Tiered Rewards

Tiered rewards are cash back, points or miles that a credit card offers at different rates based on how a cardholder spends.

Tiered rewards programs give higher rewards to cardholders who spend more. The credit card company sets the different spending thresholds to which different reward earning rates apply.

Tiered rewards can confuse customers because of the way card issuers sometimes describe them. Read the fine print to make sure you understand a card’s reward structure before you apply. For example, if you’re applying for a card that advertises up to 1 percent cash back, the card probably has a tiered rewards system. You won’t start earning 1 percent back until you’ve spent, say, $2,000. Until then, you might only earn 0.5 percent back.

Some loyalty programs or membership rewards cards also offer a tiered rewards system. For example, some casinos offer several different levels of rewards, with the incentives and bonuses increasing as the customer spends more money.

Discover used to have a tiered rewards system that applied to some purchases and not to others. Cardholders earned 0.25 percent cash back on their first $3,000 in purchases each year; once they passed this threshold, they earned 1 percent back on all additional purchases. Cardholders also earned 5 percent back in quarterly bonus spending categories; these rewards were not tiered, and customers earned the full 5 percent back in these categories regardless of spending levels. Discover stopped using a tiered rewards system in 2013 and switched to a flat rewards system, where cardholders earn 1 percent back on all purchases from the first dollar they spend, except for those purchases that fall into quarterly bonus categories, which still earn 5 percent back.

Another example of how tiered rewards work is that all cardholders might earn 1 percent back on all purchases, but then they might earn additional rewards based on what tier their overall spending falls into. A customer in the first reward tier who spent $1,000 during her last billing cycle might get a 25 percent bonus, so she would get $10 for the 1 percent cash back and an additional $2.50 for the bonus. A customer with the same $1,000 in spending for the last billing cycle but who was in the third reward tier because of high spending earlier in the year might receive a 75 percent bonus, or an extra $7.50.

Tiered rewards are not common in today’s credit card market; most issuers offer a simple flat rewards system. Some issuers offer the possibility of earning additional cash back, again at a flat rate, when you make purchases in certain categories or when you complete certain actions, such as paying your bill on time or paying your balance in full.