Remember, nothing’s ever free in the credit card business

I’m not impressed with the Apple Card cash-back reward. Here’s why.

Please, don’t fall for the hype around credit cards that give you cash back. The psychology behind this perk is all about getting you to spend more money.

There’s been so much buzz lately about the newly introduced Apple Card. In particular, Apple touts the card’s “compelling cash-back rewards program.”

OK, let’s look at Apple’s cash-back feature.

Customers will receive 2% back every time they use Apple Card with its mobile wallet Apple Pay.

Card carriers get 3% cash back if they use the card for purchases made directly with Apple — including at Apple Stores,, the App Store, the iTunes Store and for Apple services.

Apple recently announced that card users would also receive 3% cash back when they use the Apple credit card with Apple Pay for Uber and Uber Eats.

For purchases made with the physical titanium card, customers will get 1% back.

Getting cash back seems like a win/win situation for credit issuers and consumers.

Lenders get money from merchants when consumers use their cards (although many businesses are passing along the processing fee either directly or in higher prices). And if a cardholder doesn’t pay off the bill in full, the card issuer collects interest. The variable interest rates on the Apple Card as of Aug. 2 ranged from 12.99% to 23.99%, according to the company.

Consumers love cash back offers, boasting that they get free money for purchases they had planned to make anyway. I’ll concede that you may be actually getting a reward if your charges are for necessities. But are they?

Cash back is the most popular type of rewards credit card, with 49% of U.S. adults carrying at least one such card, according to a recent report.

But let me burst your cash-back bubble.

If you spend $1,299 on a 13-inch MacBook Pro at the Apple store using the new Apple Card, you get $38.97 back. If you need the computer, that’s a decent bonus.

But wait. You aren’t ahead financially if your purchase is more of a want than a need. If you’re upgrading your perfectly performing iPhone 8 to the new iPhone XS Max model, which has a retail price of $1,099, yes, you’ll get $32.97 back. However, you’ve spent $1,099 on something that wasn’t a necessity.

Apple wins.

You lose.

You could have used the money to boost your emergency fund or reduce what you owe on your student loans.

What if you invested the money instead?

For instance, you could take the $1,099 and invest it in a low-cost growth index fund. Instead of charging things on your Apple Card, you could invest the value of those purchases — let’s say $5,000 each year — into an index fund. If the fund ended up with an annual rate return of 6% after 10 years you could have $68,213.43, assuming all of your annual investments happen at the beginning of the year, according to the investment returns calculator at

Minus your invested capital, you’ve earned $17,114.43 (after a tax rate of 15%). Contrast this with cash back of $1,038.97 over 10 years from the computer you bought along with other purchases you made with the card through Apple Pay, earning 2% back.

Of course, investing means putting your money at risk. But based on past stock market performance, you’ll get more return for your money from the stock market. Let’s say you invest in an index fund that seeks to track the investment performance of the Standard & Poor’s 500 index, an unmanaged benchmark representing the 500 largest U.S. publicly traded companies. In the last 10 years, the S&P 500 has had a total return of 11.20%, according to investment research firm Morningstar.

And need I remind you that the cash back feature is a fool’s errand if you don’t pay your credit card off every month? According to the Federal Reserve in 2016, half of families with credit card debt had at least $2,300 of credit card debt carrying over month-to-month, while on average families with credit card debt had $5,700 of debt.

The average credit-card rate ranges from about 18% for people with good credit to about 25% for consumers with a lesser credit history, according to Ted Rossman, an industry analyst for

“It doesn’t make sense to pay these high rates in exchange for 1%, 2% or 3% in cash back, airline miles or hotel points,” Rossman said. “If you have credit-card debt, you need to forget about rewards and prioritize your interest rate.”

Is a cash-back credit card worth it?

For many people, it’s not. You might be overspending to get the reward. Or, the money you think you’re earning won’t come close to the cash you’ll pay out if you don’t pay your card off every month.

In the credit-card industry, nothing is really free.

— Washington Post Writers Group

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