Cashback Against Interest: The Payoff Fraction Below Which a Rewards Card Costs More Than It Returns

A cashback card paying 1.5% is routinely described as 'free money' for spending the household would do anyway. That description holds only for balances paid in full. This paper simulates a household spending USD 1,400 a month on such a card at 24.9% APR, paying a fixed fraction of each statement in full and revolving the rest, and finds the break-even fraction: below paying 59% of the balance each month, the interest on the revolving balance exceeds the cashback, which is USD 21.00 a month. At a 90% payoff fraction the household already carries a steady balance of USD 159.15 and loses money net; at 80% the net loss is USD 13.70 a month with sign reversed — that is, interest exceeds cashback by that amount. A single month's spending carried for three months costs USD 88.97 in interest, wiping out 4.2 months of cashback. The study is simulated, not measured. SIMULATED, NOT MEASURED.

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Publication Details

Journal
Zenodo (CERN European Organization for Nuclear Research)
Published
2026-11-11
DOI
https://doi.org/10.5281/zenodo.24121837
Primary Topic
Financial Literacy, Pension, Retirement Analysis
Type
article
Field-Weighted Citation Impact
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article

Cashback Against Interest: The Payoff Fraction Below Which a Rewards Card Costs More Than It Returns

William Alexander Aldred
Zenodo (CERN European Organization for Nuclear Research)
Financial Literacy, Pension, Retirement Analysis
article

Cashback Against Interest: The Payoff Fraction Below Which a Rewards Card Costs More Than It Returns

William Alexander Aldred
article en

Abstract

A cashback card paying 1.5% is routinely described as 'free money' for spending the household would do anyway. That description holds only for balances paid in full. This paper simulates a household spending USD 1,400 a month on such a card at 24.9% APR, paying a fixed fraction of each statement in full and revolving the rest, and finds the break-even fraction: below paying 59% of the balance each month, the interest on the revolving balance exceeds the cashback, which is USD 21.00 a month. At a 90% payoff fraction the household already carries a steady balance of USD 159.15 and loses money net; at 80% the net loss is USD 13.70 a month with sign reversed — that is, interest exceeds cashback by that amount. A single month's spending carried for three months costs USD 88.97 in interest, wiping out 4.2 months of cashback. The study is simulated, not measured. SIMULATED, NOT MEASURED.

Zenodo (CERN European Organization for Nuclear Research)
Financial Literacy, Pension, Retirement Analysis
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