✅ Negotiate your APR (yes, you can sometimes talk them down).

Final Thought: Knowledge = Power

Credit card companies aren’t charities—they’re profit machines. But once you understand how credit card companies make money, you can flip the script and use cards to your advantage.

Got questions? Drop them in the comments! And for more money hacks, stick with Wealthy Swipe.