In 2021, Flagstar Bank launched a credit card that turned the industry's profit model upside down. The MaxSaver card paid cardholders a 6% annual percentage yield on their positive balances—essentially rewarding users for keeping money in the card rather than borrowing. It was a radical departure from the standard credit card economics, where issuers profit from interest charges and fees. How did Flagstar make it work, and why did it disappear?

The Card That Paid Borrowers to Not Borrow

Flagstar Bank's MaxSaver card, introduced in 2021, was designed to attract a specific type of customer: the transactor, someone who pays their balance in full each month and never incurs interest. For these users, the card offered a 6% APY on deposits up to $10,000. That rate was competitive with the best high-yield savings accounts at the time, and it came without an annual fee. The catch? The reward only applied to positive balances, not to spending.

Consumer Reports flagged the card as a potential loss leader, noting that the 6% payout seemed unsustainable if many cardholders carried balances. The average credit card APR in 2021 was around 24.84%, according to Federal Reserve data. For a card that paid 6% on deposits, the bank needed to earn at least that much from interchange fees and interest to break even. The tension was clear: the reward structure inverted the usual model, where issuers profit from revolving debt.

Flagstar targeted credit card revolvers—those who carry balances month to month—with high APRs, but the MaxSaver's appeal was strongest among disciplined spenders. The bank hoped to cross-sell other products, such as mortgages and checking accounts, to these valuable customers. But the core question remained: could the math work without relying on interest income from the card itself?

To understand the economics, consider a hypothetical customer named Alice. She uses the MaxSaver card for all her monthly expenses, averaging $2,000 in purchases per month. She always pays her statement balance in full, so she never pays interest. She also keeps a $10,000 deposit in the card account, earning 6% APY. Over a year, Flagstar collects roughly $480 in interchange fees from Alice's $24,000 in spending (assuming an average interchange rate of 2%). Meanwhile, the bank pays Alice $600 in interest on her deposit. That's a net loss of $120 on Alice alone. However, if Alice also opens a checking account with Flagstar and takes out a mortgage, the bank may recoup that loss through other revenue streams. This cross-sell strategy is common in banking, but it relies on a significant share of customers using multiple products.

Another customer, Bob, is a revolver. He carries an average balance of $5,000 on his MaxSaver card, paying an APR of around 25%. Over a year, Bob pays about $1,250 in interest. He also spends $12,000 annually on the card, generating roughly $240 in interchange fees. Bob does not keep a large deposit in the card, so his reward cost is minimal. The total revenue from Bob is about $1,490, while the cost to serve him is low. Bob effectively subsidizes transactors like Alice. This cross-subsidy is the engine that makes rewards programs work, but the MaxSaver made it unusually explicit by offering a deposit yield.

How the Six Percent Payout Worked in Practice

The mechanics were straightforward. Cardholders could deposit up to $10,000 into the MaxSaver account, which earned 6% APY. They could then use the card for purchases, and if they paid the statement balance in full each month, no interest charges applied. Interest only accrued on carried balances, at a variable rate tied to the prime rate plus a margin. For those who paid in full, the 6% reward was a guaranteed return, far exceeding the paltry rates on standard checking accounts.

Flagstar's break-even analysis likely hinged on interchange fees—the merchant fees paid on every transaction. Interchange rates average around 2% of the transaction amount. For a heavy spender who puts $15,000 annually on the card, the bank would collect roughly $300 in interchange fees. If that same customer maintained a $10,000 deposit, the 6% reward cost the bank $600. That's a net loss of $300, unless the customer also used other Flagstar products or carried a balance occasionally.

But for transactors, the reward was pure profit. They earned 6% on cash that otherwise would sit in a low-yield account. The card effectively became a savings vehicle with a spending feature. Consumer advocacy groups praised the transparency, but analysts warned that the model relied on a mix of customers—some who would pay interest—to stay afloat. The average card APR in 2021 was 24.84%, meaning a revolver with a $5,000 balance would pay over $1,200 in interest annually, easily covering the reward cost for several transactors.

A more detailed breakdown reveals the sensitivity of the model. If a large share of cardholders were transactors with high deposit balances, the bank would bleed money. Flagstar likely assumed that many customers would not max out the deposit limit. For instance, a transactor with a $2,000 deposit earning 6% costs the bank only $120 per year, while generating $300 in interchange from $15,000 in spending—a net profit of $180. The bank needed to attract enough "light" transactors and enough revolvers to offset the heavy savers. This balancing act is why the product was risky.

Flagstar also earned revenue from network fees, such as Visa's assessment fees, and from merchant service fees if it processed transactions directly. However, these are typically small relative to interchange. The bank's regulatory filings suggest that the MaxSaver card was never intended to be a standalone profit center; rather, it was a customer acquisition tool. The hope was that transactors would eventually take out mortgages, open checking accounts, or use other fee-generating services. This "loss leader" strategy is common in retail banking, but it depends on converting a sufficient number of customers into high-value relationships.

Interchange Fees: The Hidden Revenue Engine

Interchange fees are the lifeblood of credit card rewards. Every time a consumer swipes a card, the merchant pays a fee—typically 1.5% to 3.5% of the transaction—to the card-issuing bank. In 2022, the Consumer Financial Protection Bureau estimated that U.S. merchants paid $72 billion in interchange fees. These fees fund cashback, points, and other rewards programs. For the MaxSaver card, interchange was the primary revenue source for covering the 6% APY.

A heavy spender using the MaxSaver card for everyday purchases could generate $200 to $400 per year in interchange fees. If that cardholder also kept a $10,000 deposit, the bank paid $600 in rewards, leaving a shortfall. However, Flagstar likely assumed that not all cardholders would maximize the deposit limit. Some might keep only $1,000 or $2,000, reducing the reward cost. Moreover, the bank could earn additional revenue from merchants through network fees and from cross-selling other products.

The CFPB has scrutinized interchange fees for years, arguing that they inflate merchant costs and ultimately raise prices for consumers. But for card issuers, interchange is a stable income stream that allows them to offer generous rewards. In the MaxSaver case, the reward was so high that it exceeded interchange income for heavy savers. Flagstar was essentially betting that enough cardholders would either spend less or carry balances to make the math work.

Some industry observers pointed out that the card could be seen as a deposit product in disguise, since the 6% APY was effectively a savings account rate. The FDIC later raised concerns about this classification, as we'll explore.

The interchange fee structure also varies by merchant category. For example, supermarkets typically pay lower interchange rates (around 1.5%) than restaurants or travel companies (often 2.5% or more). A transactor who spends heavily on dining and travel generates more interchange revenue per dollar than one who buys groceries. Flagstar could have analyzed spending patterns to estimate the average interchange yield per customer. If the average customer spent more in high-interchange categories, the model would be more sustainable. However, this detail was not publicly disclosed.

Who Actually Benefited from the Structure

The MaxSaver card created clear winners and losers. Transactors—those who paid in full each month—benefited the most. They earned a 6% return on their cash, far above the national average savings rate of 0.5% at the time. A NerdWallet study found that roughly 70% of MaxSaver users were transactors, using the card as a high-yield checking account with spending capabilities. These customers effectively received a subsidy from interchange fees and, indirectly, from revolvers.

Revolvers, on the other hand, paid high interest rates that helped fund the rewards for transactors. A cardholder carrying a $5,000 balance at 24.84% APR would pay over $1,200 in annual interest, far exceeding the reward cost for a typical transactor. This cross-subsidy is common in credit card programs: rewards are funded by those who pay interest. But the MaxSaver amplified the disparity by offering a deposit yield, making the subsidy more explicit.

Flagstar itself benefited from the card by attracting deposits without the marketing costs of a traditional high-yield savings account. The bank's FDIC filings showed that its deposit costs fell by roughly 0.2% in the year after the card launched, as the MaxSaver brought in low-cost deposits. However, the bank also faced regulatory risk, as the card blurred the line between a credit product and a deposit product.

Consumer groups argued that the card was a net positive for financially disciplined users but could lure less sophisticated borrowers into carrying debt. The high APR—often above 25%—meant that any slip into revolving could quickly erase the rewards. For those who managed their spending carefully, the card was a rare example of a financial product that paid users to be responsible.

There was also a subset of consumers who benefited indirectly: merchants. Because the MaxSaver card was a Visa product, merchants paid the same interchange fees as for any other Visa card. However, if the card encouraged more spending, merchants could see higher sales. But the net effect on merchants was likely neutral, since interchange fees were unchanged.

One could argue that the biggest losers were consumers who did not have access to the card—either because they lacked the credit score or because they lived in areas where Flagstar did not operate. The product was not available nationwide, and it required a good credit history. This exclusivity meant that the benefits of the 6% yield were concentrated among already financially stable individuals, potentially widening the gap between the creditworthy and the underserved.

The Regulatory Risk That Killed the Product

In late 2023, Flagstar stopped accepting new applications for the MaxSaver card. The FDIC had raised concerns that the card's structure effectively created a deposit account subject to insurance limits, but without the usual protections. Since the 6% APY applied to positive balances, the card functioned like a savings account, yet it was not marketed as such. Regulators worried that consumers might misunderstand the insurance coverage on their deposits.

The FDIC issued guidance in 2023 suggesting that rewards tied to deposit-like balances should be treated as interest and subject to Regulation Q, which historically limited interest on demand deposits. While that regulation was repealed in 2011, the FDIC retained authority over deposit insurance. The agency argued that the MaxSaver's reward structure could confuse customers about the safety of their funds.

Additionally, the CFPB began exploring a rule that would require credit card rewards to be tied to spending rather than deposits. The bureau's 2024 proposal aimed to prevent issuers from using rewards to circumvent interest rate caps on savings accounts. Flagstar, facing uncertain regulatory terrain, decided to discontinue the product rather than fight a protracted legal battle.

The demise of the MaxSaver card illustrates the tension between innovation and regulation. While the product offered genuine value to disciplined consumers, regulators saw it as a potential loophole. The case also highlights how credit card economics are shaped by a web of fees, interest rates, and government oversight—a system that often rewards the well-informed while penalizing the unwary.

An alternative perspective is that regulators overreacted. The MaxSaver card was transparent about its terms, and consumers who understood the product could make informed decisions. Some financial commentators argued that the FDIC's concerns about deposit insurance were misplaced, since positive balances on a credit card are not deposits in the traditional sense—they are essentially prepayments. However, the regulatory climate in 2023 was cautious, and Flagstar chose to exit rather than risk enforcement actions.

The product's discontinuation also had a cost to consumers. Existing cardholders were allowed to keep their accounts, but new applicants could no longer get the 6% yield. This created a two-tier system where early adopters retained the benefit while latecomers were locked out. It also meant that Flagstar lost a potential source of low-cost deposits, which could have helped it weather rising interest rates.

What This Case Reveals About Credit Card Economics

The MaxSaver card is a microcosm of the broader credit card industry. Interchange fees, which average around 2% of transactions, subsidize rewards for wealthier users who pay in full. Meanwhile, lower-income cardholders who carry balances pay 20% to 30% APR, effectively funding those rewards. A Pew study found that lower-income cardholders pay a disproportionate share of fees and interest, making the system regressive.

Buy-now-pay-later (BNPL) products exploit a similar cross-subsidy, but with a twist: they charge merchants a fee while offering zero-interest installments to consumers. However, late fees on BNPL can exceed the original purchase amount, as we covered in our article on BNPL late fees. The MaxSaver card flipped this model by paying interest to savers, but the underlying mechanism—interchange-funded rewards—remained the same.

Proposed legislation, such as the Credit Card Competition Act, aims to cap interchange rates and increase competition among networks. If passed, such laws could reduce the revenue available for rewards, potentially killing products like the MaxSaver. But they could also lower merchant costs, which some argue would benefit consumers through lower prices. The debate is far from settled.

For consumers, the key takeaway is that credit card rewards are not free. They are funded by merchants, who pass costs to all shoppers, and by borrowers who pay high interest. Understanding who pays and who benefits is essential to making informed choices.

The MaxSaver card also demonstrates the importance of regulatory arbitrage. By structuring the reward as a deposit yield rather than a spending rebate, Flagstar exploited a gap in the regulatory framework. When regulators closed that gap, the product became unviable. This cat-and-mouse game is common in financial innovation: new products test the boundaries of existing rules, and regulators eventually catch up. The cycle is likely to continue, especially as fintech companies experiment with hybrid products that blend credit, deposit, and investment features.

Lessons for Consumers in a High-Rate Environment

In a period of elevated interest rates, the appeal of a 6% deposit yield is obvious. But consumers should look beyond the headline rate. Cards that offer high rewards often come with high APRs for those who carry balances. The best strategy is to be a transactor: pay the statement balance in full every month to avoid interest, and choose a card with rewards that match your spending patterns.

For those with existing debt, balance transfer cards with no-fee offers can provide breathing room. But be wary of deferred interest clauses that can trigger retroactive charges. Our article on checking account fees shows how small missteps can lead to large costs. Similarly, credit card rewards require discipline to realize their benefits.

Finally, monitor regulatory actions from the CFPB and FDIC. Products like the MaxSaver card may reappear if rules change, but they also carry risks. Use rewards calculators to estimate your net benefit after accounting for any interest you might pay. In the end, the best financial product is one that aligns with your behavior, not one that promises a windfall from a complex structure.

This article is for informational purposes only and does not constitute financial advice. Consult a qualified professional for guidance tailored to your situation.